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. 26 [ X ]
--------
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 27 [ X ]
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LIBERTY FUNDS TRUST V (FORMERLY COLONIAL TRUST V)
-------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
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(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):
[ X ] Immediately upon filing pursuant to paragraph (b).
[ ] On (date) 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>
<PAGE>
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COLONIAL STATE FUNDS PROSPECTUS JUNE 1, 2000
----------------------------------------------------------------------
- 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
CLASS A, B AND C SHARES
Advised by Colonial Management Associates, Inc.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUNDS 2 MANAGING THE FUNDS 32
------------------------------------------ -------------------------------------------
Investment Goal..........................2 Investment Advisor.......................32
Primary Investment Strategies............2 Portfolio Managers.......................32
-------------------------------------------
Primary Investment Risks.................2
OTHER INVESTMENT
Each of the following sections discusses STRATEGIES AND RISKS 33
Performance History and Your Expenses -------------------------------------------
for that Fund:
FINANCIAL HIGHLIGHTS 35
Colonial California Tax-Exempt Fund......5
-------------------------------------------
Colonial Connecticut Tax-Exempt Fund.....7 Colonial California Tax-Exempt Fund......35
Colonial Florida Tax-Exempt Fund.........9 Colonial Connecticut Tax-Exempt Fund.....37
Colonial Massachusetts Tax-Exempt Fund..11 Colonial Florida Tax-Exempt Fund.........39
Colonial Michigan Tax-Exempt Fund.......13 Colonial Massachusetts Tax-Exempt Fund...41
Colonial Minnesota Tax-Exempt Fund......15 Colonial Michigan Tax-Exempt Fund........43
Colonial New York Tax-Exempt Fund.......17 Colonial Minnesota Tax-Exempt Fund.......45
Colonial North Carolina Tax-Exempt Fund.19 Colonial New York Tax-Exempt Fund........47
Colonial Ohio Tax-Exempt Fund...........21 Colonial North Carolina Tax-Exempt Fund..49
YOUR ACCOUNT 23 Colonial Ohio Tax-Exempt Fund............51
------------------------------------------
How To Buy Shares.......................23
Sales Charges...........................24
How to Exchange Shares..................28
How to Sell Shares......................28
Distribution and Service Fees...........29
Other Information About Your Account....30
</TABLE>
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved any shares offered in
this prospectus or determined whether this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
---------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
---------------------------
<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 achieve 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 personal
income tax, other than any alternative minimum tax. Each Fund will invest at
least 80% of its assets in tax-exempt securities except when investing for
defensive purposes during times of adverse market conditions. The Florida Fund
may invest in municipal bonds not issued in the State of Florida, so long as
these bonds are exempt from the Florida intangibles tax. The Minnesota Fund
invests its assets so that at least 95% of its exempt-interest dividends 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),
Moody's Investors Service, Inc. (Moody's) or other nationally recognized rating
agency 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.
ADDITIONAL STRATEGIES THAT ARE NOT PRIMARY INVESTMENT STRATEGIES AND THE RISKS
ASSOCIATED WITH THEM ARE DESCRIBED BELOW UNDER "OTHER INVESTMENT STRATEGIES AND
RISKS."
PRIMARY INVESTMENT RISKS
--------------------------------------------------------------------------------
The primary risks of investing in the Funds are described below. There are many
circumstances (including additional risks that are not described here) which
could prevent the Funds from achieving their goal. It is possible to lose money
by 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 obligation bonds, 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 increase or decline. 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 its ability to make timely
payments of interest or principal. This could result in a decrease 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. Lower-rated debt
securities have the added risk that the issuer of the security may default and
not make payment of interest or principal.
State Municipal Market Volatility. A state's municipal market may be 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 obligations.
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 and of severe poverty in many of
its largest cities. Connecticut's economy is vulnerable to factors that would
threaten its major industries, particularly manufacturing and financial
services.
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 conditions. The state has reduced its tax on intangible
personal property, and Internet sales may weaken coverage on its sales
tax-backed debt. These changes could impact Florida's financial flexibility
in the event of an economic downturn.
Massachusetts: Massachusetts' economy has been susceptible to downturns in
the U.S. economy, particularly in the areas of high-technology, financial
services and real estate. The fiscal flexibility of the Commonwealth
is limited by the Central Artery/Third Harbor Tunnel project, which has
experienced substantial cost overruns and increased the Commonwealth's debt
burden.
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3
<PAGE>
THE FUNDS COLONIAL STATE FUNDS
Michigan: Because Michigan 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, therefore decreasing the state's financial flexibility.
Minnesota: Minnesota has benefited from a diversified economy, with a clear base
in the manufacturing sector and the service sector including healthcare and
construction. The state relies heavily on a progressive individual income tax
and retail sales tax for revenue, which results in a fiscal system that is
sensitive to economic conditions. However, the state has experienced budget
surpluses in recent years, and reserves and other institutional controls are in
place that allow state officials to successfully manage revenue variations.
New York: The New York economy has generally improved since experiencing a
severe downturn in the early 1990s. However, some of the state's local
governments are experiencing economic difficulties,
and the state's unemployment rate remains above the national average. New York
has the highest per-capita debt in the nation. The state's high debt load and
multi-year tax cuts may create revenue shortfalls in the future.
North Carolina: North Carolina's economy has diversified into financial
services, research and high technology from its traditional dependence on
textile, furniture and tobacco manufacturing. However, the potential impact of
an economic downturn on such non-durable goods production remains a risk to
the state's economy. In reaction to the economic downturn in the early 1990s,
the state reduced expenditures and increased taxes to restore financial balance.
Tax reductions since 1998 may have an impact on the rate of growth of tax
revenue.
Ohio: Although Ohio is an industrialized state with a diversified economy, the
state's economy continues to rely in part on durable goods manufacturing. As a
result, the state's economic activity tends to be more cyclical than in other
states and in the nation as a whole, and the state remains vulnerable to a
manufacturing-led recession. In recent years except 1999, the state's
unemployment rates were below the national level.
As a non-diversified mutual fund, each Fund is allowed to invest a greater
percentage of its total assets in the securities of a single issuer. This may
concentrate issuer risk and, therefore, each Fund may have an increased risk of
loss compared to a similar diversified mutual fund.
-
4
<PAGE>
THE FUNDS COLONIAL STATE FUNDS
ALTERNATIVE MINIMUM TAX (AMT)
--------------------------------------------------------------------------------
The interest income distributed by the Funds from certain tax-exempt bonds may
be subject to the federal Alternative Minimum Tax (AMT) and any applicable state
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 federal AMT. Consult your tax advisor for
more information.
-
5
<PAGE>
THE FUNDS COLONIAL CALIFORNIA TAX-EXEMPT FUND
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, including sales charges, 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. 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. As with all mutual
funds, past performance does not predict the Fund's future performance.
[BAR CHART]
1990 5.98%
1991 11.21%
1992 7.81%
1993 10.54%
1994 -7.29%
1995 19.52%
1996 3.67%
1997 9.63%
1998 5.98%
1999 -4.29%
For period shown in bar chart:
The Fund's year-to-date total return Best quarter: 1st quarter 1995, +8.14%
through March 31, 2000 was +4.14%. Worst quarter: 1st quarter 1994, -5.90%
----------------------------------------------------------------------
Average Annual Total Returns - for periods ended December 31, 1999
----------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
Class A (%) -8.83 5.59 5.50
------------------------------------------------------------------------
Class B (%) -9.56 5.51 5.44(1)
------------------------------------------------------------------------
Class C (%) -5.63 6.39(1) 5.90(1)
------------------------------------------------------------------------
Lehman Index (%) -2.06 6.91 6.89
------------------------------------------------------------------------
Lipper Average (%) -5.16 6.08 6.08
(1) Class B and Class C are newer classes of shares. Their 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
classes of shares. The Class A share returns are not restated to reflect
any differences in expenses (such as 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
classes of shares would be lower. Class A shares were initially offered on
June 16, 1986, Class B shares were initially offered on August 4, 1992, and
Class C shares were initially offered on August 1, 1997.
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 Brothers Municipal Bond Index
(Lehman Index), an unmanaged index that tracks the performance of the municipal
bond market. 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. The Fund's return is also compared to the average return of
the funds included in the Lipper, Inc. California Tax-Exempt Municipal Fund
category average (Lipper Average). This Lipper Average, which is calculated by
Lipper, Inc., is composed of funds with similar investment objectives to the
Fund. Sales charges are not reflected in the Lipper Average.
-
6
<PAGE>
THE FUNDS COLONIAL CALIFORNIA TAX-EXEMPT FUND
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 (2) (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 lesser of
purchase price or redemption price) 1.00(3) 5.00 1.00
--------------------------------------------------- ----------- ----------- -----------
Redemption fee (as a percentage of amount
redeemed, if applicable) (4) (4) (4)
</TABLE>
--------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
Management fee (%) 0.50 0.50 0.50
--------------------------------------------------- ----------- ---------- ------------
<S> <C> <C> <C>
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00(5)
--------------------------------------------------- ----------- ---------- ------------
Other expenses (%) 0.24 0.24 0.24
--------------------------------------------------- ----------- ---------- ------------
Total annual fund operating expenses (%) 0.99 1.74 1.74(5)
</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 $996 $1,630
---------------------------------------- ---------- ---------- ----------- ----------
Class B: did not sell your shares
sold all your shares at $177 $548 $944 $1,853
the end of the period $677 $848 $1,144 $1,853
---------------------------------------- ---------- ----------- ----------- ----------
Class C: did not sell your shares
sold all your shares at $177 $548 $944 $2,052
the end of the period $277 $548 $944 $2,052
</TABLE>
(2) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(3) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
(5) 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 0.70% and the total annual fund operating expenses for
Class C would be 1.44%. This arrangement may be terminated by the
distributor at any time.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain
the same
- Assumes reinvestment of all dividends and distributions
-
7
<PAGE>
THE FUNDS COLONIAL CONNECTICUT TAX-EXEMPT FUND
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, including sales charges, compare with those
of a broad measure of market performance for 1 year, 5 years and life of the
Fund. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. 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. As
with all mutual funds, past performance does not predict the Fund's future
performance.
----------------------------------------------------------------------
Calendar Year Total Returns (Class A)
----------------------------------------------------------------------
[BAR CHART]
1992 8.88%
1993 12.86%
1994 -7.24%
1995 16.99%
1996 3.74%
1997 9.19%
1998 6.44%
1999 -2.40%
For period shown in bar chart:
The Fund's year-to-date total return Best quarter: 1st quarter 1995, +7.50%
through March 31, 2000 was +2.80%. Worst quarter: 1st quarter 1994, -6.38%
----------------------------------------------------------------------
Average Annual Total Returns - for periods ended December 31, 1999
----------------------------------------------------------------------
1 YEAR 5 YEARS LIFE OF THE FUND
Class A (%) -7.04 5.57 5.34
--------------------------------------------------------------------------------
Class B (%) -7.78 5.49 5.24(6)
--------------------------------------------------------------------------------
Class C (%) -3.77 6.37(6) 5.83(6)
--------------------------------------------------------------------------------
Lehman Index (%) -2.06 6.91 6.38
--------------------------------------------------------------------------------
Lipper Average (%) -3.75 5.99 5.75
(6) Class B and Class C are newer classes of shares. Their 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
classes of shares. The Class A share returns are not restated to reflect
any differences in expenses (such as 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
classes of shares would be lower. Class A shares were initially offered on
November 1, 1991, Class B shares were initially offered on June 8, 1992,
and Class C shares were initially offered on August 1, 1997.
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 Brothers Municipal Bond Index
(Lehman Index), an unmanaged index that tracks the performance of the municipal
bond market. 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. The Fund's return is also compared to the average return of
the funds included in the Lipper, Inc. Connecticut Tax-Exempt Municipal
Funds category average (Lipper Average). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper Average.
-
8
<PAGE>
THE FUNDS COLONIAL CONNECTICUT TAX-EXEMPT FUND
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(7) (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 lesser of
purchase price or redemption price) 1.00(8) 5.00 1.00
--------------------------------------------------- ----------- ----------- -----------
Redemption fee (as a percentage of amount
redeemed, if applicable) (9) (9) (9)
</TABLE>
--------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee(10) (%) 0.50 0.50 0.50
--------------------------------------------------- ----------- ----------- -----------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00(11)
--------------------------------------------------- ----------- ----------- -----------
Other expenses (%) 0.25 0.25 0.25
--------------------------------------------------- ----------- ----------- -----------
Total annual fund operating expenses(10) (%) 1.00 1.75 1.75(11)
--------------------------------------------------- ----------- ----------- -----------
</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 $ 778 $1,001 $1,641
---------------------------------------- ---------- ----------- ----------- ----------
Class B: did not sell your shares
$178 $ 551 $ 949 $1,864
sold all your shares at
the end of the period $678 $ 851 $1,149 $1,864
---------------------------------------- ---------- ----------- ----------- ----------
Class C: did not sell your shares
$178 $ 551 $ 949 $2,062
sold all your shares at
the end of the period $278 $ 551 $ 949 $2,062
</TABLE>
(7) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(8) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(9) There is a $7.50 charge for wiring sale proceeds to your bank.
(10) The Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses so that the total annual fund
operating expenses (exclusive of distribution and service fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.60%. As a result, the actual management fees for each share class
would be 0.35%, other expenses for each share class would be 0.25% and
total annual fund operating expenses for Classes A, B and C shares would be
0.85%, 1.60% and 1.60%, respectively. This arrangement may be terminated by
the advisor at any time.
(11) 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 0.70% and the total annual fund operating expenses for
Class C would be 1.30%. This arrangement may be terminated by the
distributor at any time.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain
the same
- Assumes reinvestment of all dividends and distributions
-
9
<PAGE>
THE FUNDS COLONIAL FLORIDA TAX-EXEMPT FUND
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, including sales charges, compare with those
of a broad measure of market performance for 1 year, 5 years and the life of the
Fund. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. 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. As
with all mutual funds, past performance does not predict the Fund's future
performance.
----------------------------------------------------------------------
Calendar Year Total Returns (Class A)
----------------------------------------------------------------------
[BAR CHART]
1994 -7.27%
1995 16.59%
1996 3.62%
1997 9.11%
1998 5.93%
1999 -4.39%
For period shown in bar chart:
The Fund's year-to-date total return Best quarter: 1st quarter 1995, +7.66%
through March 31, 2000 was +2.94%. Worst quarter: 1st quarter 1994, -7.65%
--------------------------------------------------------------------------------
Average Annual Total Returns - for periods ended December 31, 199
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF THE FUND
<S> <C> <C> <C>
Class A (%) -8.93 4.92 3.92
--------------------------------------------------------------------------------
Class B (%) -9.68 4.83 3.88
--------------------------------------------------------------------------------
Class C (%) -5.74 5.31(12) 3.98(12)
--------------------------------------------------------------------------------
Lehman Index (%) -2.06 6.91 5.73
--------------------------------------------------------------------------------
Lipper Average (%) -4.34 5.90 4.85
</TABLE>
(12) Class C is a newer class of shares. Its 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 of shares. These Class A
share returns are not restated to reflect any differences in expenses (such
as Rule 12b-1 fees) between Class A shares and the newer class of shares.
If differences in expenses were reflected, the returns for periods prior to
the inception of the newer class of shares would be lower. Classes A and B
shares were initially offered on February 1, 1993, and Class C shares were
initially offered on August 1, 1997.
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 Brothers Municipal Bond Index
(Lehman Index), an unmanaged index that tracks the performance of the municipal
bond market. 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. The Fund's return is also compared to the average return of
the funds included in the Lipper, Inc. Florida Tax-Exempt Municipal
Funds category average (Lipper Average). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper Average.
--
10
<PAGE>
THE FUNDS COLONIAL FLORIDA TAX-EXEMPT FUND
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 (13) (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 lesser of
purchase price or redemption price) 1.00(14) 5.00 1.00
--------------------------------------------------- ----------- ----------- -----------
Redemption fee (as a percentage of amount
redeemed, if applicable) (15) (15) (15)
</TABLE>
----------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
----------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee(16) (%) 0.50 0.50 0.50
--------------------------------------------------- ----------- ----------- -----------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00(17)
--------------------------------------------------- ----------- ----------- -----------
Other expenses (%) 0.34 0.34 0.34
--------------------------------------------------- ----------- ----------- -----------
Total annual fund operating expenses(16) (%) 1.09 1.84 1.84(17)
</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 $581 $805 $1,047 $1,741
---------------------------------------- ---------- ----------- ----------- ----------
Class B: did not sell your shares
$187 $579 $ 995 $1,962
sold all your shares at
the end of the period $687 $879 $1,195 $1,962
---------------------------------------- ---------- ----------- ----------- ----------
Class C: did not sell your shares
$187 $579 $ 995 $2,159
sold all your shares at
the end of the period $287 $579 $ 995 $2,159
</TABLE>
(13) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(14) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(15) There is a $7.50 charge for wiring sale proceeds to your bank.
(16) The Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses so that the total annual fund
operating expenses (exclusive of distribution and service fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.75%. As a result, the actual management fees for each share class
would be 0.41% and total annual fund operating expenses for Classes A, B
and C shares would be 1.00%, 1.75% and 1.75%, respectively. This
arrangement may be terminated by the advisor at any time.
(17) 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 0.70% and the total annual fund operating expenses for
Class C would be 1.45%. This arrangement may be terminated by the
distributor at any time.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain
the same
- Assumes reinvestment of all dividends and distributions
--
11
<PAGE>
THE FUNDS COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
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, including sales charges, 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. 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. As with all mutual
funds, past performance does not predict the Fund's future performance.
----------------------------------------------------------------------
Calendar Year Total Returns (Class A)
----------------------------------------------------------------------
[BAR CHART]
1990 6.38%
1991 13.05%
1992 9.58%
1993 11.82%
1994 -5.70%
1995 18.36%
1996 2.92%
1997 9.02%
1998 6.00%
1999 -4.12%
For period shown in bar chart:
The Fund's year-to-date total return Best quarter: 1st quarter 1995, +7.42%
through March 31, 2000 was +3.25%. Worst quarter: 1st quarter 1994, -4.97%
----------------------------------------------------------------------
Average Annual Total Returns - for periods ended December 31, 1999
----------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
Class A (%) -8.67 5.15 5.98
-------------------------------------------------------------------------------
Class B (%) -9.38 5.07 5.90(18)
-------------------------------------------------------------------------------
Class C (%) -5.46 5.95(18) 6.38(18)
-------------------------------------------------------------------------------
Lehman Index (%) -2.06 6.91 6.89
-------------------------------------------------------------------------------
Lipper Average (%) -4.57 5.72 6.27
(18) Class B and Class C are newer classes of shares. Their 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
classes of shares. The Class A share returns are not restated to reflect
any differences in expenses (such as 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
classes of shares would be lower. Class A shares were initially offered on
April 10, 1987, Class B shares were initially offered on June 8, 1992, and
Class C shares were initially offered on August 1, 1997.
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 Brothers Municipal Bond Index
(Lehman Index), an unmanaged index that tracks the performance of the municipal
bond market. 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. The Fund's return is also compared to the average return of
the funds included in the Lipper, Inc. Massachusetts Tax-Exempt Municipal
Funds category average (Lipper Average). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper Average.
--
12
<PAGE>
THE FUNDS COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
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.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Shareholder Fees (19) (paid directly from your investment)
---------------------------------------------------------------------------------------
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 lesser of
purchase price or redemption price) 1.00(20) 5.00 1.00
--------------------------------------------------- ----------- ----------- -----------
Redemption fee (as a percentage of amount
redeemed, if applicable) (21) (21) (21)
--------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
--------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee (%)(22) 0.50 0.50 0.50
--------------------------------------------------- ---------- ---------- ------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00(23)
--------------------------------------------------- ---------- ---------- ------------
Other expenses (%) 0.27 0.27 0.27
--------------------------------------------------- ---------- ---------- ------------
Total annual fund operating expenses (%)(22) 1.02 1.77 1.77(23)
--------------------------------------------------------------------------------
Example Expenses (your actual costs may be higher or lower)
--------------------------------------------------------------------------------
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $574 $784 $1,011 $1,664
---------------------------------------- ---------- ----------- ----------- ----------
Class B: did not sell your shares
$180 $557 $959 $1,886
sold all your shares at
the end of the period $680 $857 $1,159 $1,886
---------------------------------------- ---------- ----------- ----------- ----------
Class C: did not sell your shares
$180 $557 $959 $2,084
sold all your shares at
the end of the period $280 $557 $959 $2,084
</TABLE>
(19) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(20) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(21) There is a $7.50 charge for wiring sale proceeds to your bank.
(22) The Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses so that the total annual fund
operating expenses (exclusive of distribution and service fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.75%. As a result, the actual management fees for each share class
would be 0.48%, other expenses for each share class would be 0.27% and
total annual fund operating expenses for Classes A, B and C shares would be
1.00%, 1.75% and 1.75%, respectively. This arrangement may be terminated by
the advisor at any time.
(23) 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 0.70% and the total annual fund operating expenses for
Class C would be 1.45%. This arrangement may be terminated by the
distributor at any time.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain
the same
- Assumes reinvestment of all dividends and distributions
--
13
<PAGE>
THE FUNDS COLONIAL MICHIGAN TAX-EXEMPT FUND
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, including sales charges, 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. 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. As with all mutual
funds, past performance does not predict the Fund's future performance.
----------------------------------------------------------------------
Calendar Year Total Returns (Class A)
----------------------------------------------------------------------
[BAR CHART]
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%
1999 -3.85%
For period shown in bar chart:
The Fund's year-to-date total return Best quarter: 1st quarter 1995, +7.41%
through March 31, 2000 was +2.28%. Worst quarter: 1st quarter 1994, -5.97%
----------------------------------------------------------------------
Average Annual Total Returns - for periods ended December 31, 1999
----------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
Class A (%) -8.42 5.08 5.48
--------------------------------------------------------------------------------
Class B (%) -9.16 4.99 5.42(24)
--------------------------------------------------------------------------------
Class C (%) -5.20 5.87(24) 5.88(24)
--------------------------------------------------------------------------------
Lehman Index (%) -2.06 6.91 6.89
--------------------------------------------------------------------------------
Lipper Average (%) -4.05 5.74 6.24
(24) Class B and Class C are newer classes of shares. Their 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
classes of shares. The Class A share returns are not restated to reflect
any differences in expenses (such as 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
classes of shares would be lower. Class A shares were initially offered on
September 26, 1986, Class B shares were initially offered on August 4,
1992, and Class C shares were initially offered on August 1, 1997.
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 Brothers Municipal Bond Index
(Lehman Index), an unmanaged index that tracks the performance of the municipal
bond market. 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. The Fund's return is also compared to the average return of
the funds included in the Lipper, Inc. Michigan Tax-Exempt Municipal
Funds category average (Lipper Average). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper Average.
--
14
<PAGE>
THE FUNDS COLONIAL MICHIGAN TAX-EXEMPT FUND
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.
----------------------------------------------------------------------
Shareholders Fees (25) (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 lesser of
purchase price or redemption price) 1.00(26) 5.00 1.00
--------------------------------------------------- ----------- ----------- -----------
Redemption fee (as a percentage of amount
redeemed, if applicable) (27) (27) (27)
</TABLE>
----------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
----------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
Management fee (%) 0.50 0.50 0.50
--------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00(28)
--------------------------------------------------- ----------- ----------- -----------
Other expenses (%) 0.36 0.36 0.36
--------------------------------------------------- ----------- ----------- -----------
Total annual fund operating expenses (%) 1.11 1.86 1.86(28)
--------------------------------------------------- ----------- ----------- -----------
</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 $583 $811 $1,058 $1,762
---------------------------------------- ----------- ---------- ----------- ----------
Class B: did not sell your shares
$189 $585 $1,006 $1,984
sold all your shares at
the end of the period $689 $885 $1,206 $1984
---------------------------------------- ----------- ---------- ----------- ----------
Class C: did not sell your shares
$189 $585 $1,006 $2,180
sold all your shares at
the end of the period $289 $585 $1,006 $2,180
</TABLE>
(25) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(26) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(27) There is a $7.50 charge for wiring sale proceeds to your bank.
(28) 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 0.70% and the total annual fund operating expenses for
Class C would be 1.56% This arrangement may be terminated by the
distributor at any time.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain
the same
- Assumes reinvestment of all dividends and distributions
--
15
<PAGE>
THE FUNDS COLONIAL MINNESOTA TAX-EXEMPT FUND
PERFORMANCE HISTORY (MINNESOTA)
--------------------------------------------------------------------------------
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, including sales charges, 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. 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. As with all mutual
funds, past performance does not predict the Fund's future performance.
----------------------------------------------------------------------
Calendar Year Total Returns (Class A)
----------------------------------------------------------------------
[BAR CHART]
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%
1999 -5.70%
For period shown in bar chart:
The Fund's year-to-date total return Best quarter: 1st quarter 1995, +7.06%
through March 31, 2000 was +2.36%. Worst quarter: 1st quarter 1994, -4.54%
--------------------------------------------------------------------------------
Average Annual Total Returns -- for periods ended December 31, 1999
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
Class A (%) -10.18 4.67 5.24
--------------------------------------------------------------------------------
Class B (%) -10.91 4.58 5.17(29)
--------------------------------------------------------------------------------
Class C (%) -7.02 5.46(29) 5.64(29)
--------------------------------------------------------------------------------
Lehman Index (%) -2.06 6.91 6.89
--------------------------------------------------------------------------------
Lipper Average (%) -4.26 5.47 5.95
(29) Class B and Class C are newer classes of shares. Their 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
classes of shares. The Class A share returns are not restated to reflect
any differences in expenses (such as 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
classes of shares would be lower. Class A shares were initially offered on
September 26, 1986, Class B shares were initially offered on August 4,
1992, and Class C shares were initially offered on August 1, 1997.
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 Brothers Municipal Bond Index
(Lehman Index), an unmanaged index that tracks the performance of the municipal
bond market. 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. The Fund's return is also compared to the average return of
the funds included in the Lipper, Inc. Minnesota Tax-Exempt Municipal
Funds category average (Lipper Average). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund.Sales charges are not reflected in the Lipper Average.
--
16
<PAGE>
THE FUNDS COLONIAL MINNESOTA TAX-EXEMPT FUND
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 (30) (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 lesser of
purchase price or redemption price) 1.00(31) 5.00 1.00
--------------------------------------------------- ----------- ----------- -----------
Redemption fee (as a percentage of amount
redeemed, if applicable) (32) (32) (32)
</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 (%) 0.25 1.00 1.00(33)
--------------------------------------------------- ----------- ----------- ----------
Other expenses (%) 0.37 0.37 0.37
--------------------------------------------------- ----------- ----------- ----------
Total annual fund operating expenses (%) 1.12 1.87 1.87(33)
</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 $584 $814 $1,063 $1,773
---------------------------------------- ---------- ----------- ----------- ----------
Class B: did not sell your shares
$190 $588 $1,011 $1,995
sold all your shares at
the end of the period $690 $888 $1,211 $1,995
---------------------------------------- ---------- ----------- ----------- ----------
Class C: did not sell your shares
$190 $588 $1,011 $2,190
sold all your shares at
the end of the period $290 $588 $1,011 $2,190
</TABLE>
(30) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(31) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(32) There is a $7.50 charge for wiring sale proceeds to your bank.
(33) 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 0.70% and total annual fund operating expenses for Class C
would be 1.57%. This arrangement may be terminated by the distributor at
any time.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Assumes reinvestment of all dividends and distributions
--
17
<PAGE>
THE FUNDS COLONIAL NEW YORK TAX-EXEMPT FUND
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, including sales charges, 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. 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. As with all mutual
funds, past performance does not predict the Fund's future performance.
----------------------------------------------------------------------
Calendar Year Total Returns (Class A)
----------------------------------------------------------------------
[BAR CHART]
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%
1999 -4.52%
For period shown in bar chart:
The Fund's year-to-date total return Best quarter: 1st quarter 1995, +8.29%
through March 31, 2000 was +3.70%. Worst quarter: 1st quarter 1994, -6.31%
----------------------------------------------------------------------
Average Annual Total Returns - for periods ended December 31, 1999
----------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
Class A (%) -9.06 5.39 5.64
--------------------------------------------------------------------------------
Class B (%) -9.79 5.31 5.57(34)
--------------------------------------------------------------------------------
Class C (%) -5.87 6.19(34) 6.04(34)
--------------------------------------------------------------------------------
Lehman Index (%) -2.06 6.91 6.89
--------------------------------------------------------------------------------
Lipper Average (%) -4.89 5.68 6.09
(34) Class B and Class C are newer classes of shares. Their 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
classes of shares. These Class A share returns are not restated to reflect
any differences in expenses (such as 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
classes of shares would be lower. Class A shares were initially offered on
September 26, 1986, Class B shares were initially offered on August 4,
1992, and Class C shares were initially offered on August 1, 1997.
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 Brothers Municipal Bond Index
(Lehman Index), an unmanaged index that tracks the performance of the municipal
bond market. 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. The Fund's return is also compared to the average return of
the funds included in the Lipper, Inc. New York Tax-Exempt Municipal
Funds category average (Lipper Average). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper Average.
--
18
<PAGE>
THE FUNDS COLONIAL NEW YORK TAX-EXEMPT FUND
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 (35) (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 lesser of
purchase price or redemption price) 1.00(36) 5.00 1.00
--------------------------------------------------- ----------- ----------- -----------
Redemption fee (as a percentage of amount
redeemed, if applicable) (37) (37) (37)
</TABLE>
----------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
----------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee(38) (%) 0.50 0.50 0.50
--------------------------------------------------- ----------- ----------- -----------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00(39)
--------------------------------------------------- ----------- ----------- -----------
Other expenses (%) 0.28 0.28 0.28
--------------------------------------------------- ----------- ----------- -----------
Total annual fund operating expenses(38) (%) 1.03 1.78 1.78(39)
</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 $575 $787 $1,017 $1,675
---------------------------------------- ---------- ----------- ----------- ----------
Class B: did not sell your shares
$181 $560 $ 964 $1,897
sold all your shares at
the end of the period $681 $860 $1,164 $1,897
---------------------------------------- ---------- ----------- ----------- ----------
Class C: did not sell your shares
$181 $560 $ 964 $2,095
sold all your shares at
the end of the period $281 $560 $ 964 $2,095
</TABLE>
(35) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(36) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(37) There is a $7.50 charge for wiring sale proceeds to your bank.
(38) The Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses so that the total annual fund
operating expenses (exclusive of distribution and service fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.60%. As a result, the actual management fees for each share class
would be 0.32% and total annual fund operating expenses for Classes A, B
and C shares would be 0.85%, 1.60% and 1.60%, respectively. This
arrangement may be terminated by the advisor at any time.
(39) 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 0.70% and the total annual fund operating expenses for
Class C would be 1.30%. This arrangement may be terminated by the
distributor at any time.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain
the same
- Assumes reinvestments of all dividends and distributions
--
19
<PAGE>
THE FUNDS COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
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, including sales charges, compare with those
of a broad measure of market performance for 1 year, 5 years and the life of the
Fund. The chart and table are intended to illustrate some of the risks of
investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. 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. As
with all mutual funds, past performance does not predict the Fund's future
performance.
--------------------------------------------------------------------------------
Calendar Year Total Returns (Class A)
--------------------------------------------------------------------------------
[BAR CHART]
1994 -8.45%
1995 18.54%
1996 3.71%
1997 9.54%
1998 6.59%
1999 -4.63%
The Fund's year-to-date total return through March 31, 2000 was +3.10%.
For period shown in bar chart:
Best quarter: 1st quarter 1995, +8.66%
Worst quarter: 1st quarter 1994, -8.35%
--------------------------------------------------------------------------------
Average Annual Total Returns - for periods ended December 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF THE FUND
<S> <C> <C> <C>
Class A (%) -9.16 5.45 3.10
------------------------------------------------------------------------------------------
Class B (%) -9.91 5.37 3.12(40)
------------------------------------------------------------------------------------------
Class C (%) -5.98 5.82(40) 3.22(40)
------------------------------------------------------------------------------------------
Lehman Index (%) -2.06 6.91 4.96
------------------------------------------------------------------------------------------
Lipper Average (%) -4.55 5.77 3.71
</TABLE>
(40) Class C is a newer class of of shares. Its 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 classes of shares. These Class
A share returns are not restated to reflect any differences in expenses
(such as 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 classes of shares would be lower. Class
A and Class B shares were initially offered on September 1, 1993, and Class
C shares were initially offered on August 1, 1997.
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 return with sales charges.
The Fund's return is compared to the Lehman Brothers Municipal Bond Index
(Lehman Index), an unmanaged index that tracks the performance of the municipal
bond market. 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. The Fund's return is also compared to the average return of
the funds included in the Lipper, Inc. North Carolina Tax-Exempt Municipal
Funds category average (Lipper Average). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper Average.
--
20
<PAGE>
THE FUNDS COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
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 (41) (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 lesser of
purchase price or redemption price) 1.00(42) 5.00 1.00
------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of amount
redeemed, if applicable) (43) (43) (43)
</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 (%) 0.25 1.00 1.00(44)
--------------------------------------------------------------------------------------
Other expenses (%) 0.43 0.43 0.43
--------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.18 1.93 1.93(44)
</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 $590 $832 $1,093 $1,839
---------------------------------------- ---------- ----------- ----------- ----------
Class B: did not sell your shares $196 $606 $1,042 $2,059
sold all your shares at
the end of the period $696 $906 $1,242 $2,059
---------------------------------------- ---------- ----------- ----------- ----------
Class C: did not sell your shares $196 $606 $1,042 $2,254
sold all your shares at
the end of the period $296 $606 $1,042 $2,254
</TABLE>
(41) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(42) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(43) There is a $7.50 charge for wiring sale proceeds to your bank.
(44) 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 0.70% and the total annual fund operating expenses for
Class C would be 1.63%. This arrangement may be terminated by the
distributor at any time.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management 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
- Assumes reinvestment of all dividends and distributions
--
21
<PAGE>
THE FUNDS COLONIAL OHIO TAX-EXEMPT FUND
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, including sales charges, 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. 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. As with all mutual
funds, past performance does not predict the Fund's future performance.
--------------------------------------------------------------------------------
Calendar Year Total Returns (Class A)
--------------------------------------------------------------------------------
[BAR GRAPH]
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%
1999 -4.75%
The Fund's year-to-date total return through March 31, 2000 was +2.51%.
FOR PERIOD SHOWN IN BAR CHART:
Best quarter: 1st quarter 1995, +7.08%
Worst quarter: 1st quarter 1994, -6.21%
--------------------------------------------------------------------------------
Average Annual Total Returns - for periods ended December 31, 199
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) -9.27 4.96 5.53
-------------------------------------------------------------------------------------
Class B (%) -10.01 4.87 5.46(45)
-------------------------------------------------------------------------------------
Class C (%) -6.08 5.76(45) 5.93(45)
-------------------------------------------------------------------------------------
Lehman Index (%) -2.06 6.91 6.89
-------------------------------------------------------------------------------------
Lipper Average (%) -4.02 5.76 6.18
</TABLE>
(45) Class B and Class C are newer classes of shares). Their 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
classes of shares. The Class A share returns are not restated to reflect
any differences in expenses (such as 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
classes of shares would be lower. Class A shares were initially offered on
September 26, 1986, Class B shares were initially offered on August 4,
1992, and Class C shares were initially offered on August 1, 1997.
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 return with sales charges.
The Fund's return is compared to the Lehman Brothers Municipal Bond Index
(Lehman Index), an unmanaged index that tracks the performance of the municipal
bond market. 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. The Fund's return is also compared to the average return of
the funds included in the Lipper, Inc. Ohio Tax-Exempt Municipal
Funds category average (Lipper Average). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper Average.
--
22
<PAGE>
THE FUNDS COLONIAL OHIO TAX-EXEMPT FUND
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 (46) (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 lesser of
purchase price or redemption price) 1.00(47) 5.00 1.00
------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of amount
redeemed, if applicable) (48) (48) (48)
</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 (%) 0.25 1.00 1.00(49)
----------------------------------------------------------------------------------------
Other expenses (%) 0.29 0.29 0.29
----------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.04 1.79 1.79(49)
</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 $576 $790 $1,022 $1,686
---------------------------------------- ---------- ----------- ----------- ----------
Class B: did not sell your shares $182 $563 $970 $1,908
sold all your shares at
the end of the period $682 $863 $1,170 $1,908
---------------------------------------- ---------- ----------- ----------- ----------
Class C: did not sell your shares $182 $563 $970 $2,105
sold all your shares at
the end of the period $282 $563 $970 $2,105
</TABLE>
(46) A $10 annual fee is deducted form accounts of less than $1,000 and paid to
the transfer agent.
(47) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold (47) within 18 months of purchase.
(48) There is a $7.50 charge for wiring sale proceeds to your bank.
(49) 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 0.70% and the total annual fund operating expenses for
Class C would be 1.49%. This arrangement may be terminated by the
distributor at any time.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management 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
- Assumes reinvestment of all dividends and distributions
--
23
<PAGE>
--------------------------------------------------------------------------------
YOUR ACCOUNT
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT MINIMUMS(50)
<S> <C>
Initial Investment................$1,000
Subsequent Investments............$ 50
Automatic Investment Plan.........$ 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. "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
(new account) payable to the Fund to the transfer agent, Liberty Funds
Services, Inc., P.O. Box 1722, Boston, MA 02105-1722.
--------------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or send a
letter of instruction including your Fund name and account
number with a check made payable to the Fund to Liberty Funds
Services, Inc., P.O. Box 1722, Boston, MA 02105-1722.
--------------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares by exchanging
shares you own in one fund for shares of the same class of the
Fund at no additional cost. There may be an additional charge
if exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
--------------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank account
to your fund account. To wire funds to your fund account, call
1-800-422-3737 to obtain a control number and the wiring
instructions.
--------------------------------------------------------------------------------------
By electronic funds You may purchase shares by electronically transferring money
transfer from your bank account to your fund account by calling
1-800-422-3737. Electronic funds transfers may take up to
two business days to settle and be considered in "good
form." You must set up this feature prior to your
telephone request. Be sure to complete the appropriate
section of the application.
--------------------------------------------------------------------------------------
Automatic You can make monthly or quarterly investments automatically
investment plan from your bank account to your fund account. You can select a
pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
--------------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by one fund
diversification into the same class of shares of another Fund at no additional
sales charge. To invest your dividends in another fund, call
1-800-345-6611.
</TABLE>
(50) 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. If your financial
advisor firm participates in the Class B discount program, purchases of over $1
million can be made only in Class A or Class C shares. Otherwise, purchases in
excess of $250,000 must be for Class A or Class C shares only. 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.
CLASS A SHARES Your purchases of Class A shares generally are at the public
offering price. This price includes a sales charge that is based on the amount
of your initial investment when you open your account. A portion of the sales
charge is the commission paid to the financial advisor firm on the sale of Class
A shares. The sales charge you pay on additional investments is based on the
total amount of your purchase and the current value of your account. The amount
of the sales charge differs depending on the amount you invest as shown in the
table below.
--------------------------------------------------------------------------------
CLASS A SALES CHARGES
--------------------------------------------------------------------------------
<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(51) 0.00% 0.00% 0.00%
</TABLE>
(51) Class A shares bought without an initial sales charge in accounts
aggregating $1 million to $5 million at the time of purchase are subject to
a 1.00% CDSC if the shares are sold within 18 months of the time of
purchase. Subsequent Class A share purchases that bring your account value
above $1 million are subject to a 1.00% CDSC if redeemed within 18 months
of their purchase date. Purchases in accounts aggregating over $5 million
are subject to a 1.00% CDSC only to the extent that the sales of shares
within 18 months of purchase cause the value of the account to fall below
the $5 million level. The 18-month period begins on the first day of the
month following each purchase.
--
25
<PAGE>
YOUR ACCOUNT
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES (CDSC)
Certain investments in Class A, B and C shares are subject to a CDSC, a sales
charge applied at the time you sell your shares. You will pay the CDSC only on
shares you sell within a certain amount of time after purchase. The CDSC
generally declines each year until there is no charge for selling shares. The
CDSC is applied to the net asset value at the time of purchase or sale,
whichever is lower. For purposes of calculating the CDSC, the start of the
holding period is the month-end of the month in which the purchase is made.
Shares you purchase with reinvested dividends or capital gains are not subject
to a CDSC. When you place an order to sell shares, the Fund will automatically
sell first those shares not subject to a CDSC and then those you have held the
longest. This policy helps reduce and possibly eliminate the potential impact of
the CDSC.
--------------------------------------------------------------------------------
For Class A share purchases of $1 million or more, financial advisors receive a
commission from the distributor 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(52)
</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 on the amount you had invested to that
date. In addition, certain investors may purchase shares at a reduced sales
charge or net asset value (NAV), which is the value of a fund share excluding
any sales charges. See the Statement of Additional Information for a description
of these situations.
CLASS B SHARES Your purchases of Class B shares are at the Funds' NAV. Class B
shares have no front-end sales charge, but they do carry a CDSC that is imposed
only on shares sold prior to the completion of the periods shown in the chart
below. The CDSC generally declines each year and eventually disappears over
time. The distributor pays the financial advisor firm an up-front commission% on
sales of Class B shares, for each of the State Funds as depicted in the charts
below:
PURCHASES OF LESS THAN $250,000:
--------------------------------------------------------------------------------
CLASS B SALES CHARGES
--------------------------------------------------------------------------------
<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>
(52) Paid over 12 months but only to the extent the shares remain outstanding.
--
26
<PAGE>
YOUR ACCOUNT
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares is eight years after purchase.
You can pay a lower CDSC and reduce the holding period when making purchases of
Class B shares through a financial advisor firm which participates in the Class
B share discount program for larger purchases as described in the charts below.
Some financial advisor firms are not able to participate because their record
keeping or transaction processing systems are not designed to accommodate these
reductions. For non-participating firms, purchases of Class B shares must be
less than $250,000. Consult your financial advisor to see whether it
participates in the discount program for larger purchases. For participating
firms, Rights of Accumulation apply, so that if the combined value of the Fund
accounts maintained by you, your spouse or your minor children is at or above a
discount level, your next purchase will receive the lower CDSC and the
applicable reduced holding period.
PURCHASES OF $250,000 TO LESS THAN $500,000:
--------------------------------------------------------------------------------
CLASS B SALES CHARGES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
<S> <C>
Through first year 3.00
--------------------------------------------------------------------------------
Through second year 2.00
--------------------------------------------------------------------------------
Through third year 1.00
--------------------------------------------------------------------------------
Longer than three years 0.00
</TABLE>
Commission to financial advisors is 2.50%.
Automatic conversion to Class A shares is four years after purchase.
PURCHASES OF $500,000 TO LESS THAN $1 MILLION:
--------------------------------------------------------------------------------
CLASS B SALES CHARGES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
<S> <C>
Through first year 3.00
--------------------------------------------------------------------------------
Through second year 2.00
--------------------------------------------------------------------------------
Through third year 1.00
</TABLE>
Commission to financial advisors is 1.75%.
Automatic conversion to Class A shares is three years after purchase.
--
27
<PAGE>
YOUR ACCOUNT
If you exchange into a fund participating in the Class B share discount program
or transfer your fund account from a financial advisor which does not
participate in the program to one who does, the exchanged or transferred shares
will retain the pre-existing CDSC but any additional purchases of Class B shares
which cause the exchanged or transferred account to exceed the applicable
discount level will receive the lower CDSC and the reduced holding period for
amounts in excess of the discount level. Your financial advisor will receive the
lower commission for purchases in excess of the applicable discount level. If
you exchange from a participating fund or transfer your account from a financial
advisor that does participate in the program into a fund or financial advisor
which does not, the exchanged or transferred shares will retain the pre-existing
CDSC but all additional purchases of Class B shares will be in accordance with
the higher CDSC and longer holding period of the non-participating fund or
financial advisor.
CLASS C SHARES Similar to Class B shares, your purchases of Class C shares are
at the Funds' NAV. Although Class C shares have no front-end sales charge, they
carry a CDSC of 1.00% that is applied to shares sold within the first year after
they are purchased. After holding shares for one year, you may sell them at any
time without paying a CDSC. The distributor pays the financial advisor firm an
up-front commission of 1.00% on sales of Class C shares.
--------------------------------------------------------------------------------
CLASS C SALES CHARGES
--------------------------------------------------------------------------------
<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 Liberty Funds Distributor, Inc. at net asset value. If your
shares are subject to a CDSC, you will not be charged a CDSC upon the exchange.
However, when you sell the shares acquired through the exchange, the shares sold
may be subject to a CDSC, depending upon when you originally purchased the
shares you exchanged. For purposes of computing the CDSC, the length of time you
have owned your shares will be computed from the date of your original purchase
and the applicable CDSC will be the CDSC of the original fund. Unless your
account is part of a tax-deferred retirement plan, an exchange is a taxable
event. Therefore, you may realize a gain or a loss for tax purposes. A Fund may
terminate your exchange privilege if the advisor determines that your exchange
activity is likely to adversely impact its ability to manage the Fund. To
exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of a Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
--
28
<PAGE>
YOUR ACCOUNT
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" also means (i) your letter has complete instructions, the proper
signatures and signature guarantees, (ii) you have included any certificates for
shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement plan accounts
have special requirements; please call 1-800-799-7526 for more information.
The Funds will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in "good
form"). However, if you purchased your shares by check, a Fund may delay sending
the proceeds from the sale of your shares for up to 15 days after your purchase
to protect against checks that are returned. No interest will be paid on
uncashed redemption checks.
--------------------------------------------------------------------------------
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.
financial advisor To receive the current trading day's price, your financial
advisor firm must receive your request prior to the close
of the NYSE, usually 4:00 p.m. Eastern time.
--------------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by exchanging
from 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. Certain
restrictions apply to retirement accounts. For details, call
1-800-345-6611.
--------------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power form
along with any certificates to be sold to the address below.
In your letter of instruction, note the Fund's name, share
class, account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter, and
signatures must be guaranteed by either a bank, a member firm
of a national stock exchange or another eligible guarantor
institution. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Liberty Funds Services,
Inc., P.O. Box 1722, Boston, MA 02105-1722.
--------------------------------------------------------------------------------------
By wire You may sell shares and request that the proceeds be wired to
your bank. You must set up this feature prior to your telephone
request. Be sure to complete the appropriate section of the
account application for this feature.
--------------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may take up
to two business days to be received by your bank. You must set
up this feature prior to your request. Be sure to complete the
appropriate section of the account application for this feature.
</TABLE>
--
29
<PAGE>
YOUR ACCOUNT
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 Classes A, B and C shares
and the services provided to you by your financial advisor. The annual
distribution fee and service fee may equal up to 0.00% and 0.25%, respectively,
for Class A shares and 0.75% and 0.25%, respectively, for each of Class B and
Class C shares and are paid out of the assets of these classes. 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.(53)
(53) Class B shares automatically convert to Class A shares after a certain
number of years, depending on the program you purchased your shares under,
eliminating the distribution fee upon conversion.
--
30
<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 net asset value (NAV). The NAV is determined at the close
of regular trading on the NYSE, usually 4:00 p.m. Eastern time, on each business
day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the NAV (plus any
applicable sales charges) next determined after your request is received in
"good form" by the distributor. In most cases, in order to receive that day's
price, the distributor must receive your order before that day's transactions
are processed. If you request a transaction through your financial advisor'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 each class's total
net assets by the number of that class' 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 under the caption "Liberty." 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 the distributor.
--
31
<PAGE>
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
Each Fund earns income from the securities it holds. Each Fund also may realize
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 a 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
--------------------------------------------------------------------------------
Dividend Represents interest and dividends earned from securities
held by the Funds.
--------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
DISTRIBUTION OPTIONS The Funds declare dividends daily and pay them monthly, and
any capital gains (including short-term 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 the
options listed in the table below for these distributions when you open your
account.(54) 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 (see options below) and reinvest capital gains(55)
--------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options):(55)
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
TAX CONSEQUENCES For federal income tax purposes, distributions of investment
income by a Fund, whether in cash or additional securities, will ordinarily
constitute tax-exempt income. Generally, 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 or any applicable state alternative minimum tax for both 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 distribution which is exempt from state and local taxes. Your
investment in a Fund may have additional personal tax implications. Please
consult your tax advisor on federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each Fund,
you may realize a capital gain or loss when selling and exchanging shares of a
Fund. Such transactions may be subject to federal, state and local income tax.
(54) 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.
(55) 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.
--
32
<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,
2000, Colonial managed over $15.4 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).Colonial is part of a larger business
unit that includes several separate legal entities known as Liberty Funds Group
LLC (LFG). The LFG business unit and Stein Roe are managed by a single
management team. Stein Roe, Colonial and the other LFG entities also share
personnel, facilities and systems that may be used in providing administrative
or operational services to the Funds. Stein Roe is a registered investment
advisor. Colonial, the other entities that make up LFG and Stein Roe are
subsidiaries of Liberty Financial Companies, Inc.
For the 1999 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%, 0.35%, 0.41%, 0.48%, 0.50%, 0.50%, 0.32%, 0.50% and 0.50% of average
daily net assets of each Fund, respectively.
PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
BRIAN M. HARTFORD, a senior vice president of Colonial,has managed the Minnesota
Fund and other Colonial tax-exempt funds since 1993. Mr. Hartford was a senior
municipal trader of Colonial from 1991 until 1993.
GARY SWAYZE, a 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.
David S. Pope, CFA, a vice president of Colonial, has managed the Michigan Fund,
the Ohio Fund, the North Carolina Fund and the Florida Fund since May, 2000. Mr.
Pope
--
33
<PAGE>
MANAGING THE FUNDS
joined Colonial as a senior quantitative analyst in 1996 and has worked as an
associate portfolio manager on several mutual funds since 1997. Prior to joining
Colonial in 1996, Mr. Pope worked as a quantitative portfolio analyst at
Fidelity Management and Research Company.
--
34
<PAGE>
--------------------------------------------------------------------------------
OTHER INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------
UNDERSTANDING THE FUNDS' OTHER INVESTMENT STRATEGIES AND RISKS
Each Fund's primary investment strategies and risks are described under "The
Funds -- Primary Investment Strategies" and "The Funds-- Primary Investment
Risks." In seeking to meet their 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 Statement of Additional Information.
--------------------------------------------------------------------------------
Each Fund's primary investment strategies and their associated risks are
described above. This section describes other investments the Funds may make and
the risks associated with them. In seeking to achieve their goal, the Funds may
invest in various types of securities and engage in various investment
techniques which are not the principal focus of the Funds and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Funds' Statement of Additional Information,
which you may obtain free of charge (see back cover). Approval by a Fund's
shareholders is not required to modify or change the Fund's investment goal or
investment strategies.
DERIVATIVE STRATEGIES
--------------------------------------------------------------------------------
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, commonly referred to as derivatives, involve the
use of financial instruments whose value depend on, or are derived from, the
value of an underlying security, index or currency. A Fund may use these
strategies to adjust the Fund's sensitivity to changes in interest rates or for
other hedging purposes (i.e., attempting to offset a potential loss in one
position by establishing an interest in an opposite position). Derivative
strategies involve the risk that they may exaggerate a loss, potentially losing
more money than the actual cost of the derivative, or limit a potential gain.
Also, with some derivative strategies there is the risk that the other party to
the transaction may fail to honor its contract terms, causing a loss to the
Fund.
ASSET-BACKED SECURITIES
--------------------------------------------------------------------------------
Asset-backed securities are interests in pools of debt securities backed by
various types of loans such as credit card, auto and home equity loans. 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. 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. A decline
in interest rates may lead to a faster rate of repayment on asset-backed
securities and therefore, cause a Fund to earn a lower interest rate on
reinvestment. 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. Municipal leases are issued by a state or local government
and authorities to acquire property or equipment. They frequently involve
special risks not normally associated with general obligation or revenue bonds.
Municipal lease obligations may not be backed by the issuing municipality and
many have a "non-appropriation" clause.
--
35
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
A non-appropriation clause relieves the issuer of any lease obligation from
making future payments under the lease unless money is appropriated for such
purpose on a periodic basis. In addition, such lease obligation payments to a
Fund may be suspended if the issuing municipality is prevented from maintaining
occupancy of the leased premises or utilizing the leased equipment. The
disposition of the property in the event of non-appropriation or foreclosure may
be difficult, time consuming and costly and result in a delay in recovery or the
failure to fully recover the Fund's original investment.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLLS
--------------------------------------------------------------------------------
When-issued securities and forward commitments are securities that 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
--------------------------------------------------------------------------------
Zero coupon bonds do not pay interest in cash on a current basis, but instead
accrue interest over the life of the bond. As a result, these securities are
issued at a deep discount. The value of these securities may fluctuate more than
similar securities that pay interest periodically. Although these securities pay
no interest to holders prior to maturity, interest on these securities is
reported as income to the Fund and distributed to its shareholders.
INVERSE FLOATING RATE OBLIGATIONS
--------------------------------------------------------------------------------
Inverse floating rate obligations represent interests in tax-exempt bonds. They
carry interest at rates that vary inversely to changes in market with short-term
tax-exempt interest rates. As interest rates rise, inverse floaters produce less
current income, and their market value can become volatile. Therefore, their
market values are subject to greater risks of fluctuation than securities
bearing a fixed rate of interest which may lead to greater fluctuation in the
price of the security.
--
36
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
TEMPORARY DEFENSIVE STRATEGIES
--------------------------------------------------------------------------------
At times, the advisor may determine that adverse market conditions make it
desirable to temporarily suspend a Fund's normal investment activities. During
such times, a Fund may, but is not required to, invest in cash or high-quality,
short-term debt securities, without limit. Taking a temporary defensive position
may prevent a Fund from achieving its investment goal.
--
37
<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 Fund (assuming reinvestment of all dividends and distributions). This
information for the Minnesota Fund, the New York Fund, the North Carolina Fund
and the Ohio Fund has been derived from the Funds' financial statements which
have been audited by PricewaterhouseCoopers LLP, independent accountants, whose
report, along with the Funds' financial statements, is included in each Fund's
annual report. The information for the Florida Fund, the Massachusetts Fund, the
California Fund, the Connecticut Fund and the Michigan Fund, for the fiscal year
ended January 31, 2000, has been derived from the Funds' financial statements
which have been audited by Ernst & Young LLP, independent auditors, whose
report, along with the Funds' financial statements, is included in each Fund's
annual report. Information for these Funds for years ending through January 31,
1999 was audited by PricewaterhouseCoopers LLP. 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,
2000 1999 1998
Class A Class B Class C Class A Class B Class C Class A Class B Class C(d)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.730 7.730 7.730 7.720 7.720 7.720 7.370 7.370 7.660
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
($):
Net investment income 0.346(a) 0.290(a) 0.312(a)(b) 0.354 0.294 0.318(c) 0.366 0.310 0.164(e)
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.794) (0.794) (0.794) 0.111 0.111 0.111 0.426 0.426 0.132
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.448) (0.504) (0.482) 0.465 0.405 0.429 0.792 0.736 0.296
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.345) (0.289) (0.311) (0.352) (0.294) (0.317) (0.369) (0.313) (0.167)
------------------------------------------------------------------------------------------------------------------------------------
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 (0.017) (0.017) (0.017) (0.016) (0.016) (0.016) (0.001) (0.001) --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared (0.362) (0.306) (0.328) (0.455) (0.395) (0.419) (0.442) (0.386) (0.236)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of period ($) 6.920 6.920 6.920 7.730 7.730 7.730 7.720 7.720 7.720
------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (f) (5.92) (6.63) (6.35)(g) 6.23 5.42 5.74(g) 11.05 10.23 3.93(g)
(h)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(i) 0.91 1.66 1.36(b) 0.86 1.61 1.31(c) 0.87 1.62 1.32(e)
(j)
------------------------------------------------------------------------------------------------------------------------------------
Net investment income(i) 4.72 3.97 4.27(b) 4.60 3.85 4.15(c) 4.92 4.17 4.32(e)
(j)
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 19 19 19 13 13 13 31 31 31
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 194,606 80,416 6,059 246,576 99,485 5,963 255,838 101,657 101,657
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(b) Net of fees waived by the distributor which amounted to $0.022 per share
and 0.30%.
(c) Net of fees waived by the distributor which amounted to $0.023 per share
and 0.30%.
(d) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(e) Net of fees waived by the distributor which amounted to $0.011 per share
and 0.30% (annualized).
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the distributor not waived a portion of expenses, total return would
have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(j) Annualized.
--
38
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL CALIFORNIA TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
1997 1996
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.540 7.540 6.870 6.870
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.386 0.331 0.388 0.334
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.173) (0.173) 0.671 0.671
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.213 0.158 1.059 1.005
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($):
From net investment income (0.383) (0.328) (0.389) (0.335)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.370 7.370 7.540 7.540
------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (b) 2.98 2.21 15.78(c) 14.94(c)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(d) 0.88 1.63 0.89 1.64
------------------------------------------------------------------------------------------------------------------------------------
Net investment income(d) 5.23 4.48 5.33 4.58
------------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the -- -- 0.01 0.01
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 25 25 47 47
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 264,053 100,873 304,581 106,925
------------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) -- -- 0.001 0.001
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) Had the advisor not waived or reimbursed a portion of expenses, total
return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
--
39
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL CONNECTICUT TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
2000 1999 1998
Class A Class B Class C Class A Class B Class C Class A Class B Class C(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.950 7.950 7.950 7.830 7.830 7.830 7.490 7.490 7.710
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income (a) 0.368(b) 0.310(b) 0.333(b)(d) 0.369(b) 0.308(b) 0.333(b) 0.385 0.328 0.173(f)
(e)
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.670) (0.670) (0.670) 0.129 0.129 0.129 0.344 0.344 0.124
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.302) (0.360) (0.337) 0.498 0.437 0.462 0.729 0.672 0.297
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.368) (0.310) (0.333) (0.368) (0.309) (0.333) (0.386) (0.330) (0.177)
------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (0.010) (0.008) (0.009) (0.003) (0.002) --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared
to Shareholders (0.368) (0.310) (0.333) (0.378) (0.317) (0.342) (0.389) (0.332) (0.177)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.280 7.280 7.280 7.950 7.950 7.950 7.830 7.830 7.830
------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (g)(h) (3.87) (4.59) (4.31) 6.54 5.73 6.05 10.00 9.19 3.90(i)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(j) 0.78 1.53 1.23(d) 0.77 1.52 1.22(e) 0.62 1.37 1.09(f)
(k)
------------------------------------------------------------------------------------------------------------------------------------
Net investment income(j) 4.84 4.09 4.39(d) 4.69 3.94 4.24(e) 5.04 4.29 4.48(f)
(k)
------------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by
the advisor (j) 0.15 0.15 0.15 0.14 0.14 0.14 0.29 0.29 0.28(k)
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 9 9 9 6 6 6 12 12 12
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 66,348 76,246 2,768 83,156 87,947 1,333 80,035 84,370 480
------------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or
borne by the advisor which amounted
to: ($) 0.011 0.011 0.011 0.011 0.011 0.011 0.022 0.022 0.021
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(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 0.023 per share and
0.30%.
(e) Net of fees waived by the distributor which amounted to $0.024 per share
and 0.30%.
(f) Net of fees waived by the distributor which amounted to $0.012 per share
and 0.30% (annualized).
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the advisor and/or distributor not waived a portion of expenses, total
return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(k) Annualized.
--
40
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL CONNECTICUT TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
1997 1996
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.630 7.630 7.080 7.080
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.393 0.338 0.400 0.345
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.141) (0.141) 0.552 0.552
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.252 0.197 0.952 0.897
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($):
From net investment income (0.392) (0.337) (0.402) (0.347)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared
to Shareholders (0.392) (0.337) (0.402) (0.347)
Net asset value-- 7.490 7.490 7.630 7.630
------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (b)(c) 3.48 2.71 13.77 12.93
------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(d) 0.59 1.34 0.51 1.25
------------------------------------------------------------------------------------------------------------------------------------
Net investment income(d) 5.28 4.53 5.42 4.68
------------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the 0.31 0.31 0.42 0.42
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 21 21 13 13
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($): 74,059 81,437 80,039 82,785
------------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) 0.023 0.023 0.031 0.031
------------------------------------------------------------------------------------------------------------------------------------
</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.
--
41
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL FLORIDA TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
2000 1999 1998
Class A Class B Class C Class A Class B Class C Class A Class B Class C(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.890 7.890 7.890 7.790 7.790 7.790 7.430 7.430 7.710
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.349(c) 0.293(c) 0.316(c)(d) 0.356 0.296 0.320(e) 0.388 0.332 0.172(f)
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.844) (0.844) (0.844) 0.119 0.119 0.119 0.361 0.361 0.082
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.495) (0.551) (0.528) 0.475 0.415 0.439 0.749 0.693 0.254
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.345) (0.289) (0.312) (0.366) (0.307) (0.331) (0.389) (0.333) (0.174)
------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (0.009) (0.008) (0.008) -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared
to Shareholders (0.345) (0.289) (0.312) (0.375) (0.315) (0.339) (0.389) (0.333) (0.174)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.050 7.050 7.050 7.890 7.890 7.890 7.790 7.790 7.790
------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (g)(h) (6.39) (7.10) (6.82) 6.29 5.48 5.80 10.37 9.55 3.35(i)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(j) 0.94 1.69 1.39(d) 0.82 1.57 1.27(e) 0.59 1.34 1.04(f)
(k)
------------------------------------------------------------------------------------------------------------------------------------
Net investment income(j) 4.68 3.93 4.23(d) 4.59 3.84 4.14(e) 5.08 4.33 4.63(f)
(k)
------------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived
or borne by the advisor (j) 0.09 0.09 0.09 0.17 0.17 0.17 0.41 0.41 0.40(k)
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 33 33 33 50 50 50 32 32 32
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 24,011 22,183 353 29,526 30,891 345 32,150 33,665 103
------------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or
borne by the advisor which amounted
to: ($) 0.007 0.007 0.007 0.013 0.013 0.013 0.031 0.031 0.031
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(d) Net of fees waived by the distributor which amounted to $0.022 per share
and 0.30%.
(e) Net of fees waived by the distributor which amounted to $0.023 per share
and 0.30%.
(f) Net of fees waived by the distributor which amounted to $0.012 per share
and 0.30% (annualized).
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01% and $0.001 per share.
(k) Annualized.
--
42
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL FLORIDA TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
1997 1996
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.620 7.620 7.100 7.100
-----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.395 0.340 0.404 0.351
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.194) (0.194) 0.535 0.533
-----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.201 0.146 0.939 0.884
-----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($):
From net investment income (0.391) (0.336) (0.419) (0.364)
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.430 7.430 7.620 7.620
-----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (b)(c) 2.80 2.03 13.55 12.72
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(d) 0.56 1.31 0.45 1.18
-----------------------------------------------------------------------------------------------------------------------------------
Interest Expense (e) (e) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income(d) 5.31 4.56 5.45 4.72
-----------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the 0.44 0.44 0.55 0.55
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 69 69 83 83
-----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 31,275 33,341 32,599 35,741
-----------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) 0.032 0.032 0.040 0.040
-----------------------------------------------------------------------------------------------------------------------------------
</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 an impact of 0.01% and $0.001 per share.
(e) Rounds to less than 0.01%.
--
43
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
2000 1999 1998
Class A Class B Class C Class A Class B Class C Class A Class B Class C(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 8.060 8.060 8.060 8.100 8.100 8.100 7.810 7.810 8.070
----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.366(a) 0.308(a) 0.331(a)(c) 0.384 0.322 0.347(d) 0.403 0.344 0.180(e)
(f) (f) (f)
----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.835) (0.835) (0.835) 0.104 0.104 0.104 0.352 0.352 0.090
----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.469) (0.527) (0.504) 0.488 0.426 0.451 0.755 0.696 0.270
----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.366) (0.308) (0.331) (0.378) (0.318) (0.343) (0.406) (0.347) (0.180)
----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (0.014) (0.012) (0.012) (0.003) (0.003) (0.004)
----------------------------------------------------------------------------------------------------------------------------------
From net realized gains (0.004) (0.004) (0.004) (0.133) (0.103) (0.133) (0.056) (0.056) (0.056)
----------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gains (0.041) (0.041) (0.041) (0.003) (0.033) (0.003) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to (0.411) (0.353) (0.376) (0.528) (0.466) (0.491) (0.465) (0.406) (0.240)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.180 7.180 7.180 8.060 8.060 8.060 8.100 8.100 8.100
----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (g) (5.96)(h) (6.67)(h) (6.38)(h) 6.25 5.44 5.76(h) 9.94 9.13 3.40(h)
(i)
----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(j) 0.93 1.68 1.38(c) 0.91 1.66 1.36(d) 0.90 1.65 1.37(e)
(k)
----------------------------------------------------------------------------------------------------------------------------------
Net investment income(j) 4.81 4.06 4.36(c) 4.69 3.94 4.24(d) 5.05 4.30 4.47(e)
(k)
----------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived
or borne by the advisor (j) 0.02 0.02 0.02 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 16 16 16 21 21 21 14 14 14
----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 142,790 50,110 1,189 180,628 59,789 698 182,721 59,160 206
----------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or
borne by the advisor which amounted
to: ($) 0.002 0.002 0.002 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
</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 $0.024 per share
and 0.30%.
(e) Net of fees waived by the distributor which amounted to $0.012 per share
and 0.30% (annualized).
(f) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sale charge.
(h) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(k) Annualized.
--
44
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
1997 1996
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 8.040 8.040 7.390 7.390
-----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.415 0.357 0.424(a) 0.367(a)
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.234) (0.234) 0.650 0.650
-----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.181 0.123 1.074 1.017
-----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($):
From net investment income (0.411) (0.353) (0.424) (0.367)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.411) (0.353) (0.424) (0.367)
Net asset value-- 7.810 7.810 8.040 8.040
-----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (b)(c) 2.43 1.66 14.90 14.05
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(d) 0.90 1.65 0.85 1.60
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income(d) 5.32 4.57 5.49 4.74
-----------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the 0.00 0.00 0.06 0.06
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 29 29 21 21
-----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 184,221 59,143 207,759 60,651
-----------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) -- -- 0.005 0.005
-----------------------------------------------------------------------------------------------------------------------------------
</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.
--
45
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL MICHIGAN TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
2000 1999 1998
Class A Class B Class C Class A Class B Class C Class A Class B Class C(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.330 7.330 7.330 7.320 7.320 7.320 6.930 6.930 7.200
----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.315(c) 0.262(c) 0.283(c)(d) 0.341(a) 0.285(a) 0.307(a) 0.352(a) 0.299(a) 0.156(a)
(e) (f)
----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (0.748) (0.748) (0.748) 0.111 0.111 0.111 0.386 0.386 0.122
----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.433) (0.486) (0.465) 0.452 0.396 0.418 0.738 0.685 0.278
----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.317) (0.265) (0.286) (0.343) (0.288) (0.310) (0.348) (0.295) (0.158)
----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income (0.008) (0.007) (0.007) (0.008) (0.007) (0.007) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
From net realized gains -- -- -- (0.075) (0.075) (0.075) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gains (0.002) (0.002) (0.002) (0.016) (0.016) (0.016) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to (0.327) (0.274) (0.295) (0.442) (0.386) (0.408) (0.348) (0.295) (0.158)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 6.570 6.570 6.570 7.330 7.330 7.330 7.320 7.320 7.320
----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (g) (6.05) (6.76) (6.47)(h) 6.38(h) 5.57(h) 5.89(h) 10.93(h) 10.11(h) 3.92(h)
(i)
----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(j) 1.03 1.78 1.48(d) 0.93 1.68 1.38(e) 0.90 1.65 1.35(f)
(k)
----------------------------------------------------------------------------------------------------------------------------------
Net investment income(j) 4.55 3.80 4.10(d) 4.64 3.89 4.19(e) 4.95 4.20 4.35(f)
(k)
----------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived
or borne by the advisor (j) -- -- -- 0.06 0.06 0.06 0.13 0.13 0.15(k)
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 23 23 23 15 15 15 32 32 32
----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 30,997 9,255 631 38,606 12,581 1,358 39,048 12,762 103
----------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived
or borne by the advisor which
amounted to: ($) -- -- -- 0.004 0.004 0.004 0.009 0.009 0.010
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) The per share net investment income amounts do not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(d) Net of fees waived by the distributor which amounted to $0.021 per share
and 0.30%.
(e) Net of fees waived by the distributor which amounted to $0.022 per share
and 0.30%.
(f) Net of fees waived by the distributor which amounted to $0.011 per share
and 0.30% (annualized).
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(i) Not annualized
(j) The benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01% and $0.000 per share for 1999 only.
(k) Annualized.
--
46
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL MICHIGAN TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
1997 1996
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.130 7.130 6.660 6.660
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.354 0.302 0.368 0.317
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.198) (0.198) 0.484 0.484
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.156 0.104 0.852 0.801
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
($):
From net investment income (0.354) (0.303) (0.382) (0.331)
------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income (0.002) (0.001) -- --
Total Distributions Declared to Shareholders (0.356) (0.304) (0.382) (0.331)
Net asset value -- End of period ($) 6.930 6.930 7.130 7.130
------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (b)(c) 2.35 1.58 13.13 12.30
------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(d) 0.89 1.64 0.80 1.55
------------------------------------------------------------------------------------------------------------------------------------
Net investment income(d) 5.12 4.37 5.34 4.59
------------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the 0.12 0.12 0.25 0.25
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 25 25 48 48
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 39,606 13,364 43,308 15,236
------------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) 0.008 0.008 0.017 0.017
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
--
47
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL MINNESOTA TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
2000 1999 1998
Class A Class B Class C Class A Class B Class C Class A Class B Class C(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.360 7.360 7.360 7.490 7.490 7.490 7.130 7.130 7.470
--------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.326(c) 0.274(c) 0.295(c)(d) 0.351(a) 0.293(a) 0.316(a) 0.362(a) 0.308(a) 0.163(a)
(e) (f)
--------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (0.891) (0.891) (0.891) 0.110 0.110 0.110 0.405 0.405 0.066
--------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.565) (0.617) (0.596) 0.461 0.403 0.426 0.767 0.713 0.229
--------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.328) (0.276) (0.297) (0.345) (0.289) (0.311) (0.362) (0.308) (0.164)
--------------------------------------------------------------------------------------------------------------------------------
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 net realized gains (0.007) (0.007) (0.007) (0.049) (0.049) (0.049) -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to (0.335) (0.283) (0.304) (0.591) (0.533) (0.556) (0.407) (0.353) (0.209)
--------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 6.460 6.460 6.460 7.360 7.360 7.360 7.490 7.490 7.490
--------------------------------------------------------------------------------------------------------------------------------
Total return (%) (g) (7.87) (8.56) (8.29)(h) 6.40(h) 5.59(h) 5.91(h) 11.04(h) 10.22(h) 3.13(h)
(i)
--------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(j) 1.06 1.81 1.51(d) 0.94 1.69 1.39(e) 0.91 1.66 1.36(f)
(k)
--------------------------------------------------------------------------------------------------------------------------------
Net investment income(j) 4.71 3.96 4.26(d) 4.62 3.87 4.17(e) 4.97 4.22 4.40(f)
(k)
--------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived
or borne by the advisor (j) -- -- -- 0.06 0.06 0.06 0.11 0.11 0.12(k)
--------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 28 28 28 34 34 34 19 19 19
--------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 24,248 16,945 381 32,075 21,398 270 32,824 20,278 136
--------------------------------------------------------------------------------------------------------------------------------
(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
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(d) Net of fees waived by the distributor which amounted to $0.021 per share
and 0.30%.
(e) Net of fees waived by the distributor which amounted to $0.022 per share
and 0.30%.
(f) Net of fees waived by the distributor which amounted to $0.011 per share
and 0.30% (annualized).
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01% and $0.001 per share for 1999 only.
(k) Annualized.
--
48
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL MINNESOTA TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
1997 1996
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.350 7.350 6.840 6.840
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.369 0.316 0.384 0.332
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.222) (0.222) 0.516 0.516
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.147 0.094 0.900 0.848
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.367) (0.314) (0.390) (0.338)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.367) (0.314) (0.390) (0.338)
Net asset value -- End of period 7.130 7.130 7.350 7.350
------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (b)(c) 2.16 1.40 13.50 12.66
------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(d) 0.90 1.65 0.85 1.60
------------------------------------------------------------------------------------------------------------------------------------
Net investment income(d) 5.19 4.44 5.41 4.66
------------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the 0.13 0.13 0.24 0.24
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 27 27 42 42
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 34,986 19,389 36,586 19,083
------------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) 0.009 0.009 0.016 0.016
------------------------------------------------------------------------------------------------------------------------------------
</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.
--
49
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL NEW YORK TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
2000 1999 1998
Class A Class B Class C Class A Class B Class C Class A Class B Class C(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.490 7.490 7.490 7.380 7.380 7.380 7.040 7.040 7.270
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income (a) 0.347(c) 0.293(c) 0.315(c)(d) 0.358 0.301 0.324(e) 0.383 0.330 0.171(f)
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (0.812) (0.812) (0.812) 0.115 0.115 0.115 0.346 0.346 0.118
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.465) (0.519) (0.497) 0.473 0.416 0.439 0.729 0.676 0.289
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.345) (0.291) (0.313) (0.352) (0.296) (0.320) (0.384) (0.331) (0.179)
------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (0.011) (0.010) (0.010) -- -- --
------------------------------------------------------------------------------------------------------------------------------------
From capital paid in -- -- -- -- -- -- (0.005) (0.005) --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to share-
holders (0.345) (0.291) (0.313) (0.363) (0.306) (0.329) (0.389) (0.336) (0.179)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value--End of period ($) 6.680 6.680 6.680 7.490 7.490 7.490 7.380 7.380 7.380
------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (g)(h) (6.34) (7.04) (6.76) 6.61 5.80 6.13 10.67 9.85 4.04(i)
------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(j) 0.79 1.54 1.24(d) 0.77 1.52 1.22(e) 0.67 1.42 1.12(f)
(k)
------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income(j) 4.90 4.15 4.45(d) 4.78 4.03 4.33(e) 5.31 4.56 4.72(f)
(k)
------------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived, or borne
by advisor 0.18 0.18 0.18 0.16 0.16 0.16 0.28 0.28 0.29(k)
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 17 17 17 28 28 28 38 38 38
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 43,471 44,747 654 55,348 54,079 720 51,744 52,313 104
------------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived
or borne by the advisor which
amounted to: ($) 0.013 0.013 0.013 0.012 0.012 0.012 0.020 0.020 0.021
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(d) Net of fees waived by the distributor which amounted to $0.021 per share
and 0.30%.
(e) Net of fees waived by the distributor which amounted to $0.022 per share
and 0.30%.
(f) Net of fees waived by the distributor which amounted to $0.011 per share
and 0.30% (annualized).
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(k) Annualized.
--
50
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL NEW YORK TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
1997 1996
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.250 7.250 6.680 6.680
-----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.393 0.340 0.401 0.349
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.207) (0.207) 0.576 0.576
-----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.186 0.133 0.977 0.925
-----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.396) (0.343) (0.407) (0.355)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.396) (0.343) (0.407) (0.355)
Net asset value--End of period ($) 7.040 7.040 7.250 7.250
-----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (b)(c) 2.76 1.99 14.99 14.15
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(d) 0.65 1.40 0.58 1.33
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income(d) 5.56 4.81 5.72 4.97
-----------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the advisor(d) 0.29 0.29 0.38 0.38
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 78 78 39 39
-----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 50,648 52,861 56,795 53,505
-----------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) 0.020 0.020 0.026 0.026
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
--
51
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
2000 1999 1998
Class A Class B Class C Class A Class B Class C Class A Class B Class C(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.600 7.600 7.600 7.450 7.450 7.450 7.120 7.120 7.350
----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.318(c) 0.264(c) 0.285(c)(d) 0.342(a) 0.285(a) 0.307(a) 0.373(a) 0.319(a) 0.168(a)
(d) (e)
----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (0.790) (0.790) (0.790) 0.164 0.164 0.164 0.327 0.327 0.100
----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.472) (0.526) (0.505) 0.506 0.449 0.471 0.700 0.646 0.268
----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.318) (0.264) (0.285) (0.348) (0.292) (0.314) (0.370) (0.316) (0.168)
----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- (0.008) (0.007) (0.007) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.318) (0.264) (0.285) (0.356) (0.299) (0.321) (0.370) (0.316) (0.168)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 6.810 6.810 6.810 7.600 7.600 7.600 7.450 7.450 7.450
----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (f) (6.33) (7.03) (6.75)(g) 6.98(g) 6.17(g) 6.49(g) 10.10(g) 9.28(g) 3.69(g)
(h)
----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(i) 1.11 1.86 1.56(d) 0.81 1.56 1.26(d) 0.49 1.24 0.96(e)
(j)
----------------------------------------------------------------------------------------------------------------------------------
Net investment income(i) 4.41 3.66 3.96(d) 4.55 3.80 4.10(d) 5.11 4.36 4.55(e)
(j)
----------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived
or borne by the advisor (i) -- -- -- 0.29 0.29 0.29 0.64 0.64 0.63(j)
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 30 30 30 26 26 26 23 23 23
----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 15,746 13,932 694 16,426 17,387 505 16,425 17,348 174
----------------------------------------------------------------------------------------------------------------------------------
(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
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(d) Net of fees waived by the distributor which amounted to $0.022 per share
and 0.30%.
(e) Net of fees waived by the distributor which amounted to $0.011 per share
and 0.30%.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage agreements
had an impact of 0.01% and $0.001 per share for the years ended January 31,
1999 and January 31, 2000. The benefits derived for the year ended January
31, 1998 had no impact.
(j) Annualized.
--
52
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
1997 1996
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.270 7.270 6.680 6.680
-----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.376 0.322 0.386 0.334
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.150) (0.150) 0.588 0.588
-----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.226 0.172 0.974 0.922
-----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.376) (0.322) (0.384) (0.332)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.376) (0.322) (0.384) (0.332)
Net asset value--End of period ($) 7.120 7.120 7.270 7.270
-----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (b)(c) 3.29 2.51 14.91 14.07
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(d) 0.45 1.20 0.33 1.08
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income(d) 5.29 4.54 5.47 4.72
-----------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the advisor(d) 0.66 0.66 0.76 0.76
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 38 38 34 34
-----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 16,522 17,427 15,813 18,593
-----------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) 0.047 0.047 0.053 0.053
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
--
53
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL OHIO TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
2000 1999 1998
Class A Class B Class C Class A Class B Class C Class A Class B Class C(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.650 7.650 7.650 7.720 7.720 7.720 7.340 7.340 7.610
-----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS ($):
Net investment income 0.330(c) 0.276(c) 0.297(c)(d) 0.350(a) 0.291(a) 0.314(a) 0.362(a) 0.306(a) 0.162(a)
(e) (f)
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (0.852) (0.852) (0.852) 0.128 0.128 0.128 0.394 0.394 0.124
-----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.522) (0.576) (0.555) 0.478 0.419 0.442 0.756 0.700 0.286
-----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.331) (0.277) (0.298) (0.349) (0.292) (0.314) (0.365) (0.309) (0.165)
-----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income (0.002) (0.002) (0.002) (0.013) (0.011) (0.012) -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gains (0.005) (0.005) (0.005) (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 share-
holders (0.338) (0.284) (0.305) (0.548) (0.489) (0.512) (0.376) (0.320) (0.176)
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 6.790 6.790 6.790 7.650 7.650 7.650 7.720 7.720 7.720
-----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (g) (6.96) (7.66) (7.38)(h) 6.44(h) 5.62(h) 5.95(h) 10.58(h) 9.76(h) 3.81(h)
(i)
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(j) 0.95 1.70 1.40(d) 0.90 1.65 1.35(e) 0.89 1.64 1.34(f)
(k)
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income(j) 4.60 3.85 4.15(d) 4.51 3.76 4.06(e) 4.85 4.10 4.21(f)
(k)
-----------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived
or borne by the advisor (j) -- -- -- 0.02 0.02 0.02 0.05 0.05 0.07(k)
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 11 11 11 30 30 30 27 27 27
-----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 48,346 31,584 333 60,783 42,651 378 62,844 46,330 133
-----------------------------------------------------------------------------------------------------------------------------------
(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
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(d) Net of fees waived by the distributor which amounted to $0.022 per share
and 0.30%.
(e) Net of fees waived by the distributor which amounted to $0.023 per share
and 0.30%.
(f) Net of fees waived by the distributor which amounted to $0.011 per share
and 0.30% (annualized).
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the advisor and/or distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(k) Annualized.
--
54
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
COLONIAL OHIO TAX-EXEMPT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended January 31,
1997 1996
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.510 7.510 6.930 6.930
-----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.372 0.318 0.375 0.321
-----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (0.179) (0.179) 0.585 0.585
-----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.193 0.139 0.960 0.906
-----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($):
From net investment income (0.363) (0.309) (0.380) (0.326)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.363) (0.309) (0.380) (0.326)
Net asset value--End of period ($) 7.340 7.340 7.510 7.510
-----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (b)(c) 2.75 1.98 14.18 13.34
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses(d) 0.88 1.63 0.85 1.60
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income(d) 5.09 4.34 5.19 4.44
-----------------------------------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the advisor(d) 0.04 0.04 0.11 0.11
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover(%) 31 31 31 31
-----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 65,190 49,474 74,383 56,160
-----------------------------------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) 0.003 0.003 0.008 0.008
-----------------------------------------------------------------------------------------------------------------------------------
</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.
--
55
<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 Statement of Additional Information for more
information on the Funds and the securities in which they invest. The Statement
of Additional Information is incorporated into this prospectus by reference,
which means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the 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 Edgar database on the Securities and Exchange Commission internet site 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
electronic request at the E-mail address [email protected] or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty Funds Trust 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 FUNDS LOGO]
ALL-STAR - COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (c) 2000
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
<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
SERIES OF LIBERTY FUNDS TRUST V
STATEMENT OF ADDITIONAL INFORMATION
JUNE 1, 2000
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of 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 June 1, 2000. This SAI should be read
together with the Prospectus and each Fund's most recent Annual Report dated
January 31, 2000. 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/Auditors appearing in each Fund's January 31, 2000 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 b
Organization and History b
Investment Objective and Policies of the Funds b
Fundamental Investment Policies of the Funds c
Other Investment Policies of the Funds c
State Fiscal Conditions c
California Tax Considerations f
Connecticut Tax Considerations g
Florida Tax Considerations g
Massachusetts Tax Considerations g
Michigan Tax Considerations h
Minnesota Tax Considerations h
New York Tax Considerations i
North Carolina Tax Considerations i
Ohio Tax Considerations i
Fund Charges and Expenses j
Investment Performance w
Custodian aa
Independent Accountants/Auditors aa
PART 2 PAGE
Miscellaneous Investment Practices 1
Taxes 11
Management of the Funds 13
Determination of Net Asset Value 19
How to Buy Shares 20
Special Purchase Programs/Investor Services 21
Programs for Reducing or Eliminating Sale Charges 22
How to Sell Shares 24
Distributions 26
How to Exchange Shares 26
Suspension of Redemptions 26
Shareholder Liability 26
Shareholder Meetings 27
Performance Measures 27
Appendix I 29
Appendix II 34
a
<PAGE>
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
JUNE 1, 2000
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
"LFS" 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 is a
non-diversified series of the Trust and represents the entire interest in a
separate series of the Trust. The California Fund commenced investment
operations on June 16, 1986; the Connecticut Fund commenced investment
operations on November 1, 1991; the Florida Fund commenced investment operations
on February 1, 1993; the Massachusetts Fund commenced investment operations on
April 10, 1987; each of the Michigan Fund, the Minnesota Fund, the New York Fund
and the Ohio Fund commenced investment operations on September 26, 1986.
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.
Effective April 1, 1999, the Trust changed its name from Colonial Trust V to its
current name.
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 may be
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
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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. Not issue senior securities except as provided in paragraph 1 above
to the extent permitted by the Act;
5. Underwrite securities issued by others only when disposing of
portfolio securities;
6. 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;
7. Not concentrate more than 25% of its total assets in any one
industry;
8. 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.
Notwithstanding the investment policies of the Funds, each Fund (other than the
California 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
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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 1995-1999 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 Fitch in February, 2000. In January, 2000, the State
Department of Finance projected that the California economy would continue to
show strong growth in 2000, followed by more moderate growth in 2001. The Asian
economic crisis, which slowed growth in high-technology manufacturing in 1998
and 1999, appears to have ended.
At various times over the past twenty-two 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 non-agricultural employment was up 1.5% in 1999,
compared to a 2% 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 in 1999 was 3%, a decline of 0.3
percentage points from 1998. 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 2000
surplus will be $247 million, or about $175 million higher than FY 1999, 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.
The State's budgets during the past two years have been the largest in its
history and include significant infrastructure spending commitments.
The State does not have a personal income tax, so its financial health remains
largely dependent on consumption-based taxes that are more susceptible to
general economic conditions. Nevertheless, the strong economic expansion has
yielded steadily improving financial performance characterized by growing
revenues and increasing year-end surpluses. During the past two years, the State
cut its tax on intangible personal property in half and has taken actions to
overhaul and update its system of taxation in other areas, such as
telecommunications. At the same time, increases in Internet sales may also serve
to slightly weaken coverage on sales tax-backed debt. These changes could impact
the State's financial flexibility in the event of an economic downturn.
MASSACHUSETTS. The Commonwealth of Massachusetts has a highly developed economy
with a large service sector, particularly in health care, financial services and
education. Although the Commonwealth's economy suffered in the early 1990s due
to weakening in the high technology, real estate and financial sectors, it has
experienced a strong expansion since then. Job growth has exceeded the
national average for years, and the unemployment rate is now significantly
below the national average, while growth in personal income exceeds the
regional and national averages.
The Commonwealth's fiscal condition is currently very strong. Increased tax
revenues and more realistic revenue expectations have resulted in the
elimination of deficit financing and produced nine consecutive years of positive
fund balances. As a result, the Commonwealth and many local governments have
been able to accumulate "rainy day" funds to provide a financial cushion against
a future recession.
Fiscal flexibility is limited by the Central Artery/Third Harbor Tunnel project,
which has experienced substantial cost overruns since its beginning in the early
1990s. The project has increased the Commonwealth's debt burden, and the full
cost of any future overruns will be borne by the Commonwealth. The failure of
Commonwealth officials to reveal the overruns has placed the project and its
debt offerings under extreme scrutiny by various agencies of the U.S.
government, including the Securities and Exchange Commission. To prevent a
downgrade of its bond rating and a possible suspension of federal match funds
for the project, the Commonwealth reinstated some fees and taxes that had been
slated for elimination.
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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 into services and finance since the early 1990s 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 $1.22 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.
Minnesota relies heavily on a progressive individual income tax and retail sales
tax for revenue, which results in a fiscal system that is sensitive to economic
conditions. As a result, the State has experienced certain budgeting and
financial problems since 1980. However, in recent years, Accounting General Fund
balances have been positive. In February, 2000, the Commissioner of Finance
forecast a surplus of $1.8 billion in a $23.5 billion biennial budget.
Institutional controls, including a total of $972 million in a cash flow account
and a budget reserve, allow State officials to successfully managed revenue
variations. Debt levels are moderate and within the policies set under the debt
management targeted levels.
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. After years of
recovery following a severe downturn in the early 1990s, the State's economy has
finally caught up to the average rate of expansion for the nation. The
manufacturing sector has sharply contracted over time, and employment is now
dominated by service industries, which account for about one-third of
employment. A major component of the State's economic expansion has been
the securities industry, which has experienced robust growth resulting
from rising equity prices. Although private-sector job growth has reached the
national average, the State's unemployment rate remains above the national
average.
Budget surpluses during the past few years have eliminated the accumulated
deficits of prior years. However, the State has the highest per-capita debt in
the nation. Multi-year tax cuts that have been enacted but have not taken full
effect are intended to mitigate the high cost of living and the high tax burden
in the State. The high debt load and upcoming tax cuts create the possibility of
future revenue shortfalls, which could be further exacerbated if a downturn in
the securities industry occurs. As a result, the State's bond rating remains
among the lowest of all the states.
Some of the local governments within the State are experiencing economic
difficulties despite the economic expansion. The State is currently planning a
bailout of Nassau County, the wealthiest county in the State, due to its high
debt load and the recent downgrade of its bonds to junk status. Some other local
governments also are experiencing fiscal uncertainties due to increases in
expenses, especially health-care related costs, although none has the same level
of problems.
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
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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 an economic downturn 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 1994. As a result, the State has lowered some taxes,
including the food tax. These tax reductions may have an impact on the rate of
growth of tax revenue.
OHIO. While diversifying more into service and other non-manufacturing areas,
the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity tends to be more
cyclical than in some other states and in the nation as a whole, and the State
may be vulnerable to a manufacturing-led recession. Unemployment rates have been
lower than the national level in recent years except 1999.
In May, 2000, the Ohio Supreme Court ruled that the State's method of school
funding was unconstitutional. 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 any resulting additional costs to the State.
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 U.S. government
obligations whose interest is excluded from income for California personal
income tax purposes ("California Tax-Exempt Bonds") at the end of each quarter.
California law provides that, to the extent distributions by the Fund are
derived from interest on California Tax-Exempt Bonds 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 California 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 California Tax-Exempt Bonds, will be subject to
California franchise tax and California corporate income tax.
CONNECTICUT TAX CONSIDERATIONS
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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 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 ("Connecticut Tax-Exempt Bonds"), or from obligations the interest
on which states are prohibited from taxing by federal law, 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
Connecticut Tax-Exempt Bonds. Distributions that are subject to the federal
alternative minimum tax are subject to the net Connecticut minimum tax, with the
exception of exempt-interest dividends that are exempt from Connecticut personal
income tax.
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 that are subject to Florida corporate income tax.
Florida currently imposes an "intangibles tax" at the annual rate of 0.15%
(slated to be reduced to 0.1% as of January,1, 2001 under legislation awaiting
signing by the Governor) 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. In 2000, the Massachusetts
Department of Revenue adopted 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, as 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.
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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
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.
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 provides
that it 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 that 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 States
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.
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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.
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
("RIC and 50% value tests"), (i) distributions with respect to shares of the
Fund ("Distributions") will be exempt from Ohio personal income tax and
municipal and school district income
i
<PAGE>
taxes in Ohio, 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 RIC and 50% value tests are 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.
j
<PAGE>
RECENT FEES PAID TO THE ADVISOR, LFD AND LFS (dollars in thousands)
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Management fee (before reduction) $1,604 $1,759 $1,789
Bookkeeping fee 122 133 135
Shareholder service and transfer agent fee 494 498 538
12b-1 fees:
Service fee (Classes A, B and C) 532 542 509
Distribution fee (Class B) 680 744 753
Distribution fee (Class C) 53 26 1
Fees waived by the LFD(Class C) (21) (10) (a)
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT FUND
Years ended January 31
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Management fee (before reduction) $ 815 $ 830 $ 794
Bookkeeping fee 67 67 65
Shareholder service and transfer agent fee 245 246 243
12b-1 fees:
Service fee (Classes A, B and C) 300 285 251
Distribution fee (Class B) 627 636 614
Distribution fee (Class C) 19 6 1
Fees waived or borne by the Advisor (238) (225) (461)
Fees waived by the LFD (Class C) (8) (2) (a)
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND
Years ended January 31
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Management fee (before reduction) $ 264 $ 313 $ 325
Bookkeeping fee 28 31 32
Shareholder service and transfer agent fee 80 91 98
12b-1 fees:
Service fee (Classes A, B and C) 99 112 111
Distribution fee (Class B) 196 239 249
Distribution fee (Class C) 3 1 (a)
Fees waived or borne by the Advisor (49) (105) (266)
Fees waived or borne by LFD (Class C) (1) (a) 0
MASSACHUSETTS FUND
Years ended January 31
2000 1999 1998
------- ------- ------
Management fee (before reduction) $ 1,106 $ 1,197 $1,204
Bookkeeping fee 87 93 94
Shareholder service and transfer agent fee 352 341 370
12b-1 fees:
Service fee (Classes A, B and C) 387 396 375
Distribution fee (Class B) 427 445 443
Distribution fee (Class C) 8 3 (a)
Fees waived or borne by the Advisor (49) -- --
Fees waived by the LFD(Class C) (3) (1) 0
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND
Years ended January 31
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Management fee (before reduction) $ 241 $ 258 $ 260
</TABLE>
k
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Bookkeeping fee 27 28 28
Shareholder service and transfer agent fee 77 79 82
12b-1 fees:
Service fee (Classes A, B and C) 80 80 76
Distribution fee (Class B) 84 95 98
Distribution fee (Class C) 9 6 (a)
Fees waived or borne by the Advisor -- (31) (66)
Fees waived or borne by LFD (Class C) (4) (2) 0
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND
Years ended January 31
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Management fee (before reduction) $ 251 $ 264 $ 265
Bookkeeping fee 27 28 28
Shareholder service and transfer agent fee 81 81 85
12b-1 fees:
Service fee (Classes A, B and C) 91 90 84
Distribution fee (Class B) 150 154 147
Distribution fee (Class C) 2 2 (a)
Fees waived or borne by the Advisor -- (33) (58)
Fees waived or borne by LFD (Class C) (1) (1) 0
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND
Years ended January 31
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Management fee (before reduction) $ 511 $ 533 $ 512
Bookkeeping fee 45 47 46
Shareholder service and transfer agent fee 156 159 157
12b-1 fees:
Service fee (Classes A, B and C) 194 186 163
Distribution fee (Class B) 381 394 393
Distribution fee (Class C) 6 4 (a)
Fees waived or borne by the Advisor (182) (169) (289)
Fees waived or borne by LFD (Class C) (2) (1) 0
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Years ended January 31
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Management fee (before reduction) $ 166 $ 167 $ 167
Bookkeeping fee 27 27 27
Shareholder service and transfer agent fee 51 51 53
12b-1 fees:
Service fee (Classes A, B and C) 60 56 53
Distribution fee (Class B) 118 127 128
Distribution fee (Class C) 5 2 (a)
Fees waived or borne by the Advisor -- (97) (216)
Fees waived or borne by LFD (Class C) (2) (1) 0
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
Years ended January 31
2000 1999 1998
---- ----- -----
<S> <C> <C> <C>
Management fee (before reduction) $466 $ 523 $ 553
Bookkeeping fee 42 46 48
Shareholder service and transfer agent fee 153 158 179
12b-1 fees:
Service fee (Classes A, B and C) 146 156 158
Distribution fee (Class B) 280 328 354
Distribution fee (Class C) 3 2 (a)
Fees waived or borne by the Advisor -- (15) (216)
Fees waived or borne by LFD (Class C) (a) (a) 0
</TABLE>
l
<PAGE>
(a) Rounds to less than one.
BROKERAGE COMMISSIONS (dollars in thousands)
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Total commissions $24 $2 $13
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
CONNECTICUT FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Total commissions $1 $2 $2
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
FLORIDA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Total commissions $2 $1 $2
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
MASSACHUSETTS FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Total commissions $2 $1 $1
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
MICHIGAN FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Total commissions $4 $2 $3
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
MINNESOTA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Total commissions $3 $2 $4
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
NEW YORK FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Total commissions (b) $1 $1
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
m
<PAGE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Total commissions $1 $(b) $1
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
OHIO FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Total commissions $7 $3 $5
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
(b) Rounds to less than one.
TRUSTEES AND TRUSTEES' FEES
For the fiscal year ended January 31, 2000 and the calendar year ended December
31, 1999, the Trustees received the following compensation for serving as
Trustees(c):
Total Compensation from the Fund Complex
Paid to the Trustees for the Calendar Year
Trustee Ended December 31, 1999(d)
------- --------------------------
Robert J. Birnbaum(e) $97,000
Tom Bleasdale 103,000(f)
John V. Carberry(g) N/A
Lora S. Collins 96,000
James E. Grinnell 100,000
Richard W. Lowry 97,000
Salvatore Macera 95,000
William E. Mayer 101,000
James L. Moody, Jr. 91,000(h)
John J. Neuhauser 101,252
Thomas E. Stitzel 95,000
Robert L. Sullivan(i) 104,100
Anne-Lee Verville 96,000(j)
(c) The Fund does not currently provide pension or retirement plan
benefits to the Trustees.
(d) At December 31, 1999, the complex consisted of 51 open-end and 8
closed-end management investment portfolios in the Liberty Funds
Group (Liberty Funds) and 12 open-end management investment
portfolios in the Liberty Variable Investment Trust (LVIT) (together,
the Fund Complex).
(e) Retired as Trustee of the Trust on December 31, 1999.
(f) Includes $52,000 payable in later years as deferred compensation.
(g) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(h) Total compensation of $91,000 for the calendar year ended December
31, 1999, will be payable in later years as deferred compensation.
(i) Retired as a Trustee of the Trust on April 30, 2000.
n
<PAGE>
(j) Total compensation of $96,000 for the calendar year ended December
31, 1999, will be payable in later years as deferred compensation.
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, 2000 January 31, 2000
------- ---------------- ----------------
Robert J. Birnbaum $1,485 $976
Tom Bleasdale 1,779(l) 1,173(m)
John V. Carberry(k) N/A N/A
Lora S. Collins 1,658 1,093
James E. Grinnell 1,728 1,139
Richard W. Lowry 1,675 1,105
Salvatore Macera 1,645 1,084
William E. Mayer 1,746 1,151
James L. Moody, Jr. 1,568(n) 1,035(o)
John J. Neuhauser 1,750 1,155
Thomas E. Stitzel 1,645 1,084
Robert L. Sullivan 1,795 1,196
Anne-Lee Verville 1,661(p) 1,095(q)
(k) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(l) Includes $903 payable in later years as deferred compensation.
(m) Includes $595 payable in later years as deferred compensation.
(n) Total compensation of $1,568 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(o) Total compensation of $1,035 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(p) Total compensation of $1,661 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(q) Total compensation of $1,095 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
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, 2000 January 31, 2000
------- ---------------- ----------------
Robert J. Birnbaum $638 $1,166
Tom Bleasdale 882(s) 1,398(t)
John V. Carberry(r) N/A N/A
Lora S. Collins 821 1,480
James E. Grinnell 860 1,358
Richard W. Lowry 828 1,317
Salvatore Macera 815 1,292
William E. Mayer 867 1,372
James L. Moody, Jr. 791(u) 1,233(v)
John J. Neuhauser 872 1,376
Thomas E. Stitzel 815 1,292
Robert L. Sullivan 908 1,418
Anne-Lee Verville 822(w) 1,305(x)
o
<PAGE>
(r) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(s) Includes $503 payable in later years as deferred compensation.
(t) Includes $709 payable in later years as deferred compensation.
(u) Total compensation of $791 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(v) Total compensation of $1,233 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(w) Total compensation of $822 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(x) Total compensation of $1,305 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
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, 2000 January 31, 2000
------- ---------------- ----------------
Robert J. Birnbaum $620 $627
Tom Bleasdale 744(z) 752(aa)
John V. Carberry(y) N/A N/A
Lora S. Collins 694 701
James E. Grinnell 723 730
Richard W. Lowry 701 708
Salvatore Macera 688 695
William E. Mayer 730 738
James L. Moody, Jr. 656(bb) 663(cc)
John J. Neuhauser 734 742
Thomas E. Stitzel 688 695
Robert L. Sullivan 771 779
Anne-Lee Verville 695(dd) 702(ee)
(y) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(z) Includes $338 payable in later years as deferred compensation.
(aa) Includes $379 payable in later years as deferred compensation.
(bb) Total compensation of $656 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(cc) Total compensation of $663 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(dd) Total compensation of $695 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(ee) Total compensation of $702 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
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 31,2000 January 31, 2000
------- --------------- ----------------
Robert J. Birnbaum $790 $571
Tom Bleasdale 948(gg) 686(hh)
John V. Carberry(ff) N/A N/A
Lora S. Collins 883 639
James E. Grinnell 920 666
Richard W. Lowry 893 646
p
<PAGE>
Salvatore Macera 876 634
William E. Mayer 930 673
James L. Moody, Jr. 836(ii) 605(jj)
John J. Neuhauser 934 677
Thomas E. Stitzel 876 634
Robert L. Sullivan 973 713
Anne-Lee Verville 885(kk) 640(ll)
(ff) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(gg) Includes $479 payable in later years as deferred compensation.
(hh) Includes $346 payable in later years as deferred compensation.
(ii) Total compensation of $836 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(jj) Total compensation of $605 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(kk) Total compensation of $885 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(ll) Total compensation of $640 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
OHIO FUND
Aggregate Compensation
from Fund for the Fiscal Year Ended
Trustee January 31, 2000
------- ----------------
James J. Birnbaum $764
Tom Bleasdale 916(nn)
John V. Carberry(mm) N/A
Lora S. Collins 854
James E. Grinnell 889
Richard D. Lowry 863
Salvatore Macera 847
William E. Mayer 898
James L. Moody, Jr. 807(oo)
John J. Neuhauser 903
Thomas E. Stitzel 847
Robert L. Sullivan 941
Anne-Lee Verville 855(pp)
(mm) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(nn) Includes $463 payable in later years as deferred compensation.
(oo) Total compensation of $807 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
(pp) Total compensation of $855 for the fiscal year ended January 31,
2000, will be payable in later years as deferred compensation.
For the fiscal year ended December 31, 1999, 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
Trustee for the Calendar Year Ended December 31,1999(qq)
------- ------------------------------------------------
Robert J. Birnbaum(rr) $25,000
q
<PAGE>
John V. Carberry(rr)(ssv) N/A
James E. Grinnell(rr) 25,000
Richard W. Lowry(rr) 25,000
William E. Mayer(rr) 25,000
John J. Neuhauser(rr) 25,000
(qq) 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).
(rr) Elected by the sole trustee of the Liberty Funds Trust IX on December
17, 1998.
(ss) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
OWNERSHIP OF THE FUNDS
At April 30, 2000, the officers and Trustees of the Trust as a group owned less
than 1% of the then 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 2000, the following shareholders owned 5% or more of the
following Funds' then 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:
7.77%) (Class B: 5.58%) (Class C: 25.41)
Connecticut Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
11.53%) (Class B: 14.95%) (Class C: 22.55%)
Florida Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL, 32216 (Class A:
16.58%) (Class B: 21.52%); Marjorie E. Worstall, 3206 S. Hopkins Avenue,
Titusville, FL 32780-5698 (Class C: 49.37%); Dorothy C. Fisher & Harry F.
Fisher, Jr. TTEE, 1048 Main Street, Sebastian, FL 32958-4170 (Class C: 25.55%);
Jean McCaughey TTEE, 4315 Rum Cay Circle, Sarasota, FL 34233 (Class C: 10.56%)
Massachusetts Fund: Sybil N. Wetzler & Teresa A. Wetzler-Finn & Steven A. Finn
TTEE, 6 Tallyho Lane, Andover, MA 01810-4514 (Class C: 8.81%); Merrill Lynch,
Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive E., Jacksonville, FL
32246-6484 (Class C: 28.43%); Teresa A. Wetzler-Finn & Lawrence A. Wetzler
TTEES, 5 Tallyho Lane, Andover, MA 01810-4514 (Class C: 7.93%)
Michigan Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216-0561
(Class A: 7.51%) (Class B: 22.00%); Raymond James & Associates, Inc., FAO James
& Mary Workman JT/WROS, 1530 Winterwood Drive NE, Grand Rapids, MI 49546 (Class
A: 5.63%)
Minnesota Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual
Fund Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216
(Class B: 6.45%) (Class C: 12.25%); Luella C. Bellomo, 1857 Eagle Ridge Drive,
St. Paul, MN 55118 (Class C: 19.42%); Mark J. Ritter & Robert M. Ritter, 1626
Laurel Avenue, St. Paul, MN 55104 (Class C: 14.50%); Richard G.
r
<PAGE>
Lykke & Dorothy M. Lykke JTWROS, 2909 Springview Lane, NE, Mounds View, MN 55112
(Class C: 25.55%); Lee Sai & Joua Sai Shouachai Lee & Joua Xiong Lee JTWROS, 256
W. George Street, St. Paul, MN 55107 (Class C: 5.27%)
New York Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
11.73%) (Class B: 17.08%); Howard Read, 25 Eagle Street, Albany, NY 12207-1901
(Class C: 9.16%); Read & Laniado, 25 Eagle Street, Albany, NY 12207-1901 (Class
C: 18.04%); Joan Parrotta 262-17 Grand Central Parkway, Little Neck, NY 11362
(Class C: 5.46%); Abe Weinstein & Laura Weinstein & David Weinstein & Linda
Marine JTWROS, 92-30 56 Avenue #1K, Elmhurst, NY 11373-4608 (Class C:
18.23%);Dino Gobbo & Marita Gobbo JTWROS, 76-11 175 Street, Flushing, NY 11366
(Class C: 7.23%)
North Carolina Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class B:
8.66%) (Class C: 41.79%); Patricia R. Holstein, 403 Elm Street, Raleigh, NC
27604 (Class C: 8.49%)
Ohio Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund Operations,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A: 6.49%)
(Class B: 6.95%) (Class C: 11.44)
At April 30, 2000, there were the following number of shareholders of each Fund:
Class A Class B Class C
California Fund 3,289 1,557 59
Connecticut Fund 1,296 1,518 35
Florida Fund 439 414 6
Massachusetts Fund 2,858 1,345 26
Michigan Fund 878 227 11
Minnesota Fund 877 484 11
New York Fund 921 929 11
North Carolina Fund 376 325 12
Ohio Fund 1,622 1,087 5
SALES CHARGES (dollars in thousands)
CLASS A SHARES
================================================================================
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
2000 1999 1998
------ ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund
share sales $3,604 $189 $178
Initial sales charges retained by LFD 170 25 24
Aggregate contingent deferred sales charges
(CDSC) on Fund redemptions retained by LFD 19 0 0
CONNECTICUT FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate initial sales charges on Fund share sales $387 $223 $220
Initial sales charges retained by LFD 18 29 28
Aggregate
CDSC on Fund redemptions retained by LFD 0 (tt) 0
FLORIDA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate initial sales charges on Fund share sales $189 $50 $93
Initial sales charges retained by LFD 24 6 11
</TABLE>
s
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
Years ended January 31
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $447 $252 $210
Initial sales charges retained by LFD 24 34 26
Aggregate CDSC on Fund redemptions retained by LFD (tt) 0 0
MICHIGAN FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate initial sales charges on Fund share sales $174 $54 $31
Initial sales charges retained by LFD 8 7 4
MINNESOTA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate initial sales charges on Fund share sales $94 $49 $42
Initial sales charges retained by LFD 4 5 5
Aggregate CDSC on Fund redemptions retained by LFD 9 0 0
NEW YORK FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate initial sales charges on Fund share sales $224 $106 $111
Initial sales charges retained by LFD 11 13 15
Aggregate CDSC on Fund redemptions retained
by LFD 0 $ 10 0
NORTH CAROLINA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate initial sales charges on Fund share sales $157 $53 $33
Initial sales charges retained by LFD 7 7 4
Aggregate CDSC on Fund redemptions retained
by LFD 0 0 0
OHIO FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate initial sales charges on Fund share sales $146 $72 $39
Initial sales charges retained by LFD 7 9 4
Aggregate CDSC on Fund redemptions retained
by LFD 139 (tt) 0
</TABLE>
CLASS B SHARES
================================================================================
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
2000 1999 1998
------ ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $2,500 $217 $223
CONNECTICUT FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $199 $165 $203
FLORIDA FUND
Years ended January 31
</TABLE>
t
<PAGE>
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $217 $118 $102
MASSACHUSETTS FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $129 $114 $183
MICHIGAN FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $41 $18 $29
MINNESOTA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $39 $23 $63
NEW YORK FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $100 $100 $142
NORTH CAROLINA FUND
Year ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $31 $31 $50
OHIO FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $72 $97 $153
</TABLE>
CLASS C SHARES
================================================================================
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $42 $3 $1
CONNECTICUT FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $5 (tt) $0
FLORIDA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $3 $0 $0
MASSACHUSETTS FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD (tt) $0 $0
MICHIGAN FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $3 $0 $0
</TABLE>
u
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA FUND
Years ended January 31
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD (tt) $0 $0
NEW YORK FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD $2 $0 $0
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Year ended January 31
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $1 $0 $0
OHIO FUND
Years ended January 31
2000 1999 1998
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFD (tt) $0 $0
</TABLE>
(tt) 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. 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 for periods up to 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.
A certain number of years, depending on the program you purchased your shares
under, 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, 2000 were:
w
<PAGE>
<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 $341 $417 $45 $117 $563 $28
Cost of sales material 44 29 14 15 45 10
(including printing and mailing expenses)
Allocated travel, entertainment and other 43 27 11 14 37 9
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 $49 $108 $ 1 $242 $308 $9
Cost of sales material
(including printing and mailing expenses) 6 7 (uu) 37 20 4
Allocated travel, entertainment and other
promotional expenses (including advertising) 5 6 (uu) 37 17 3
</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 $51 $61 $7 $54 $99 $2
Cost of sales material
(including printing and mailing expenses) 9 5 1 8 5 1
Allocated travel, entertainment and other
promotional expenses (including advertising) 7 3 1 5 5 1
</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 $87 $304 $4 $38 $76 $5
Cost of sales material
(including printing and mailing expenses) 13 20 1 10 6 2
Allocated travel, entertainment and other
promotional expenses (including advertising) 11 18 1 9 4 1
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Fees to FSFs $75 $128 $ 1
Cost of sales material (including printing and mailing expenses) 7 10 (uu)
Allocated travel, entertainment and other promotional expenses
(including advertising) 6 9 (uu)
</TABLE>
(uu) 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, 2000 were:
CLASS A SHARES
================================================================================
Yield Tax-Equivalent Yield(vv) Adjusted Yield(ww)
----- ------------------------ ------------------
California Fund 4.48% 8.18% N/A
Connecticut Fund 4.55% 7.89% 4.40%
Florida Fund 4.72% 7.81% 4.63%
Massachusetts Fund 4.62% 8.69% 4.60%
Michigan Fund 4.43% 7.67% N/A
Minnesota Fund 4.95% 8.96% N/A
x
<PAGE>
New York Fund 4.92% 9.13% 4.74%
North Carolina Fund 4.52% 8.11% N/A
Ohio Fund 4.58% 8.17% N/A
CLASS B SHARES
================================================================================
Yield Tax-Equivalent Yield(vv) Adjusted Yield(ww)
----- ------------------------ ------------------
California Fund 3.94% 7.19% N/A
Connecticut Fund 4.02% 6.97% 3.85%
Florida Fund 4.19% 6.94% 4.09%
Massachusetts Fund 4.08% 7.68% 4.07%
Michigan Fund 3.89% 6.74% N/A
Minnesota Fund 4.43% 8.02% N/A
New York Fund 4.40% 8.16% 4.21%
North Carolina Fund 3.97% 7.13% N/A
Ohio Fund 4.04% 7.21% N/A
CLASS C SHARES
================================================================================
Yield Tax-Equivalent Yield(vv) Adjusted Yield(ww)
----- ------------------------ ------------------
California Fund 4.25% 7.76% 3.95%
Connecticut Fund 4.32% 7.49% 3.85%
Florida Fund 4.49% 7.43% 4.09%
Massachusetts Fund 4.39% 8.26% 4.06%
Michigan Fund 4.20% 7.27% 3.89%
Minnesota Fund 4.73% 8.56% 4.42%
New York Fund 4.71% 8.74% 4.21%
North Carolina Fund 4.28% 7.68% 3.87%
Ohio Fund 4.35% 7.76% 4.04%
(vv) Calculated using the effective maximum combined federal and state tax
rates.
(ww) Without voluntary expense limit.
The following Funds' average annual total returns at January 31, 2000 were:
CLASS A SHARES(XX)
================================================================================
CALIFORNIA FUND
<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% (10.39)% 4.74% 5.53%
Without sales charge (5.92)% 5.76% 6.05%
CONNECTICUT FUND
Since inception
1 year 5 years 11/1/91 to 1/31/00
------ ------- ------------------
With sales charge of 4.75% (8.44)% 4.79% 5.23%
Without sales charge (3.87)% 5.81% 5.86%
FLORIDA FUND
Since inception
1 year 5 years 2/1/93 to 1/31/00
------ ------- -----------------
With sales charge of 4.75% (10.84)% 4.07% 3.74%
Without sales charge (6.39)% 5.09% 4.47%
MASSACHUSETTS FUND
1 year 5 years 10 Years
------ ------- --------
</TABLE>
y
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
With sales charge of 4.75% (10.43)% 4.25% 5.94%
Without sales charge (5.96)% 5.27% 6.46%
MICHIGAN FUND
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% (10.51)% 4.11% 5.44%
Without sales charge (6.05)% 5.12% 5.95%
MINNESOTA FUND
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% (12.24)% 3.75% 5.12%
Without sales charge (7.87)% 4.77% 5.64%
NEW YORK FUND
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% (10.79)% 4.46% 5.66%
Without sales charge (6.34)% 5.48% 6.18%
NORTH CAROLINA FUND
Since inception
1 year 5 years 9/1/93 to 1/31/00
------ ------- -----------------
With sales charge of 4.75% (10.78)% 4.52% 2.93%
Without sales charge (6.33)% 5.54% 3.72%
OHIO FUND
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% (11.38)% 4.12% 5.51%
Without sales charge (6.96)% 5.14% 6.02%
</TABLE>
CLASS B SHARES(XX)
================================================================================
<TABLE>
<CAPTION>
CALIFORNIA FUND
1 year 5 years 10 years
------------------- ----------------- --------
<S> <C> <C> <C>
With applicable CDSC (11.11)%(5.00% CDSC) 4.64%(2.00% CDSC) 5.45%(yy)
Without CDSC (6.63)% 4.97% 5.45%(yy)
CONNECTICUT FUND
Since inception
1 year 5 years 11/1/91 to 1/31/00
------------------ ---------------- ------------------
With applicable CDSC (9.17)%(5.00% CDSC) 4.69%(2.00% CDSC) 5.13% (yy)
Without CDSC (4.59)% 5.02% 5.13%(yy)
FLORIDA FUND
Since inception
1 year 5 years 2/1/93 to 1/31/00
------------------ ---------------- ------------------
With applicable CDSC (11.57)%(5.00% CDSC) 3.97%(2.00% CDSC) 3.69% (1.00% CDSC)
Without CDSC (7.10)% 4.31% 3.69%
</TABLE>
z
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
1 year 5 years 10 years
------------------ ---------------- --------
<S> <C> <C> <C>
With applicable CDSC (11.12)%(5.00% CDSC) 4.15%(2.00% CDSC) 5.86%(yy)
Without CDSC (6.67)% 4.48% 5.86%(yy)
MICHIGAN FUND
1 year 5 years 10 years
------------------ ---------------- --------
With applicable CDSC (11.24)%(5.00% CDSC) 4.00%(2.00% CDSC) 5.36%(yy)
Without CDSC (6.76)% 4.34% 5.36%(yy)
MINNESOTA FUND
1 year 5 years 10 years
------------------- ---------------- --------
With applicable CDSC (12.95)%(5.00% CDSC) 3.66%(2.00% CDSC) 5.04%(yy)
Without CDSC (8.56)% 3.98% 5.04%(yy)
NEW YORK FUND
1 year 5 years 10 years
------------------- ---------------- --------
With applicable CDSC (11.50)%(5.00% CDSC) 4.36%(2.00% CDSC) 5.59%(yy)
Without CDSC (7.04)% 4.69% 5.59%(yy)
NORTH CAROLINA FUND
Since inception
1 year 5 years 9/1/93 to 1/31/00
------------------ ---------------- ------------------
With applicable CDSC (11.51)%(5.00% CDSC) 4.42%(2.00% CDSC) 2.94%(1.00% CDSC)
Without CDSC (7.03)% 4.75% 2.94%
OHIO FUND
1 year 5 years 10 years
------------------- ---------------- --------
With applicable CDSC (12.09)%(5.00% CDSC) 4.02%(2.00% CDSC) 5.43%(yy)
Without CDSC (7.66)% 4.35% 5.43%(yy)
</TABLE>
CLASS C SHARES(XX)
================================================================================
<TABLE>
<CAPTION>
CALIFORNIA FUND
1 year 5 years 10 years
------------------ --------- --------
<S> <C> <C> <C>
With applicable CDSC (7.24)%(1.00% CDSC) 5.52%(yy) 5.93%(yy)
Without CDSC (6.35)% 5.52%(yy) 5.93%(yy)
</TABLE>
aa
<PAGE>
<TABLE>
<CAPTION>
CONNECTICUT FUND
Since inception
1 year 5 years 11/1/91 to 1/31/00
------------------ --------- --------------------
<S> <C> <C> <C>
With applicable CDSC (5.22)%(1.00% CDSC) 5.57%(yy) 5.71%(1.00% CDSC)(yy)
Without CDSC (4.31)% 5.57%(yy) 5.71%(yy)
FLORIDA FUND
Since inception
1 year 5 years 2/1/93 to 1/31/00
------------------ -------- --------------------
With applicable CDSC (7.71)%(1.00% CDSC) 4.46%(yy) 3.80%(1.00% CDSC)(yy)
Without CDSC (6.82)% 4.46%(yy) 3.80%(yy)
MASSACHUSETTS FUND
1 year 5 years 10 years
------------------ -------- --------
With applicable CDSC (7.28)%(1.00% CDSC) 5.03%(yy) 6.34%(yy)
Without CDSC (6.38)% 5.03%(yy) 6.34%(yy)
MICHIGAN FUND
1 year 5 years 10 years
------------------ -------- --------
With applicable CDSC (7.37)%(1.00% CDSC) 4.89%(yy) 5.83%(yy)
Without CDSC (6.47)% 4.89%(yy) 5.83%(yy)
MINNESOTA FUND
1 year 5 years 10 years
------------------ -------- --------
With applicable CDSC (9.16)%(1.00% CDSC) 4.53%(yy) 5.52%(yy)
Without CDSC (8.29)% 4.53%(yy) 5.52%(yy)
NEW YORK FUND
1 year 5 years 10 years
------------------ -------- --------
With applicable CDSC (7.66)%(1.00% CDSC) 5.24%(yy) 6.06%(yy)
Without CDSC (6.76)% 5.24%(yy) 6.06%(yy)
NORTH CAROLINA FUND
Since inception
1 year 5 years 9/1/93 to 1/3100
------------------ -------- ---------------------
With applicable CDSC (7.65)%(1.00% CDSC) 4.88%(yy) 3.04% (1.00% CDSC)(yy)
Without CDSC (6.75)% 4.88%(yy) 3.04%(yy)
OHIO FUND
1 year 5 years 10 years
------------------ -------- --------
With applicable CDSC (8.26)%(1.00% CDSC) 4.90%(yy) 5.90%(yy)
Without CDSC (7.38) 4.90% 5.90%
</TABLE>
(xx) 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.
bb
<PAGE>
(yy) 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 (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.
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/AUDITORS
PricewaterhouseCoopers LLP, located at 160 Federal Street, Boston, MA 02110-2624
are the independent accountants for the Minnesota Tax-Exempt Fund, the New York
Tax-Exempt Fund, the North Carolina Tax-Exempt Fund and the Ohio Tax-Exempt
Fund. Ernst & Young LLP, located at 200 Clarendon Street, Boston MA 02116 are
the independent auditors for the California Tax-Exempt Fund, the Connecticut
Tax-Exempt Fund, the Florida Tax-Exempt Fund, the Massachusetts Tax-Exempt Fund
and the Michigan Tax-Exempt Fund. Both firms provide audit and tax return
preparation services and assistance and consultation in connection with the
review of various Securities and Exchange Commission filings. Prior to June 18,
1999, PricewaterhouseCoopers LLP were the independent accountants for the
California Tax-Exempt Fund, the Connecticut Tax-Exempt Fund, the Florida
Tax-Exempt Fund, the Massachusetts Tax-Exempt Fund, and the Michigan Tax-Exempt
Fund. 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 reports of PricewaterhouseCoopers LLP and Ernst &
Young LLP given on the authority of said firms as experts in accounting and
auditing.
cc
<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
3. the Advisor's credit analysis of lower rated debt securities may have a
greater impact on the fund's
4. lower rated debt securities may be less sensitive to interest rate changes,
but are more sensitive to adverse
In addition, certain lower-rated debt securities may not pay interest in cash on
a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
FOREIGN SECURITIES
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than
1
<PAGE>
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.
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SECURITIES LOANS
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and
"when-issued securities") if the fund holds until the settlement date, in a
segregated account, cash or liquid securities in an amount sufficient to meet
the purchase price, or if the fund enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the fund of an
advantageous yield or price. Although the fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may dispose
of a commitment prior to settlement if the Advisor deems it appropriate to do
so. The fund may realize short-term profits or losses (generally taxed at
ordinary income tax rates in the hands of the shareholders) upon the sale of
forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. In addition, 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
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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.
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PURCHASING CALL OPTIONS. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment
Management of the 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.
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A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. government securities. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
liquid securities equal in value to the commodity value (less any applicable
margin deposits) have been deposited in a segregated account of the fund's
custodian. The fund may purchase and write call and put options on futures
contracts it may buy or sell and enter into closing transactions with respect to
such options to terminate existing positions. The fund may use such options on
futures contracts in lieu of writing options directly on the underlying
securities or purchasing and selling the underlying futures contracts. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the fund is subject to the Advisor's ability to predict
correctly, movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
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There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES
CONTRACTS AND OPTIONS. The funds investing in tax-exempt securities may purchase
and sell futures contracts and related options on interest rate and U.S.
Treasury securities when, in the opinion of the Advisor, price movements in
these security futures and related options will correlate closely with price
movements in the tax-exempt securities which are the subject of the hedge.
Interest rate and U.S. Treasury securities futures contracts require the seller
to deliver, or the purchaser to take delivery of, the type of security called
for in the contract at a specified date and price. Options on interest rate and
U.S. Treasury security futures contracts give the purchaser the right in return
for the premium paid to assume a position in a futures contract at the specified
option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in interest rate and U.S. Treasury security
futures contracts and related options will not correlate closely with price
movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Advisor will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of index futures by the fund for hedging purposes is also subject
to the Advisor's ability to predict correctly movements in the direction of the
market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value of its portfolio securities. However, while
this could occur to a certain degree, the Advisor believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the
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futures market are less onerous than margin requirements in the securities
market, and as a result, the futures market may attract more speculators than
the securities market. Increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortions in the futures market and also because of the imperfect
correlation between movements in the index and movements in the prices of index
futures, even a correct forecast of general market trends by the Advisor may
still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
FOREIGN CURRENCY TRANSACTIONS
The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The fund may engage in both "transaction hedging" and "position hedging." When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
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Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated with the fund's custodian.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Advisor believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex
political and economic factors applicable to the issuing country. In addition,
the exchange rates of currencies (and therefore the values of currency options)
may be significantly affected, fixed, or supported directly or indirectly by
government actions. Government intervention may increase risks involved in
purchasing or selling currency options, since exchange rates may not be free to
fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
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There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged, a
municipal lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the municipal lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. In addition, the tax treatment of such
obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal
lease obligation, as with any other municipal security, are made based on all
relevant factors. These factors include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.
PARTICIPATION INTERESTS
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
STAND-BY COMMITMENTS
When the fund purchases municipal obligations, it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
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INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A 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 exceed its investment
limit on illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of the fund's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
TAXES
In this section, all discussions of taxation at the shareholder and Fund levels
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.
FEDERAL TAXES. The fund (even if it is a fund in a Trust with multiple series)
is treated as a separate entity for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the "Code"). The fund has elected (or
in the case of a new fund, intends to elect) to be, and intends to qualify to be
treated each year as, a "regulated investment company" under Subchapter M of the
Code by meeting all applicable requirements of Subchapter M, including
requirements as to the nature of the fund's gross income, the amount of its
distributions (as a percentage of both its overall income and any tax-exempt
income), and the composition of its portfolio assets. As a regulated investment
company, the fund will not be subject to any federal income or excise taxes on
its net investment income and net realized capital gains that it distributes to
shareholders in accordance with the timing requirements imposed by the Code. The
fund's foreign-source income, if any, may be subject to foreign withholding
taxes. If the fund were to fail to qualify as a "regulated investment company"
in any year, it would incur a regular federal corporate income tax on all of its
taxable income, whether or not distributed, and fund distributions would
generally be taxable as ordinary dividend income to the shareholders.
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. Distributions of long-
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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 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").
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
SALES OF SHARES. The sale, exchange or redemption of fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares generally will be treated as long-term capital gain if the shares have
been held for more than 12 months. Otherwise the gain on the sale, exchange or
redemption of fund shares will be treated as short-term capital gain. In
general, any loss realized upon a taxable disposition of shares will be treated
as long-term loss if the shares have been held more than 12 months, and
otherwise as short-term loss. However, any loss realized upon a taxable
disposition of shares held for six months or less will be treated as long-term,
rather than short-term, capital loss to the extent of any long-term capital gain
distributions received by the shareholder with respect to those shares. All or a
portion of any loss realized upon a taxable disposition of shares will be
disallowed if other shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased shares will be
adjusted to reflect the disallowed loss.
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BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, LFS may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
EXCISE TAX. To the extent that the fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Advisor intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
TAX ACCOUNTING PRINCIPLES. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the close of each quarter of
its taxable year, (i) at least 50% of the value of its total assets consists of
cash, cash items, U.S. government securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any issuer (other than U.S. government securities) and (c)
distribute at least 90% of both its ordinary income (inclusive of net short-term
capital gains) and its tax-exempt interest income earned each year.
HEDGING TRANSACTIONS. If the fund engages in hedging transactions, including
hedging transactions in options, futures contracts and straddles, or other
similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale and short sale rules),
the effect of which may be to accelerate income to the fund, defer losses to the
fund, cause adjustments in the holding periods of the fund's securities, convert
long-term capital gains into short-term capital gains or convert short-term
capital losses into long-term capital losses. These rules could therefore affect
the amount, timing and character of distributions to shareholders. The fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The fund's investment in debt securities issued
at a discount and certain other obligations will (and investments in securities
purchased at a discount may) require the fund to accrue and distribute income
not yet received. In such cases, the fund may be required to sell assets
(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.
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.
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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,
Stein Roe Small Cap Tiger Fund, Newport Japan Opportunities Fund, Newport
Greater China Fund, Newport Europe 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>
Position Principal Occupation
Name and Address Age with Fund During Past Five Years
---------------- --- --------- ----------------------
<S> <C> <C> <C>
Tom Bleasdale 69 Trustee Retired (formerly Chairman of the Board
102 Clubhouse Drive #275 and Chief Executive Officer, Shore Bank & Trust
Naples, Florida 34105 Company from 1992 to 1993); Director of Empire Co.
John V. Carberry* 52 Trustee Senior Vice President of Liberty Financial
56 Woodcliff Road (formerly Managing Director, Salomon Brothers
Wellesley Hills, MA 02481 (investment banking) from January, 1988 to January, 1998).
Lora S. Collins 64 Trustee Attorney (formerly Attorney, Kramer, Levin,
1175 Hill Road Naftalis & Frankel from September, 1986 to November, 1996).
Southold, NY 11971
James E. Grinnell 70 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
Richard W. Lowry 63 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
Salvatore Macera 68 Trustee Private Investor (formerly Executive Vice President and
26 Little Neck Lane Director of Itek Corporation (electronics) from 1975 to 1981).
New Seabury, MA 02649
William E. Mayer* 59 Trustee Partner, Development Capital, LLC (venture capital)
500 Park Avenue, 5th Floor (formerly Dean, College of Business and Management,
New York, NY 10022 University of Maryland from October, 1992 to November, 1996);
Director, Johns Manville; Director, Lee Enterprises.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C>
James L. Moody, Jr. 68 Trustee Retired (formerly Chairman of the Board, Hannaford Bros. Co.
16 Running Tide Road (food retailer) from May, 1984 to May, 1997, and
Cape Elizabeth, ME 04107 Chief Executive Officer, Hannaford Bros. Co.
from May, 1973 to May, 1992).
John J. Neuhauser 56 Trustee Academic Vice President and Dean of Faculties since
84 College Road August, 1999, Boston College (formerly Dean, Boston College
Chestnut Hill, MA 02467-3838 School of Management from September, 1977 to September, 1999).
Thomas E. Stitzel 64 Trustee Business Consultant (formerly Professor of Finance from 1975
2208 Tawny Woods Place to 1999 and Dean from 1977 to 1991, College of Business,
Boise, ID 83706 Boise State University; Chartered Financial Analyst.
Anne-Lee Verville 54 Trustee Consultant (formerly General Manager, Global Education Industry
359 Stickney Hill Road from 1994 to 1997, and President, Applications Solutions Division
Hopkinton, NH 03229 from 1991 to 1994, IBM Corporation (global education and global
applications)).
Stephen E. Gibson 46 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 35 Controller Controller and Chief Accounting Officer of the Funds since
and Chief February, 1998; Vice President of the Advisor since
Accounting February, 1998 (formerly Senior Tax Manager,
Officer 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).
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C>
Pamela A. McGrath 46 Treasurer and Treasurer and Chief Financial Officer of the Liberty Funds
Chief Financial and Liberty All-Star Funds since April, 2000; Treasurer,
Officer Chief Financial Officer and Vice President of LFG since
December, 1999; Chief Financial Officer, Treasurer and
Senior Vice President of Colonial since December, 1999;
Director of Offshore Accounting for Putnam Investments from
May, 1998 to October 1999; Managing Director of Scudder
Kemper Investments from October, 1984 to December, 1997.
Nancy L. Conlin 46 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).
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 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
16
<PAGE>
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 $17 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, STEIN ROE SMALL CAP TIGER FUND, NEWPORT GREATER CHINA FUND,
NEWPORT EUROPE 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, STEIN ROE SMALL CAP TIGER FUND, NEWPORT GREATER CHINA FUND,
NEWPORT EUROPE 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
(c) preparing and, if applicable, filing all documents required for
compliance by each fund with applicable laws and regulations;
17
<PAGE>
(d) preparation of agendas and supporting documents for and minutes of
meetings of Trustees,
(e) coordinating and overseeing the activities of each fund's other
third-party service providers;
(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;
and 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, Stein Roe Small Cap Tiger Fund, Newport Greater China Fund,
Newport Europe 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, Stein Roe Small Cap Tiger Fund, Newport
Greater China Fund, Newport Europe 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, STEIN ROE SMALL CAP TIGER FUND, NEWPORT GREATER CHINA FUND, NEWPORT EUROPE
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
Fund, Newport Tiger Fund, Newport Japan Opportunities Fund, Stein Roe Small Cap
Tiger Fund, Newport Greater China Fund, Newport Europe 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
18
<PAGE>
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.
The Advisor may use the services of AlphaTrade Inc. (ATI), a registered
broker-dealer and subsidiary of the Advisor, 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.
19
<PAGE>
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
LFS 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 LFS 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 LFS. The
agreement continues indefinitely but may be terminated by 90 days' notice by the
fund to LFS or generally by 6 months' notice by LFS to the fund. The agreement
limits the liability of LFS to the fund for loss or damage incurred by the fund
to situations involving a failure of LFS 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 LFS against, among other things, loss or damage incurred
by LFS on account of any claim, demand, action or suit made on or against LFS
not resulting from LFS's bad faith or negligence and arising out of, or in
connection with, its duties under the agreement.
CODE OF ETHICS
The fund, the Advisor, and LFD have adopted Codes of Ethics pursuant to the
requirements of the Act. These Codes of Ethics permit personnel subject to the
Codes to invest in securities, including securities that may be purchased or
held by the funds.
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, Stein Roe Small Cap Tiger Fund, Newport Greater China
Fund, Newport Europe Fund and Newport Asia Pacific Fund. "Advisor" in these two
paragraphs refers to each fund's investment advisor, Newport Fund Management,
Inc.)
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
20
<PAGE>
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 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 LFS,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, LFD's commission is the sales charge shown in the fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that LFD retains the entire sales charge on any sales made to a
shareholder who does not specify a FSF on the Investment Account Application
("Application"), and except that LFD may from time to time reallow additional
amounts to all or certain FSFs. LFD generally retains some or all of any
asset-based sales charge (distribution fee) or contingent deferred sales 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.
LFS acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to LFS, provided the new FSF has a sales agreement
with LFD.
Shares credited to an account are transferable upon written instructions in good
order to LFS and may be redeemed as described under "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
LFS for deposit to their account.
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LFD may, at its expense, provide special sales incentives (such as cash payments
in addition to the commissions specified in the Fund's SAI) to FSFs that agree
to promote the sale of shares of the Fund or other funds that LFD distributes.
At its discretion, the Distributor may offer special sales incentives only to
selected FSFs or to FSFs who have previously sold or expect to sell significant
amounts of the Fund's shares.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
AUTOMATIC INVESTMENT PLAN. 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 Automatic
Investment Plan. 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 Automatic Investment Plan purchase is by electronic funds
transfer, you may request the Automatic Investment Plan purchase for any day.
Further information and application forms are available from FSFs or from LFD.
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 LFS.
Participants in LFD prototype Plans (other than IRAs) who liquidate the total
value of their account will also be charged a $15 close-out processing fee
payable to LFS. The fee is in addition to any applicable CDSC. The fee will not
apply if the participant uses the proceeds to open a LFD IRA Rollover account in
any fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax advisor regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling LFS, shareholders 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 LFS for more information at
1-800-422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHT OF ACCUMULATION (Class A, Class B 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, B 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 LFS. A fund may terminate or amend
this Right of Accumulation.
STATEMENT OF INTENT (Class A and Class T shares only).
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, LFS 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, LFS will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from LFS at 1-800-345-6611.
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. LFS 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 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:
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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
* 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 LFS receives a written reinstatement request and payment. Any CDSC paid at
the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or LFS. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax advisor.
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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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 LFS, to the extent the redemptions do not exceed, on
an annual basis, 12% of the account's value, so long as at the time of
the first SWP redemption the account had had distributions reinvested
for a period at least equal to the period of the SWP (e.g., if it is a
quarterly SWP, distributions must have been reinvested at least for the
three-month period prior to the first SWP redemption). Otherwise, CDSCs
will be charged on SWP redemptions until this requirement is met; this
requirement does not apply 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.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund may delay
selling your shares for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to LFS, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, LFS and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call LFS for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to LFS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN If a shareholder's account balance is at least
$5,000, the shareholder may establish a SWP. A specified dollar amount or
percentage of the then current net asset value of the shareholder's investment
in any fund designated by the
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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, LFS will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name," the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions are limited to a total of $100,000 in a 30-day period. Redemptions
that exceed $100,000 may be accomplished by placing a wire order trade through a
broker or furnishing a signature guarantee request. Telephone redemption
privileges for larger amounts may be elected on the Application. LFS 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. LFS will provide checks to be drawn on Boston Safe Deposit and
Trust Company (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 Bank may charge customary fees for services such as a
stop payment request or a request for copies of a check. 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 LFS before requesting an exchange.
By calling LFS, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting LFS by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. LFS
will also make exchanges upon receipt of a written exchange request and share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, LFS will require customary additional documentation.
Prospectuses of the other funds are available from the LFD Literature Department
by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
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 LFS. In all cases, the shares to be exchanged must be registered on the
records of the fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at
NAV for the same class of shares of the fund.
An exchange is generally a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time.
SUSPENSION OF REDEMPTIONS
A fund may not suspend shareholders' right of redemption or postpone payment for
more than seven days unless the Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the SEC during periods
when trading on the Exchange is
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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", 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 (except Colonial Money Market Fund); 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 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
28
<PAGE>
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, Inc., 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 funds' 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 Value(TM) investment strategy
that expands upon the principles of traditional value investing; the fund's
portfolio holdings; the investment research and analysis process; the
formulation and evaluation of investment recommendations; and the assessment and
evaluation of credit, interest rate, market and economic risks and similar or
related matters.
The fund may also quote evaluations mentioned in independent radio or television
broadcasts, and use charts and graphs to illustrate the past performance of
various indices such as those mentioned in Appendix II and illustrations using
hypothetical rates of return to illustrate the effects of compounding and
tax-deferral. The fund may advertise examples of the effects of periodic
investment plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low.
From time to time, the fund may also discuss or quote the views of its
distributor, its investment advisor and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; general investment techniques (e.g.,
asset allocation and disciplined saving and investing); business succession;
issues with respect to insurance (e.g., disability and life insurance and
Medicare supplemental insurance); issues regarding financial and health care
management for elderly family members; and similar or related matters.
29
<PAGE>
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.
30
<PAGE>
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on the obligation are being
continued.
D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
31
<PAGE>
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large in
Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
32
<PAGE>
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INVESTORS 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.
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.
33
<PAGE>
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such
securities are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these securities, and `D'
represents the lowest potential for recovery.
DUFF & PHELPS CREDIT RATING CO.
AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA - High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A, A - Protection factors are average but adequate. However, risk factors
are more available and greater in periods of economic stress.
BBB+, BBB, BBB - Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB - Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B - Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
CCC - Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD - Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
34
<PAGE>
APPENDIX II
1999
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
------ -------- ----------
<S> <C> <C>
CREDIT SUISSE FIRST BOSTON:
First Boston High Yield Index-Global 3.28
LIPPER, INC.:
AMEX Composite Index P 27.28
AMEX Computer Tech IX P 75.02
AMEX Institutional IX P 24.46
AMEX Major Market IX P 17.76
Bse Sensex Index 63.83
CAC 40:FFR IX P 51.12
CD Rate 1 Month Index Tr 5.31
CD Rate 3 Month Index Tr 5.46
CD Rate 6 Month Index Tr 5.59
Consumer Price Index 2.99
Copnhgn SE:Dkr IX P 20.46
DAX:Dm IX Tr 39.10
Domini 400 Social Index 24.50
Dow Jones 65 Comp Av P 11.97
Dow Jones Ind Average P 25.22
Dow Jones Ind Dly Reinv 27.21
Dow Jones Ind Mth Reinv 27.29
Dow Jones Trans Av P -5.47
Dow Jones Trans Av Tr -4.52
Dow Jones Util Av P -9.27
Dow Jones Util Av Tr -6.02
Ft/S&P Act Wld Ex US IX N/A
Ft/S&P Actuaries Wld IX N/A
FT-SE 100:Pd IX P 17.81
FT-SE Gold Mines IX 0.20
Hang Seng:Hng Kng $ IX 68.80
Jakarta Composite Index 70.06
Jasdaq Index:Yen P 244.48
Klse Composite Index 38.59
Kospi Index 82.78
Lear High Growth Rate IX N/A
Lear Low Priced Value IX N/A
Lehman 1-3 Govt/Corp P -2.89
Lehman 1-3 Govt/Corp Tr 3.15
Lehman Aggregate Bd P -7.03
Lehman Aggregate Bd Tr -0.82
Lehman Cp Bd Int P -6.43
Lehman Cp Bd Int Tr 0.16
Lehman Govt Bd Int P -5.36
Lehman Govt Bd Int Tr 0.49
Lehman Govt Bd Long P -14.59
Lehman Govt Bd Long Tr -8.73
Lehman Govt Bd P -8.08
Lehman Govt Bd Tr -2.23
Lehman Govt/Cp Bd P -8.26
Lehman Govt/Cp Bd Tr -2.15
Lehman Govt/Cp Int P -5.70
Lehman Govt/Cp Int Tr 0.39
</TABLE>
35
<PAGE>
Lehman High Yield P -6.64
Lehman High Yield Tr 2.39
Lehman Muni 10 Yr IX P -6.08
Lehman Muni 10 Yr IX Tr -1.25
Lehman Muni 3 Yr IX P -3.36
Lehman Muni 3 Yr IX Tr 1.96
Lehman Muni Bond IX P -7.08
Lehman Muni Bond IX Tr -2.06
Lipper 1000 N/A
Lipper Mgmt Co Price IX 12.57
Madrid SE:Pst IX P 16.22
ML 10+ Yr Treasury IX Tr -8.61
ML 1-3 Yr Muni IX P -2.72
ML 1-3 Yr Muni IX Tr 2.51
ML 1-3 Yr Treasury IX P -2.85
ML 1-3 Yr Treasury IX Tr 3.06
ML 1-5 Yr Gv/Cp Bd IX P -3.84
ML 1-5 Yr Gv/Cp Bd IX Tr 2.19
ML 15 Yr Mortgage IX P -4.14
ML 15 Yr Mortgage IX Tr 2.17
ML 1-5 Yr Treasury IX P -3.83
ML 1-5 Yr Treasury IX Tr 2.04
ML 3 MO T-Bill IX Tr 4.85
ML 3-5 Yr Govt IX P -5.45
ML 3-5 Yr Govt IX Tr 0.32
ML 3-7 Yr Muni IX Tr 0.66
ML Corp Master Index P -8.53
ML Corp Master Index Tr -1.89
ML Glbl Govt Bond Inx P -6.83
ML Glbl Govt Bond Inx Tr -1.66
ML Glbl Gv Bond IX II P -9.65
ML Glbl Gv Bond IX II Tr -4.52
ML Global Bond Index P -9.04
ML Global Bond Index Tr -3.50
ML Gov Corp Master IX Tr -2.05
ML Govt Master Index P -8.02
ML Govt Master Index Tr -2.11
ML Govt/Corp Master IX P -8.19
ML High Yld Master IX P -7.86
ML High Yld Master IX Tr 1.57
ML Master Muni IX Tr -6.35
ML Mortgage Master IX P -4.86
ML Mortgage Master IX Tr 1.61
ML Treasury Master IX P -8.31
ML Treasury Master IX Tr -2.38
MSCI AC Americas Free ID 22.71
MSCI AC Asia Fr-Ja IX GD 64.67
MSCI AC Asia Fr-Ja IX ID 61.95
MSCI AC Asia Pac - Ja GD 55.23
MSCI AC Asia Pac - Ja ID 52.30
MSCI AC Asia Pac Fr-J GD 49.83
MSCI AC Asia Pac Fr-J ID 46.80
MSCI AC Asia Pac IX GD 59.66
MSCI AC Asia Pac IX ID 57.86
MSCI AC Europe IX GD 17.35
MSCI AC Europe IX ID 15.22
MSCI AC Fe - Ja IX GD 67.83
MSCI AC Fe - Ja IX ID 65.24
MSCI AC Fe Free IX GD 61.81
MSCI AC Fe Free IX ID 60.29
36
<PAGE>
MSCI AC Fe Fr-Ja IX GD 62.11
MSCI AC Fe Fr-Ja IX ID 59.40
MSCI AC Pac Fr-Jpn IX GD 46.89
MSCI AC Pac Fr-Jpn IX ID 43.84
MSCI AC World Free IX GD 26.82
MSCI AC World Fr-USA GD 30.91
MSCI AC World Fr-USA ID 28.80
MSCI AC World IX GD 27.31
MSCI AC World IX ID 25.49
MSCI AC World-USA IX GD 31.79
MSCI AC Wrld Fr-Ja IX GD 23.07
MSCI AC Wrld Fr-Ja IX ID 21.20
MSCI AC Wrld-Ja IX GD 23.64
MSCI AC Wrld-Ja IX ID 21.77
MSCI Argentina IX GD 34.29
MSCI Argentina IX ID 30.05
MSCI Australia IX GD 18.67
MSCI Australia IX ID 15.19
MSCI Australia IX ND 17.62
MSCI Austria IX GD -8.66
MSCI Austria IX ID -10.47
MSCI Austria IX ND -9.11
MSCI Belgium IX GD -13.75
MSCI Belgium IX ID -15.77
MSCI Belgium IX ND -14.26
MSCI Brazil IX GD 67.23
MSCI Brazil IX ID 61.57
MSCI Canada IX GD 54.40
MSCI Canada IX ID 51.78
MSCI Canada IX ND 53.74
MSCI Chile IX GD 39.01
MSCI Chile IX ID 36.45
MSCI China Dom Fr IX ID 31.10
MSCI China Free IX ID 9.94
MSCI China Non Dom IX ID 5.82
MSCI Colombia IX GD -13.69
MSCI Colombia IX ID -19.14
MSCI Czech Rep IX GD 5.35
MSCI Czech Rep IX ID 3.97
MSCI Denmark IX GD 12.47
MSCI Denmark IX ID 10.85
MSCI Denmark IX ND 12.06
MSCI EAFE - UK IX GD 31.45
MSCI EAFE - UK IX ID 29.63
MSCI EAFE - UK IX ND 31.01
MSCI EAFE + Canada IX GD 28.27
MSCI EAFE + Canada IX ID 26.22
MSCI EAFE + Canada IX ND 27.93
MSCI EAFE + Em IX GD 31.03
MSCI EAFE + EM IX ID 28.93
MSCI EAFE + EMF IX GD 30.33
MSCI EAFE + EMF IX ID 28.24
MSCI EAFE Fr IX ID 25.03
MSCI EAFE GDP Wt IX GD 31.38
MSCI EAFE GDP Wt IX ID 29.49
MSCI EAFE GDP Wt IX ND 31.00
MSCI EAFE IX GD 27.30
MSCI EAFE IX ID 25.27
MSCI EAFE IX ND 26.96
MSCI EASEA IX GD 18.12
37
<PAGE>
MSCI EASEA IX ID 15.90
MSCI EASEA IX ND 17.77
MSCI Em Asia IX GD 69.73
MSCI Em Asia IX ID 67.96
MSCI Em Eur/Mid East GD 79.61
MSCI Em Eur/Mid East ID 76.67
MSCI Em Europe IX GD 83.98
MSCI Em Europe IX ID 81.28
MSCI Em Far East IX GD 67.27
MSCI Em Far East IX ID 65.67
MSCI Em IX GD 68.82
MSCI Em IX ID 66.18
MSCI Em Latin Am IX GD 65.45
MSCI Em Latin Am IX ID 61.81
MSCI EMF Asia IX GD 69.41
MSCI EMF Asia IX ID 67.65
MSCI EMF Far East IX GD 65.50
MSCI EMF Far East IX ID 63.97
MSCI EMF IX GD 66.41
MSCI EMF IX ID 63.70
MSCI EMF Latin Am IX GD 58.89
MSCI EMF Latin Am IX ID 55.48
MSCI Europe - UK IX GD 17.84
MSCI Europe - UK IX ID 16.00
MSCI Europe - UK IX ND 17.35
MSCI Europe GDP Wt IX ID 14.08
MSCI Europe IX GD 16.23
MSCI Europe IX ID 14.12
MSCI Europe IX ND 15.89
MSCI European Union GD 19.22
MSCI European Union ID 16.99
MSCI Far East Free IX ID 59.99
MSCI Far East IX GD 62.63
MSCI Far East IX ID 61.10
MSCI Far East IX ND 62.41
MSCI Finland IX GD 153.33
MSCI Finland IX ID 150.71
MSCI Finland IX ND 152.60
MSCI France IX GD 29.69
MSCI France IX ID 28.00
MSCI France IX ND 29.27
MSCI Germany IX GD 20.53
MSCI Germany IX ID 18.70
MSCI Germany IX ND 20.04
MSCI Greece IX GD 49.64
MSCI Greece IX ID 47.58
MSCI Hongkong IX GD 59.52
MSCI Hongkong IX ID 54.85
MSCI Hongkong IX ND 59.52
MSCI Hungary IX GD 11.66
MSCI Hungary IX ID 10.81
MSCI India IX GD 87.35
MSCI India IX ID 84.67
MSCI Indonesia IX GD 93.46
MSCI Indonesia IX ID 92.04
MSCI Ireland IX ID -14.02
MSCI Israel Dom IX ID 51.10
MSCI Israel IX ID 56.29
MSCI Israel Non Dom Ixid 47.06
MSCI Italy IX GD 0.19
38
<PAGE>
MSCI Italy IX ID -1.48
MSCI Italy IX ND -0.26
MSCI Japan IX GD 61.77
MSCI Japan IX ID 60.56
MSCI Japan IX ND 61.53
MSCI Jordan IX GD 6.26
MSCI Jordan IX ID 2.00
MSCI Kokusai IX GD 21.26
MSCI Kokusai IX ID 19.43
MSCI Kokusai IX ND 20.84
MSCI Korea IX GD 92.42
MSCI Korea IX ID 90.17
MSCI Luxembourg IX ID 50.50
MSCI Malaysia IX GD 109.92
MSCI Malaysia IX ID 107.23
MSCI Mexico Free IX GD 80.07
MSCI Mexico Free IX ID 78.50
MSCI Mexico IX GD 81.76
MSCI Mexico IX ID 80.19
MSCI Netherland IX GD 7.43
MSCI Netherland IX ID 5.25
MSCI Netherland IX ND 6.88
MSCI New Zealand IX GD 14.30
MSCI New Zealand IX ID 9.70
MSCI New Zealand IX ND 12.90
MSCI Nordic IX GD 87.75
MSCI Nordic IX ID 85.11
MSCI Nordic IX ND 87.00
MSCI Norway IX GD 32.43
MSCI Norway IX ID 29.52
MSCI Norway IX ND 31.70
MSCI Nth Amer IX GD 23.47
MSCI Nth Amer IX ID 21.91
MSCI Nth Amer IX ND 23.00
MSCI Pac - Japan IX GD 43.20
MSCI Pac - Japan IX ID 39.35
MSCI Pac - Japan IX ND 42.58
MSCI Pacific Free IX ID 55.19
MSCI Pacific Fr-Jpn ID 34.95
MSCI Pacific IX GD 57.96
MSCI Pacific IX ID 56.17
MSCI Pacific IX ND 57.63
MSCI Pakistan IX GD 49.62
MSCI Pakistan IX ID 42.24
MSCI Peru IX GD 18.86
MSCI Peru IX ID 16.34
MSCI Philippines Fr Ixgd 3.32
MSCI Philippines Fr Ixid 2.33
MSCI Philippines IX GD 8.90
MSCI Philippines IX ID 7.62
MSCI Portugal IX GD -8.45
MSCI Portugal IX ID -10.86
MSCI Russia IX GD 247.06
MSCI Russia IX ID 246.20
MSCI Sing/Mlysia IX GD 99.40
MSCI Sing/Mlysia IX ID 97.08
MSCI Sing/Mlysia IX ND 99.40
MSCI Singapore Fr IX GD 60.17
MSCI Singapore Fr IX ID 58.43
MSCI South Africa IX GD 57.20
39
<PAGE>
MSCI South Africa IX ID 53.43
MSCI Spain IX GD 5.27
MSCI Spain IX ID 3.53
MSCI Spain IX ND 4.83
MSCI Sri Lanka IX GD -6.27
MSCI Sri Lanka IX ID -9.73
MSCI Sweden IX GD 80.60
MSCI Sweden IX ID 77.76
MSCI Sweden IX ND 79.74
MSCI Swtzrlnd IX GD -6.59
MSCI Swtzrlnd IX ID -7.81
MSCI Swtzrlnd IX ND -7.02
MSCI Taiwan IX GD 52.71
MSCI Taiwan IX ID 51.52
MSCI Thailand IX GD 40.92
MSCI Thailand IX ID 40.49
MSCI Turkey IX GD 252.41
MSCI Turkey IX ID 244.36
MSCI UK IX GD 12.45
MSCI UK IX ID 9.74
MSCI UK IX ND 12.45
MSCI USA IX GD 22.38
MSCI USA IX ID 20.86
MSCI USA IX ND 21.92
MSCI Venezuela IX GD 8.71
MSCI Venezuela IX ID 1.68
MSCI World - UK IX GD 26.83
MSCI World - UK IX ID 25.17
MSCI World - UK IX ND 26.38
MSCI World - USA IX GD 28.27
MSCI World - USA IX ID 26.22
MSCI World - USA IX ND 27.93
MSCI World GDP Wt IX ID 27.26
MSCI World IX Free ID 23.45
MSCI World IX GD 25.34
MSCI World IX ID 23.56
MSCI World IX ND 24.93
MSCI Wrld - Austrl IX GD 25.42
MSCI Wrld - Austrl IX ID 23.67
MSCI Wrld - Austrl IX ND 25.03
NASDAQ 100 IX P 101.95
NASDAQ Bank IX P -7.98
NASDAQ Composite IX P 85.59
NASDAQ Industrial IX P 71.67
NASDAQ Insurance IX P 5.54
NASDAQ Natl Mkt Cmp IX 85.87
NASDAQ Natl Mkt Ind IX 72.04
NASDAQ Transport IX P 1.82
Nikkei 225 Avg:Yen P 36.79
NYSE Composite P 9.15
NYSE Finance IX P -0.92
NYSE Industrials IX P 11.37
NYSE Transportation IX -3.25
NYSE Utilities IX P 14.62
Oslo SE Tot:Fmk IX P 45.54
Philippines Composite IX 8.85
PSE Technology IX P 116.40
Russell 1000 Grow IX Tr 33.16
Russell 1000 IX P 19.46
Russell 1000 IX Tr 20.91
40
<PAGE>
Russell 1000 Value IX Tr 7.35
Russell 2000 Grow IX Tr 43.09
Russell 2000 IX P 19.62
Russell 2000 IX Tr 21.26
Russell 2000 Value IX Tr -1.49
Russell 3000 IX P 19.43
Russell 3000 IX Tr 20.90
Russell Midcap Grow IX 51.29
Russell Midcap IX Tr 18.23
Russell Midcap Value IX -0.11
S & P 100 Index P 31.26
S & P 500 Daily Reinv 21.04
S & P 500 Index P 19.53
S & P 500 Mnthly Reinv 21.03
S & P 600 Index P 11.52
S & P 600 Index Tr 12.41
S & P Financial IX P 2.19
S & P Financial IX Tr 3.97
S & P Industrial IX Tr 25.87
S & P Industrials P 24.52
S & P Midcap 400 IX P 13.35
S & P Midcap 400 IX Tr 14.72
S & P Transport Index P -10.69
S & P Transport IX Tr -9.32
S & P Utility Index P -12.48
S & P Utility Index Tr -8.88
S & P/Barra Growth IX Tr 27.98
S & P/Barra Value IX Tr 12.72
SB Cr-Hdg Nn-US Wd IX Tr 2.88
SB Cr-Hdg Wd Gv Bd IX Tr 1.31
SB Non-US Wd Gv Bd IX Tr -5.07
SB Wd Gv Bd:Austrl IX Tr 4.07
SB Wd Gv Bd:Germny IX Tr -16.42
SB Wd Gv Bd:Japan IX Tr 15.53
SB Wd Gv Bd:UK IX Tr -4.30
SB Wd Gv Bd:US IX Tr -2.45
SB World Govt Bond IX Tr -4.27
SB World Money Mkt IX Tr 0.39
Straits Times Index 77.54
Swiss Perf:Sfr IX Tr 11.69
Taiwan SE:T$ IX P 42.86
T-Bill 1 Year Index Tr 4.91
T-Bill 3 Month Index Tr 4.74
T-Bill 6 Month Index Tr 4.85
Thailand Set Index 35.44
Tokyo 2nd Sct:Yen IX P 121.27
Tokyo Se(Topix):Yen IX 58.44
Toronto 300:C$ IX P 29.72
Toronto SE 35:C$ IX P 36.42
Value Line Cmp IX-Arth 10.56
Value Line Cmp IX-Geom -1.40
Value Line Industrl IX -0.05
Value Line Railroad IX -9.93
Value Line Utilties IX -7.10
Lipper CE Pac Ex Jpn IX 73.32
Lipper Pac Ex-Jpn Fd IX 74.88
THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUST::
Real Estate Investment Trust Index -4.62
41
<PAGE>
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY WGBI MARKET SECTORS: LOCAL CURRENCY U.S. DOLLARS
----------------------------------------- -------------- ------------
<S> <C> <C>
U.S. Government (Sovereign) -2.45 -2.45
United Kingdom (Sovereign) -1.20 -4.3
France (Sovereign) -2.95 -17.16
Germany (Sovereign) -2.08 -16.42
Japan (Sovereign) 4.83 15.53
Canada (Sovereign) -1.46 4.29
</TABLE>
Each Russell Index listed above is a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
*in U.S. currency
42
<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(4)
(b) Amended By-Laws(4)
(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), filed with the
Commission on or about March 21, 1997, 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), filed with the
Commission on or about May 24, 1999, and is
hereby incorporated by reference and
made a part of this Registration Statement
(e)(2) Appendix 1 to the Distribution Agreement between
the Registrant and Liberty Funds Distributor,
Inc. - filed as Exhibit 6(a) in Part C, Item 23
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), filed with the
Commission on or about_May 24, 1999, and is
hereby incorporated by reference and made part
of this Registration Statement
(e)(3) 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),
(File Nos. 33-45117 & 811-6529), filed
with the Commission on or about May 24, 1999,
and is hereby incorporated by
reference and made a part of this Registration
Statement
(e)(4) Appendix 1 to the 12b-1 Plan Implementing
Agreement between the Registrant and Liberty
Funds Distributor, Inc. - filed as Exhibit
(e)(4) in Part C, Item 23 of Post-Effective
Amendment No. 60 to the Registration Statement
on Form N-1A of Liberty Funds Trust I (formerly
Colonial Trust I), (File Nos. 2-41251 &
811-2214), filed with the Commission on or about
March 1, 2000, and is hereby incorporated by
reference and made a part of this Registration
Statement
(e)(5) Form of Selling Agreement with Liberty Funds
Distributor, Inc. - filed as Exhibit
6(b) in Part C, Item 24(b) of Post-Effective
Amendment No. 49 to the Registration
Statement on Form N-1A of Liberty Funds Trust I
(formerly Colonial Trust I),
(File Nos. 2-41251 and 811-2214), filed with
the Commission on or about November
20, 1998, and is hereby incorporated by
reference and made a part of this Registration
Statement
(e)(6) 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), filed with
the Commission on or about September 27, 1996,
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), filed
with the Commission on or about October 24,
1997, and is hereby incorporated by reference
and made a part of this Registration Statement
<PAGE>
(g)(2) Amendment 11 to Appendix A of Global Custody
Agreement with The Chase Manhattan Bank - filed
as Exhibit (g)(2) in Part C, Item 23 of
Post-Effective Amendment No. 60 to the
Registration Statement on Form N-1A of Liberty
Funds Trust I), (formerly Colonial Trust I),
(File Nos. 2-41251 and 811-2214), filed with the
Commission on or about March 1, 2000, and is
hereby incorporated by reference and made a part
of this Registration Statement
(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), filed with
the Commission on or about September 27, 1996,
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. 60 to the Registration Statement on Form
N-1A of Liberty Funds Trust I (formerly Colonial
Trust I), (File Nos. 2-41251 and 811-2214),
filed with the Commission on or about March 1,
2000, 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), filed
with the Commission on or about September 27,
1996, and is hereby incorporated by reference
and made a part of this Registration Statement
(h)(4) Amendment No. 18 to Schedule A of Amended and
Restated Shareholders' Servicing
and Transfer Agent Agreement as amended -
filed as Exhibit (h)(2) in Part C, Item
23 of Post-Effective Amendment No. 62 to the
Registration Statement on Form N-1A
of Liberty Funds Trust I (formerly Colonial
Trust I), (File Nos. 2-41251 and
811-2214), filed with the Commission on or
about May 17, 2000, and hereby incorporated by
reference and made a part of this Registration
Statement
(h)(5) Amendment No. 22 to Appendix I of the Amended
and Restated Shareholders' Servicing and
Transfer Agent Agreement as amended - filed as
Exhibit (h)(3) in Part C, Item 23 Post-Effective
Amendment No. 60 to the Registration Statement
on Form N-1A of Liberty Funds Trust I (formerly
Colonial Trust I), (File Nos. 2-41251 and
811-2214), filed with the Commission on or
about March 1, 2000, and is hereby incorporated
by reference and made a part of this
Registration Statement
(h)(6) Amended and Restated Credit Agreement with Bank
of America - filed as Exhibit (h)(8) in Part C,
Item 23 of Post-Effective Amendment No. 110 to
the Registration Statement on Form N-1A of
Liberty Funds Trust III (formerly Colonial Trust
III) (File Nos. 2-15184 and 811-881), filed with
the Commission on or about August 12, 1999, and
is hereby incorporated by reference and made a
part of this Registration Statement
(i) Opinion and Consent of Counsel, (with respect to
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)
(j)(1) Consents of Independent Accountants
(PricewaterhouseCoopers LLP)
(j)(2) Consent of Independent Auditors
(Ernst & Young LLP)
(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. 60 to the Registration Statement
on Form N-1A of Liberty Funds Trust I (formerly
Colonial Trust I), (File Nos. 2-41251 &
811-2214), filed with the Commission on or about
March 1, 2000, and is hereby incorporated by
reference and made a part of this Registration
Statement
(o) Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940
(p) Code of Ethics of Colonial, the Funds and
Liberty Funds Distributor, Inc., filed
as Exhibit (p) in Part C, Item 23 of
Post-Effective Amendment No. 59 to the
Registration Statement on Form N-1A of Liberty
Funds Trust IV (File Nos. 2-62492 and 811-2865),
filed with the Commission on or about March 29,
2000, and is hereby incorporated by reference
and made a part of this Registration Statement
Power of Attorney for: 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 and Anne-Lee Verville -
filed in Part C, Item 23 of Post-Effective Amendment
No. 62 to the Registration Statement of Liberty Funds Trust I
(formerly Colonial Trust I), (File Nos. 2-41251 and
811-2214), filed with the Commission on or about May 17,
2000, 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.
<PAGE>
(3) Incorporated by reference to Post-Effective
Amendment No. 21 to the Registration
Statement filed on or about May 23, 1997.
(4) Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement filed on or about May 28, 1999.
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 1 (c) 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.
<PAGE>
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 advisor, Colonial Management
Associates, Inc. ("Colonial"), is registered as an investment adviser under
the Investment Advisers Act of 1940 ("Advisers Act"). Colonial Advisory
Services, Inc. ("CASI"), an affiliate of Colonial, is also registered as an
investment advisor under the 1940 Act. As of the end of the fiscal year,
December 31, 1999, CASI had four institutional, corporate or other accounts
under management or supervision, the total market value of which was
approximately $704 million. As of the end of the fiscal year, December 31,
1999, Colonial was the investment advisor, sub-advisor and/or administrator
to 71 mutual funds, including funds sub-advised by Colonial, the total market
value of which investment companies was approximately $18,589.50 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 4/30/00. 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 Funds Trust I through
Asst. IX Asst. Sec.
Sec., Colonial High Income
Counsel 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.
AlphaTrade Inc. Asst. Clerk
Liberty Funds Distributor,
Inc. Asst. Clerk
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.
Colonial Insured Municipal Fund Asst. Sec
Colonial California Insured
Municipal Fund Asst. Sec
Colonial New York Insured
Municipal Fund Asst. Sec
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund Asst. Sec
Barron, Suzan M. V.P., Liberty Funds Trust I through
Asst. IX Asst. Sec.
Sec., Colonial High Income
Counsel 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.
AlphaTrade Inc. Asst. Clerk
Liberty Funds Distributor,
Inc. Asst. Clerk
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.
Colonial Insured Municipal Fund Asst. Sec
Colonial California Insured
Municipal Fund Asst. Sec
Colonial New York Insured
Municipal Fund Asst. Sec
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund Asst. Sec
Barsketis, Ophelia Sr.V.P. Stein Roe & Farnham Incorporated Snr. V.P.
Berliant, Allan V.P.
Bissonnette,
Michael Sr.V.P.
Boatman, Bonny E. Sr.V.P.; Colonial Advisory Services, Exec. V.P.
IPC Mbr. Inc.
Stein Roe & Farnham
Incorporated Exec. V.P.
Bunten, Walter V.P.
Campbell, Kimberly V.P.
Carnabucci,
Dominick V.P.
Carome, Kevin M. Sr.V.P.; Liberty Funds Distributor,
IPC Mbr. Inc. Assistant Clerk
Liberty Funds Group LLC Sr. V.P.;
General Counsel
Stein Roe & Farnham General Counsel;
Incorporated Secretary
Stein Roe Services, Inc. Asst. Clerk
Liberty-Stein Roe Funds
Investment Trust Exec. V.P.;
Asst. Sec
Liberty-Stein Roe Funds Income
Trust Exec. V.P.;
Asst. Sec
Liberty-Stein Roe Funds
Institutional Trust Exec. V.P.;
Asst. Sec
Liberty-Stein Roe Funds Trust Exec. V.P.;
Asst. Sec
Liberty-Stein Roe Funds
Municipal Trust Exec. V.P.;
Asst. Sec
Liberty-Stein Roe Advisor Trust Exec. V.P.;
Asst. Sec
SR&F Base Trust Exec. V.P.;
Asst. Sec
Stein Roe Variable Investment
Trust Exec. V.P.;
Asst. Sec
Liberty-Stein Roe Advisor
Floating Rate Fund Exec. V.P.;
Asst. Sec
Liberty-Stein Roe Institutional
Floating Rate Income Fund Exec. V.P.;
Asst. Sec
Stein Roe Floating Rate
Limited Liability Company Exec. V.P.;
Asst. Sec
Carroll, Sheila A. Sr.V.P.
Citrone, Frank, Jr. Sr.V.P.
Conlin, Nancy L. Sr. V.P.; Liberty Funds Trust I through
Sec.; Clerk IX Secretary
IPC Mbr.; Colonial High Income
Dir; Gen. Municipal Trust Secretary
Counsel Colonial InterMarket Income
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 All-Star Equity Fund Secretary
Liberty All-Star Growth Fund,
Inc. Secretary
Colonial Insured Municipal Fund Secretary
Colonial California Insured
Municipal Fund Secretary
Colonial New York Insured
Municipal Fund Secretary
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund Secretary
Connaughton, V.P. Liberty Funds Trust I through
J. Kevin VIII CAO; Controller
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 Funds Trust IX Controller
Colonial Insured Municipal Fund CAO; Controller
Colonial California Insured
Municipal Fund CAO; Controller
Colonial New York Insured
Municipal Fund CAO; Controller
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund CAO; Controller
Liberty-Stein Roe Funds
Investment Trust V.P.; Treasurer
Liberty-Stein Roe Funds Income
Trust V.P.; Treasurer
Liberty-Stein Roe Funds
Institutional Trust V.P.; Treasurer
Liberty-Stein Roe Funds Trust V.P.; Treasurer
Liberty-Stein Roe Funds
Municipal Trust V.P.; Treasurer
Liberty-Stein Roe Advisor Trust V.P.; Treasurer
SR&F Base Trust V.P.; Treasurer
Stein Roe Variable Investment
Trust V.P.; Treasurer
Liberty-Stein Roe Advisor
Floating Rate Fund V.P.; Treasurer
Liberty-Stein Roe Institutional
Floating Rate Income Fund V.P.; Treasurer
Stein Roe Floating Rate
Limited Liability Company V.P.; Treasurer
Daniszewski, V.P.
Joseph J.
Dearborn, James V.P.
DerSarkisian, Peter V.P.
Desilets, Marian H. V.P. Liberty Funds Distributor,
Inc. V.P.
Liberty Funds 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.
Colonial Insured Municipal Fund Asst. Sec
Colonial California Insured
Municipal Fund Asst. Sec
Colonial New York Insured
Municipal Fund Asst. Sec
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund 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
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;
V.P.
Garrison, V.P. Stein Roe & Farnham
William M. 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 Funds Trust 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
Stein Roe & Farnham Asst. Chairman;
Incorporated President
Liberty Variable Investment
Trust President
Colonial Insured Municipal Fund President
Colonial California Insured
Municipal Fund President
Colonial New York Insured
Municipal Fund President
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund President
Liberty-Stein Roe Funds
Investment Trust President
Liberty-Stein Roe Funds Income
Trust President
Liberty-Stein Roe Funds
Institutional Trust President
Liberty-Stein Roe Funds Trust President
Liberty-Stein Roe Funds
Municipal Trust President
Liberty-Stein Roe Advisor Trust President
SR&F Base Trust President
Stein Roe Variable Investment
Trust President
Liberty-Stein Roe Advisor
Floating Rate Fund President
Liberty-Stein Roe Institutional
Floating Rate Income Fund President
Stein Roe Floating Rate
Limited Liability Company President
Hansen, Loren A. Sr. V.P.; Stein Roe & Farnham
IPC Mbr. Incorporated Exec. V.P.
Liberty-Stein Roe Funds
Investment Trust Exec. V.P.
Liberty-Stein Roe Funds Income
Trust Exec. V.P.
Liberty-Stein Roe Funds
Institutional Trust Exec. V.P.
Liberty-Stein Roe Funds Trust Exec. V.P.
Liberty-Stein Roe Funds
Municipal Trust Exec. V.P.
Liberty-Stein Roe Advisor Trust Exec. V.P.
SR&F Base Trust Exec. V.P.
Stein Roe Variable Investment
Trust Exec. V.P.
Liberty-Stein Roe Advisor
Floating Rate Fund Exec. V.P.
Liberty-Stein Roe Institutional
Floating Rate Income Fund Exec. V.P.
Stein Roe Floating Rate
Limited Liability Company Exec. V.P.
Harasimowicz, V.P.
Stephen
Hartford, Brian Sr.V.P. Liberty-Stein Roe Funds
Municipal Trust V.P.
Haynie, James P. Sr.V.P. Colonial Advisory Services,
Inc. Sr. V.P.
Stein Roe & Farnham
Incorporated Sr. V.P.
Hayssen, Henry V.P.
Held, Dorothy V.P.
Hernon, Mary V.P.
Hirschhorn,
Harvey B. Sr. V.P. Stein Roe & Farnham
Incorporated Exec. V.P.
Hounsell, Clare F. V.P. Stein Roe & Farnham
Incorporated V.P.
Iudice, V.P.; Liberty Funds Group LLC Controller,
Philip J., Jr. Controller CAO, Asst.
Asst. Treas.
Treasurer Liberty Funds Distributor, CFO,
Inc. Treasurer
Colonial Advisory Services, Controller;
Inc. Asst. Treas.
AlphaTrade Inc. CFO, Treas.
Jansen, Deborah Sr.V.P. Stein Roe & Farnham
Incorporated Senior V.P.
Johnson, Gordon V.P.
Kane, Russell V.P., Liberty Funds Trust I through
Asst. IX Asst. Sec.
Sec., Colonial High Income
Counsel 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.
AlphaTrade Inc. Asst. Clerk
Liberty Funds Distributor,
Inc. Asst. Clerk
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.
Colonial Insured Municipal Fund Asst. Sec
Colonial California Insured
Municipal Fund Asst. Sec
Colonial New York Insured
Municipal Fund Asst. Sec
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund Asst. Sec
Kennedy, Michael T. Sr.V.P. Stein Roe & Farnham
Incorporated Sr. V.P.
Knudsen, Gail E. V.P. Liberty Funds Trust 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.
Colonial Insured Municipal Fund Asst. Treas.
Colonial California Insured
Municipal Fund Asst. Treas.
Colonial New York Insured
Municipal Fund Asst. Treas.
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund Asst. Treas.
Liberty-Stein Roe Funds
Investment Trust V.P.; Controller
Liberty-Stein Roe Funds Income
Trust V.P.; Controller
Liberty-Stein Roe Funds
Institutional Trust V.P.; Controller
Liberty-Stein Roe Funds Trust V.P.; Controller
Liberty-Stein Roe Funds
Municipal Trust V.P.; Controller
Liberty-Stein Roe Advisor TrustV.P.; Controller
SR&F Base Trust V.P.; Controller
Stein Roe Variable Investment
Trust V.P.; Controller
Liberty-Stein Roe Advisor
Floating Rate Fund V.P.; Controller
Liberty-Stein Roe Institutional
Floating Rate Income Fund V.P.; Controller
Stein Roe Floating Rate
Limited Liability Company V.P.; Controller
Lal, Ishwar V.P.
Lapointe, Thomas V.P.
Lasman, Gary V.P.
Lennon, John E. Sr.V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Lessard, Kristen V.P.
Loring, William
C., Jr. Sr.V.P. Liberty-Stein Roe Funds
Municipal Trust V.P.
MacKinnon,
Donald S. Sr.V.P.
Marcus, Harold V.P.
McGrath, Pamela Sr.V.P.;
CFO;
Treasurer
Muldoon, Robert V.P.
Newman, Maureen Sr.V.P. Liberty-Stein Roe Funds
Municipal Trust V.P.
Liberty-Stein Roe Advisor Trust V.P.
SR&F Base Trust V.P.
O'Brien, David Sr.V.P.
Olsheskie, Mark 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 Funds Trust 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
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.
Colonial Insured Municipal Fund V.P.
Colonial California Insured
Municipal Fund V.P.
Colonial New York Insured
Municipal Fund V.P.
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund V.P.
Peishoff, William V.P.
Peterson, Ann T. V.P. Colonial Advisory Services,
Inc. V.P.
Pielech, Mitchell V.P.
Pietropaolo,
Vincent V.P., Liberty Funds Trust I through
Asst. IX Asst. Sec.
Sec., Colonial High Income
Counsel 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.
AlphaTrade Inc. Asst. Clerk
Liberty Funds Distributor,
Inc. Asst. Clerk
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.
Colonial Insured Municipal Fund Asst. Sec
Colonial California Insured
Municipal Fund Asst. Sec
Colonial New York Insured
Municipal Fund Asst. Sec
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund Asst. Sec
Pope, David V.P.
Quirk, Alison Sr. V.P.
Ratcliff, Lester V.P.
Reading, John V.P.; Liberty Funds Services, Inc. Asst. Clerk
Asst. Liberty Funds Group LLC Asst. Sec.
Sec.; Colonial Advisory Services,
Asst. Inc. Asst. Clerk
Clerk and Liberty Funds Distributor,
Counsel Inc. Asst. Clerk
AlphaTrade Inc. Asst. Clerk
Liberty Funds 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.
Colonial Insured Municipal Fund Asst. Sec
Colonial California Insured
Municipal Fund Asst. Sec
Colonial New York Insured
Municipal Fund Asst. Sec
Liberty-Stein Roe Advisor
Floating Rate Advantage Fund Asst. Sec
Rega, Michael V.P. Colonial Advisory Services,
Inc. V.P.
Richards, Scott B. Sr. V.P. Colonial Advisory Services,
Inc. Senior V.P.
Roye, Michael V.P.
Schermerhorn, Scott Sr. V.P.
Schofield, Karl Sr. V.P.
Seibel, Sandra L. V.P. Colonial Advisory Services,
Inc. V.P.
Shields, Yvonne B. V.P. Stein Roe & Farnham
Incorporated V.P.
Smalley, Gregg V.P.
Smith, Craig V.P.
Spanos, Gregory J. Sr. V.P. Colonial Advisory Services,
Inc. Exec. V.P.
Stevens, Richard V.P. Colonial Advisory Services,
Inc. V.P.
Stoeckle, Mark Sr.V.P. Colonial Advisory Services,
Inc. V.P.
Swayze, Gary Sr.V.P.
Thomas, Ronald V.P.
Turcotte,
Frederick J. V.P. Liberty Funds Services, Inc. V.P.
Liberty Funds Distributor, Inc. V.P.
Colonial Advisory Services,
Inc. V.P.
AlphaTrade Inc. V.P.
Liberty Funds Group LLC V.P.
Liberty Financial Services,
Inc. V.P.
Liberty Financial Companies,
Inc. V.P. and
Managing Dir
of Taxation
LREG, Inc. V.P.
Liberty Newport Holdings,
Limited V.P.
Newport Pacific Management,
Inc. V.P.
Newport Fund Management, Inc. V.P.
Newport Private Equity Asia,
Inc. V.P.
Independent Holdings, Inc. V.P.
IFS Agencies, Inc. V.P.
IFMG Agencies of Maine, Inc. V.P.
IFMG of Oklahoma, Inc. V.P.
IFS Agencies of Alabama, Inc. V.P.
IFS Agencies of New Mexico,
Inc. V.P.
IFS Insurance Agencies of
Ohio, Inc. V.P.
IFS Insurance Agencies of
Texas, Inc. V.P.
Liberty Securities Corporation V.P.
Stein Roe Services, Inc. V.P.
Stein Roe & Farnham
Incorporated V.P.
Stein Roe Futures, Inc. V.P.
Progress Investment Management
Company V.P.
Crabbe Huson Group, Inc. V.P.
Wallace, John R. V.P. Colonial Advisory Services,
Asst.Tres. Inc. Asst. Treas.
Liberty Funds Group LLC Asst. Treas.
Ware, Elizabeth M. V.P.
White, John V.P.
Wiley, Christine V.P.
Wiley, Peter V.P.
Wolfset, Glenn Sr. V.P.
------------------------------------------------
*The Principal address of all of the officers and directors of the investment
advisor 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 Variable Investment Trust,
Liberty-Stein Roe Advisor Trust, Stein Roe Income Trust, Stein Roe
Municipal Trust, Stein Roe Investment Trust, Stein Roe Floating Rate
Income Fund, Stein Roe Institutional Floating Rate Income Fund,
SteinRoe Variable Investment Trust and Stein Roe Trust.
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
------------------ ------------------- --------------
Anderson, Judith V.P. None
Babbitt, Debra V.P. and None
Comp. Officer
Bartlett, John Managing Director None
Bertrand, Thomas V.P. 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
Carroll, Sean V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Clapp, Elizabeth A. Managing Director None
Claiborne, Doug V.P. None
Conley, Brook V.P. None
Conlin, Nancy L. Dir; Clerk Secretary
Costello, Matthew V.P. None
Couto, Scott V.P. None
Davey, Cynthia Sr. V.P. None
Desilets, Marian V.P. Asst. Sec
Devaney, James Sr. V.P. None
DiMaio, Stephen 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
Evitts, Stephen V.P. None
Feldman, David Managing Director None
Feloney, Joseph V.P. None
Fifield, Robert V.P. None
Fisher, James V.P. None
Fragasso, Philip Managing Director None
Gentile, Russell 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
Grace, Anthony V.P. None
Gubala, Jeffrey V.P. None
Guenard, Brian V.P. None
Harrington, Tom Sr. V.P. None
Hodgkins, Joseph Sr. V.P. None
Huennekens, James V.P. None
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Ives, Curt V.P. None
Jones, Cynthia V.P. None
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Lewis, Blair V.P. None
Lichtenberg, Susyn V.P. None
Lynch, Andrew Managing Director None
Lynn, Jerry V.P. None
Marsh, Curtis Sr. V.P. None
Martin, John Sr. V.P. None
Martin, Peter V.P. None
McCombs, Gregory Sr. V.P. None
McKenzie, Mary V.P. None
Menchin, Catherine Sr. V.P. None
Miller, Anthony V.P. None
Moberly, Ann R. Sr. V.P. None
Morse, Jonathan V.P. None
Nickodemus, Paul V.P. None
O'Shea, Kevin Managing Director None
Palombo, Joseph R. Director Vice President
Perullo, Deborah V.P. None
Piken, Keith V.P. None
Place, Jeffrey Managing Director None
Powell, Douglas V.P. None
Raftery-Arpino, Linda Sr. V.P. None
Ratto, Gregory V.P. None
Reed, Christopher B. Sr. V.P. None
Riegel, Joyce V.P. None
Robb, Douglas V.P. None
Santosuosso, Louise Sr. V.P. None
Schulman, David Sr. V.P. None
Scully-Power, Adam V.P. None
Shea, Terence V.P. None
Sideropoulos, Lou V.P. None
Sinatra, Peter V.P. None
Smith, Darren V.P. None
Soester, Trisha V.P. None
Studer, Eric V.P. None
Sweeney, Maureen V.P. None
Tambone, James CEO; Co-President None
Tasiopoulos, Lou Co-President None
Torrisi, Susan V.P. None
Vail, Norman V.P. None
VanEtten, Keith H. Sr. V.P. None
Warfield, James V.P. None
Warnock, Laura V.P. None
Wess, Valerie Sr. V.P. None
White, John 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 4 Chase MetroTech
Center, Brooklyn, NY 11245.
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. 26 to its Registration Statement
under the Securities Act of 1933 and Amendment No. 27 under the Investment
Company Act of 1940, to be signed in this City of Boston and The Commonwealth of
Massachusetts on this 30th, day of May 2000.
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 30, 2000
----------------- executive officer)
Stephen E. Gibson
PAMELA A. MCGRATH Treasurer and Chief May 30, 2000
----------------- Financial Officer
Pamela A. McGrath (principal financial
J. KEVIN CONNAUGHTON Controller and Chief May 30, 2000
-------------------- Accounting Officer
J. Kevin Connaughton (principal accounting officer)
<PAGE>
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 30, 2000
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
ANNE-LEE VERVILLE* Trustee
------------------
Anne-Lee Verville
<PAGE>
EXHIBIT INDEX
(i) Opinion and Consent of Counsel
(j)(1) Consents of Independent Accountants
(PricewaterhouseCoopers LLP)
(j)(2) Consent of Auditors (Ernst & Young LLP)
(o) Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940
