Registration Nos: 2-62492
811-2865
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. 50 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 48 [ X ]
COLONIAL TRUST IV
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Office)
(617) 426-3750
(Registrant's Telephone Number, Including Area Code)
Name and Address of Agent for Service: Copy to:
Nancy L. Conlin, Esquire John M. Loder, Esquire
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts 02110-2624
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b).
[ ] on (date) pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ X ] 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>
COLONIAL TRUST IV
Cross Reference Sheet
Liberty [XYZ Income] Fund
Liberty [XYZ Balanced] Fund
Liberty [XYZ Growth] Fund
<TABLE>
<CAPTION>
Item Number of Form N1A Location or Caption in Prospectus
Part A
<S> <C>
1. Cover Page
2. Summary of Expenses
3. Not Applicable
4. Investment Objectives and Policies; Organization and
History; Description of Underlying Liberty Funds;
Information about Policies, Investments and Risks of
Underlying Liberty Funds; Appendix
5. Cover Page; How the Liberty [XYZ] Funds are Managed;
Organization and History; Investment Objectives and
Policies; Back Cover
6. Organization and History; Distributions and Taxes; How to
Buy Shares
7. Cover Page; Summary of Expenses; How to Buy Shares; How
the Liberty [XYZ] Funds Value their Shares; 12b-1 Plans;
Back Cover
8. Summary of Expenses; How to Sell Shares; How to Exchange
Shares; Telephone Transactions
9. Not Applicable
</TABLE>
<PAGE>
__________________, 1999
[LIBERTY [XYZ] FUNDS]
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Administrator) and your full-service
financial advisor want you to understand both the risks and benefits of mutual
fund investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial advisor to determine which of these
mutual funds may suit your unique needs, time horizon and risk tolerance.
This Prospectus offers shares of three mutual funds:
Liberty [XYZ Income] Fund seeks current income.
Liberty [XYZ Balanced] Fund seeks a balance of long term growth of
capital and current income.
Liberty [XYZ Growth] Fund seeks long term growth of capital.
The Liberty [XYZ] Funds, portfolios of Colonial Trust IV (Trust), an
open-end management investment company, seek to achieve their respective
objectives by allocating their assets primarily among other mutual funds
(Underlying Liberty Funds) distributed by Liberty Funds Distributor, Inc.
(Distributor) and managed by Colonial Management Associates, Inc., Stein Roe &
Farnham Incorporated, Crabbe Huson Group, Inc. or [SoGen] Asset Management
Corp., each of which is an investment advisory affiliate of the Distributor.
This Prospectus explains concisely what you should know before investing in the
Liberty [XYZ] Funds. Read it carefully and retain it for future reference. More
detailed information about the Funds is in the _____________, 1999 Statement of
Additional Information which has been filed with the Securities and Exchange
Commission (SEC) and is obtainable free of charge by calling the Administrator
at 1-800-426-3750. The Statement of Additional Information is incorporated by
reference in (which means it is considered to be a part of) this Prospectus.
Each Liberty [XYZ] Fund offers three classes of shares. Class A shares are
offered at net asset value plus a sales charge imposed at the time of purchase;
Class B shares are offered at net asset value and are subject to an annual
distribution fee and a declining contingent deferred sales charge on redemptions
made within six years after purchase; and Class C shares are offered at net
asset value and are subject to an annual distribution fee and a contingent
deferred sales charge on redemptions made within one year after purchase. Class
B shares automatically convert to Class A shares after approximately eight
years. See "How to Buy Shares."
Contents Page
Investment Highlights
Summary of Expenses
Investment Objectives and Policies
Description of Underlying Liberty Funds
Information about Policies, Investments and Risks of
Underlying Liberty Funds
How the Liberty [XYZ] Funds Measure Their Performance
How the Liberty [XYZ] Funds are Managed
Year 2000
How the Liberty [XYZ] Funds Value Their Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plans
Organization and History
Appendix
This Prospectus is also available on-line at the Distributor's Web site
(http://www.libertyfunds.com). The SEC maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, materials that are
incorporated by reference into this Prospectus and the Statement of Additional
Information, and other information regarding the Fund.
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
[End of cover]
<PAGE>
INVESTMENT HIGHLIGHTS
Fund of Funds Structure. The Liberty [XYZ] Funds do not invest directly in
a portfolio of securities; rather, in seeking to achieve their respective
investment objectives, they invest in shares of Underlying Liberty Funds.
Each Liberty [XYZ] Fund Represents a Different Asset Allocation. The two
broad investment categories - stocks and bonds - reflect different degrees of
potential risk and reward. While stocks have a greater potential than bonds or
money market investments to increase in value over the long term, stocks are
subject to the risk that stock prices in general will decline over short or even
extended periods. Stock markets tend to be cyclical with periods when stock
prices generally rise or fall. While bonds generate fixed income in the form of
interest and are typically less volatile than stocks, bonds are subject to the
risk that bond prices in general will decline over short or long periods due
primarily to changes in interest rates, as well as to the risk that the issuer
of a bond may be unable to pay its principal and interest. A third investment
category - cash or money market investments - involves relatively little risk of
loss of principal, but has the least potential for high total return. All three
categories of investment are subject to inflation risk, which is the possibility
that rising prices for goods and services will erode the real return of the
investment.
There are subcategories of stocks and bonds which involve different degrees
of risk and rewards. Foreign stocks can be more volatile than investments in
U.S. stocks. Stocks of small capitalization companies may offer greater
opportunities for capital appreciation, but may involve greater risk than stocks
of larger, more established companies. High yield bonds, while paying higher
interest, are more speculative and subject to default than investment grade
bonds. The market values of intermediate and long-term bonds tend to fluctuate
in response to changes in prevailing interest rates more than short-term bonds.
Asset allocation among the two principal categories of investments and
their subcategories is one of the most critical of the decisions an investor has
to make. The Liberty [XYZ] Income, Balanced and Growth Funds represent different
combinations of stock and bond investments involving different degrees of
potential risk and reward. Investors may select from the three Liberty XYZ Funds
based on their individual investment objective, time horizon, tolerance for
risk, and tax and financial circumstances:
Liberty [XYZ Income] Fund - seeks current income by investing primarily in
bond (fixed income) funds.
Liberty [XYZ Balanced] Fund - seeks a balance of long term growth of
capital and current income by investing in mix of stock mutual funds and bond
mutual funds.
Liberty [XYZ Growth] Fund - seeks long term growth of capital by investing
primarily in stock mutual funds.
This chart illustrates the relative degrees to which each Liberty [XYZ]
Fund seeks to obtain income or growth of capital and involves risk of principal:
<PAGE>
Potential Potential
Liberty [XYZ] Fund Income Growth of Capital Risk of Principal
- ------------------ ------ ----------------- -----------------
Income High Negligible Medium
Balanced. Medium Medium Medium
Growth Low High High
There is no assurance that the Liberty [XYZ] Funds will achieve their
stated objectives. The performance of each Liberty [XYZ] Fund depends on the
performance of the Underlying Liberty Funds in which it invests. The performance
of the Underlying Liberty Funds, in turn, depends on the performance of the
stock, bond and money markets in the U.S. and abroad and on the performance of
individual stocks, bonds and money market instruments in which they directly or
indirectly invest. The value of each Liberty [XYZ] Fund will vary from day to
day, reflecting changes in the values of the Underlying Liberty Funds. When you
sell your Liberty [XYZ] Fund shares, they may be worth more or less than what
you paid for them.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Liberty
[XYZ] Funds. The following tables summarize your maximum transaction costs and
annual expenses for an investment in the Class A, Class B and Class C shares of
a Liberty [XYZ] Fund. See "How the Funds are Managed" and "12b-1 Plans" for more
complete descriptions of the Funds' various costs and expenses.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses (1)(2)
Class A Class B Class C
Balanced and Growth Funds:
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering
price)(3) 5.75% 0.00%(4) 0.00%(4)
Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(5) 5.00% 1.00%
Income Fund: Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering
price)(3) 4.75% 0.00%(4) 0.00%(4)
Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(5) 5.00% 1.00%
</TABLE>
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."
(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Because of the 0.75% distribution fee applicable to Class B and Class C
shares, long-term Class B and Class C shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted by
the National Association of Securities Dealers, Inc. However, because Class
B shares automatically convert to Class A shares after approximately 8
years, this is less likely for Class B shares than for a class without a
conversion feature.
(5) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."
Annual Operating Expenses (all three Funds) (as a % of average net assets)
Class A Class B Class C
Management fee (after fee waiver) ____% ____% ____%
12b-1 fees 0.25% 1.00% 1.00%
Other expenses ____ ____ ____
Total [XYZ] Fund operating
expenses (after fee waiver) % % %
==== ==== ====
The total operating expenses of the Liberty [XYZ] Funds, excluding
interest, taxes, brokerage and extraordinary expenses, will, until further
notice, be limited by the Administrator to ____% per annum of average net
assets.
In addition to the direct operating expenses of the Liberty [XYZ] Funds
shown above, each Liberty [XYZ] Fund bears its pro rata share of the fees and
expenses incurred by the Underlying Liberty Funds in which it is invested. The
investment return of each Liberty [XYZ] Fund, therefore, will be net of that
Fund's pro rata share of the expenses of such Underlying Liberty Funds. Based on
the expense ratio of each Underlying Liberty Fund in which the Liberty [XYZ]
Funds are currently expected to invest(1), adjusted to reflect current fees and
giving effect to fee waivers or reimbursements where applicable, as of its most
recent fiscal year end, the ranges for the average weighted expense ratio per
annum borne by the Liberty [XYZ] Income, Balanced and Growth Funds, including
their pro rata shares of the expenses of the Underlying Liberty Funds, are
expected to be ___% to ___%,___% to ___%, and ___% to ___%, respectively. Ranges
are provided since the percentages of the average assets of the Liberty [XYZ]
Funds invested in each of the Underlying Liberty Funds will fluctuate.
- --------
(1) The Liberty [XYZ] Funds will invest in classes of shares of the Liberty
Underlying Funds that do not have initial or deferred sales charges and do not
incur 12b-1 fees. The Liberty [XYZ] Funds may incur short-term trading fees
charged by certain of the Underlying Liberty Funds. Such fees may or may not
have been incurred if a shareholder had invested directly in such Underlying
Liberty Funds.
<PAGE>
Example
The following Example shows the cumulative transaction and operating expenses,
using the midpoint of the ranges of operating expenses shown above, attributable
to a hypothetical $1,000 investment in the Class A, Class B and Class C shares
of each Liberty [XYZ] Fund for the periods specified, assuming a 5% annual
return and, unless otherwise noted, redemption at the end of the period. The 5%
return and the expenses used in this Example should not be considered indicative
of actual or expected Fund performance or expenses, both of which will vary.
Liberty [XYZ] Income Fund
Period: Class A Class B Class C
(6) (7) (6) (7)
1 Year
3 Years
Liberty [XYZ] Balanced Fund
Period: Class A Class B Class C
(6) (7) (6) (7)
1 Year
3 Years
Liberty [XYZ] Growth Fund
Period: Class A Class B Class C
(6) (7) (6) (7)
1 Year
3 Years
(6) Assumes redemption at end of period.
(7) Assumes no redemption.
(8) Class B shares automatically convert to Class A shares after approximately
8 years; therefore, years 9 and 10 reflect Class A share expenses.
(9) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Liberty [XYZ] Funds seeks its investment objective by investing in a
select mix of up to eight mutual funds (Underlying Liberty Funds) managed by
investment advisory affiliates of the Distributor, namely Colonial Management
Associates, Inc. (Colonial), Stein Roe & Farnham Incorporated (Stein Roe),
[Societe Generale] Asset Management Corp. ([SoGen]), or Crabbe Huson Group, Inc.
(Crabbe Huson).
The Liberty [XYZ] Funds' investment objectives are as follows:
Liberty [XYZ Income] Fund seeks current income by investing primarily
in bond mutual funds.
Liberty [XYZ Balanced] Fund seeks a balance of long term growth of capital
and current income by investing in a mix of stock and bond mutual funds.
Liberty [XYZ Growth] Fund seeks long term growth of capital by investing
primarily in stock mutual funds.
The pie charts below illustrate the expected asset allocation for each Fund
under normal market conditions:
<PAGE>
<TABLE>
<CAPTION>
Income Fund Balanced Fund Growth Fund
<S> <C> <C>
[pie chart showing 80% bond funds [pie chart showing 50% bond funds [pie chart showing 80% stock funds and 20% bond
and 20% stock funds] and 50% stock funds] funds]
Allocation Ranges Allocation Ranges Allocation Ranges
- ----------------- ----------------- -----------------
Stock Funds......... 0% to 30% Stock Funds......... 25% to 60% Stock Funds......... 70% to 100%
Bond Funds.......... 70% to 100% Bond Funds.......... 25% to 60% Bond Funds.......... 0% to 30%
Money Market Funds.. 0 to 10% Money Market Funds.. 0 to 10% Money Market Funds.. 0 to 10%
</TABLE>
<PAGE>
Liberty Asset Management Company (Advisor), an investment advisory
affiliate of the Distributor, first allocates each Liberty [XYZ] Fund's assets
among the two broad asset classes of stock and bond funds using traditional
asset allocation methodology based on the Advisor's capital market assumptions
for the long-term return, risk and correlation of returns among these asset
classes. It then further allocates the portions assigned to these broad asset
classes to subcategories of such classes (e.g. international stock, U.S. stock,
large capitalization stock, small capitalization stock; investment grade bonds;
high yield bonds; short, intermediate and long-term bonds) to seek the best
combination of risk and return. The Advisor then selects the group of Underlying
Liberty Funds within each subcategory that offers the best combination in terms
of performance, volatility and correlation of returns.
In general, the Advisor intends to manage each Liberty [XYZ] Fund
according to its expected allocation strategy shown above. However, the Advisor
reserves the right in its discretion, without prior notice to shareholders, to
modify the allocation strategy for any Liberty [XYZ] Fund from time to time. If,
because of appreciation or depreciation of the net asset value of the shares of
Liberty Funds within the two principal asset classes, a Liberty [XYZ] Fund's
allocation falls outside the applicable range shown above, the Advisor will
consider, in its discretion, whether to reallocate that Fund's investments in
the Underlying Liberty Funds to bring its allocation back within such range. As
shown above, each Liberty [XYZ] Fund also may invest up to 10% of its assets in
the Colonial Money Market Fund, and reserves the right to do so without limit
for temporary, defensive purposes.
The Underlying Liberty Funds in which the Liberty [XYZ] Funds may
invest are listed below:
Stock Mutual Funds
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Colonial U.S. Growth & Income Fund
Colonial Small Cap Value Fund
Colonial International Horizons Fund
Colonial Utilities Fund
[SoGen] Overseas Fund
Crabbe Huson Real Estate Investment Fund
Bond Funds
Colonial Strategic Income Fund
Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Intermediate U.S. Government Fund
Money Market Fund
Colonial Money Market Fund
From time to time, the Liberty [XYZ] Funds' investments in the
Underlying Liberty Funds may be limited by certain factors. For example, the
Board of Trustees of an Underlying Liberty Fund may impose limits on additional
investments by the Liberty [XYZ] Funds in that Underlying Liberty Fund or close
that Underlying Liberty Fund to new investments generally.
The Liberty [XYZ] Funds may not always achieve their investment
objectives. Their investment objectives, as well as their non-fundamental
investment policies, may be changed without shareholder approval.
DESCRIPTION OF THE UNDERLYING LIBERTY FUNDS
The following is a concise description of the investment objective and
practices of each Underlying Liberty Fund in which the Liberty [XYZ] Funds may
invest. There can be no assurance that the Underlying Liberty Funds' objectives
will be achieved. Additional information regarding the investment practices of
the Underlying Liberty Funds may be found in the Appendix to this Prospectus, in
the Statement of Additional Information, and in the prospectuses for the
Underlying Liberty Funds. Prospectuses for the Underlying Liberty Funds may be
obtained without charge by calling the Administrator at 1-800-426-3750. No offer
is made in this Prospectus of shares of any of the Underlying Liberty Funds.
Stock Funds
Stein Roe Growth & Income Fund seeks to provide both growth of capital
and current income. SR&F Growth & Income Portfolio, in which Stein Roe Growth &
Income Fund invests all of its investable assets (see "Information About
Policies, Investments and Risks of Underlying Liberty Funds - Master Fund/Feeder
Fund: Structure and Risk Factors" below), invests primarily in well established
companies whose common stocks Stein Roe believes have the potential both to
appreciate in value and to pay dividends to shareholders.
Although it may invest in a broad range of securities (including
common stocks, preferred stocks, securities convertible into or exchangeable for
common stocks, and warrants or rights to purchase common stocks), normally SR&F
Growth & Income Portfolio emphasizes investments in equity securities of
companies having market capitalizations in excess of $1 billion. Securities of
these well-established companies are believed to be generally less volatile than
those of companies with smaller capitalizations because companies with larger
capitalizations tend to have experienced management; broad, highly diversified
product lines; deep resources; and easy access to credit. Up to 25% of SR&F
Growth & Income Portfolio's total assets may be invested in foreign securities.
Stein Roe Growth Stock Fund seeks long-term capital appreciation. SR&F
Growth Stock Portfolio, in which Stein Roe Growth Stock Fund invests all of its
investable assets (see "Information About Policies, Investments and Risks of
Underlying Liberty Funds - Master Fund/Feeder Fund: Structure and Risk Factors"
below), normally invests at least 65% of its total assets in common stocks and
other equity type securities that Stein Roe believes to have long-term
appreciation possibilities. Up to 25% of SR&F Growth Stock Portfolio's assets
may be invested in foreign securities.
Stein Roe Capital Opportunities Fund seeks long-term capital
appreciation by investing in aggressive growth companies. An aggressive growth
company, in general, is one that appears to have the ability to increase its
earnings at an above average rate. Investments may include securities of smaller
emerging companies as well as securities of well-seasoned companies of any size
that offer strong earnings growth potential. Such companies may benefit from new
products or services, technological developments, or changes in management.
Securities of smaller companies may be subject to greater price volatility than
securities of larger companies. In addition, many small companies are less well
known to the investing public and may not be as widely followed by the
investment community. Although it invests primarily in common stocks, the Stein
Roe Advisor Capital Opportunities Fund may invest in all types of equity
securities, including preferred stocks and securities convertible into common
stocks. Up to 25% of the Fund's assets may be invested in foreign securities.
Colonial U.S. Growth & Income Fund seeks long-term growth and income.
The Fund normally invests at least 65% of its total assets in common stock of
U.S. companies with equity market capitalizations at the time of purchase in
excess of $3 billion. Up to 35% of its total assets may be invested in common
stock of U.S. companies with equity market capitalizations at the time of
purchase between $1 billion and $3 billion. Up to 10% of its total assets may be
invested in sponsored and unsponsored American Depository Receipts (receipts
issued in the U.S. by banks or trust companies evidencing ownership of
underlying foreign securities (ADRs)). Up to 10% of total assets may be invested
in any combination of (i) convertible debt securities (i.e., debt securities
that are convertible into common stock at the holder's option), (ii) other
corporate debt securities rated investment grade by at least two nationally
recognized rating agencies, and (iii) debt securities issued or guaranteed by
the U.S. government or its agencies. Such investments will be made when Colonial
believes equity values are high relative to debt securities.
Colonial Small Cap Value Fund seeks long-term growth by investing
primarily in smaller capitalization equities. The Fund normally invests at least
65% of its total assets in U.S. common stocks selected from the universe of
stocks traded on the New York Stock Exchange, American Stock Exchange and the
Nasdaq Stock Market with market values at the time of investment between $20
million and the largest market capitalization in the Russell 2000 Index (Small
Stock Universe). In selecting investments, Colonial uses a disciplined process
intended to create a diversified portfolio whose performance (before expenses)
will exceed the Small Stock Universe's while maintaining risk characteristics
consistent with the Universe. However, there is no assurance that the
portfolio's performance will match that of the Small Stock Universe.
Colonial International Horizons Fund seeks preservation of capital
purchasing power and long-term growth by investing primarily in equity
securities of companies in industries and markets which Colonial believes will
have favorable sensitivity to inflation in the U.S. economy and by investing in
equity securities of companies which Colonial believes will provide superior
long-term growth. Inflation sensitive companies may include, but need not be
limited to, companies engaged in the development and processing of natural
resources and companies engaged in consumer oriented businesses. Normally, at
least 65% of the Fund's total assets will be invested in securities of companies
that are located or traded outside the U.S.
The Colonial International Horizons Fund may invest in securities
issued by smaller, less well-established companies, possibly traded over the
counter, as well as those of larger, more established companies traded on
exchanges. The Fund's foreign investments may include securities issued by
companies located in less developed countries (so-called "emerging markets").
The Fund is a non-diversified mutual fund and, although it generally will not,
it may invest more than 5% of its total assets in the securities of a single
issuer, increasing the risk of loss as compared to a similar diversified mutual
fund.
Colonial Utilities Fund seeks current income and long-term growth by
investing primarily in common and preferred equity securities of companies
engaged in the manufacture, production, generation, transmission, sale or
distribution of electricity, natural gas or other types of energy, or water or
other sanitary services; companies engaged in telecommunications, including
telephone, telegraph, satellite, microwave, cellular, wireless or other
communications media; and companies primarily engaged in public broadcasting,
print media and cable television (Utility Companies). The value of the Colonial
Utilities Fund's shares will be more closely tied to factors affecting Utility
Companies, and may be more volatile, than shares of a fund investing in a wider
variety of industries.
The values of securities issued by Utility Companies (and therefore the
value of shares of the Colonial Utilities Fund) are especially affected by
changes in prevailing interest rates (as interest rates increase, the values of
securities issued by Utility Companies tend to decrease, and vice versa). The
values of and dividends paid on such securities are also affected by general
competitive and market forces in the utility industries (in general, Utility
Companies are facing increasing competition), changes in federal and state
regulation, energy conservation efforts and other environmental concerns,
changes in energy demand due to weather conditions and, particularly with
respect to nuclear facilities, shortened economic life and repair and
decommissioning costs. Utility Companies are facing a trend towards deregulation
which, by replacing monopoly positions with competition, can adversely affect
their profitability by driving down prices and profit margins. Moreover, unless
specifically provided for by regulatory agreements in the move toward a
competitive environment, certain electric Utility Companies may not be able to
recover all of their investment in contracts or plant producing power at above
market rates. In addition, domestic Utility Companies, either directly or
through joint ventures with other firms, may make investments abroad. Such
investments, whether for the construction of power plants or for controlling or
minority interests in foreign utility firms, may subject the investing Utility
Companies, and, in turn, the Fund's holdings of their securities, to risks
associated with foreign investments.
[SoGen] Overseas Fund seeks long-term growth of capital by investing
primarily in securities of small and medium size non-U.S. companies. The Fund
particularly seeks companies that have growth potential, financial strength and
stability, strong management and fundamental value. However, the Fund may invest
in companies that do not have all these characteristics. The Fund may invest in
securities traded in mature markets (for example, Japan, Canada and the United
Kingdom) and in emerging markets (for example, Mexico and Indonesia). There are
no limits on the Fund's geographic asset distribution, but the Fund ordinarily
invests in at least three countries outside the United States.
The equity securities in which the [SoGen] Overseas Fund may invest
include common and preferred stocks, warrants and other similar rights, and
convertible securities. The Fund may purchase foreign securities in the form of
sponsored and unsponsored ADRs, Global Depository Receipts, European Depository
Receipts, and other securities representing underlying shares of foreign
issuers. The Fund may also invest in any other type of security, including up to
20% of its total assets in debt securities, including lower-rated securities,
commonly referred to as "junk bonds" (i.e. securities rated BB or lower by
Standard & Poor's Corporation (S&P) or Ba or lower by Moody's Investors Service,
Inc. (Moody's)), and securities that are not rated. There are no restrictions as
to the ratings of debt securities acquired by the Fund or the portion of the
Fund's assets that may be invested in debt securities in a particular rating
category. Under normal market conditions, the Fund invests at least 75% of its
total assets, taken at market value, in foreign securities. The Fund may also
invest in "structured securities" in which the value is linked to the price of
an underlying investment.
Crabbe Huson Real Estate Investment Fund seeks capital appreciation and
income through investing in a diversified portfolio consisting primarily of
equity securities of real estate investment trusts (REITs) and other real estate
industry companies and in mortgage-backed securities. Under normal
circumstances, at least 75% of the Fund's total assets will be invested in
equity securities of REITS and other real estate industry companies. A "real
estate industry company" is a company that derives at least 50% of its gross
revenues or net profits from either (a) the ownership, construction,
development, financing, management or sale of commercial, industrial or
residential real estate, or (b) products or services related to the real estate
industry, such as building supplies or mortgage servicing.
The Fund may also invest up to 25% of its total assets in (a) debt
securities of real estate industry companies, (b) mortgage-backed securities
such as mortgage pass-through certificates, real estate mortgage investment
conduits (REMICs) and collateralized mortgage obligations (CMOs), and (c)
short-term investments.
Investments in the Crabbe Huson Real Estate Investment Fund are subject
to certain risks associated with the ownership of real estate. These risks
include, among others: possible declines in the value of real estate; risks
related to general and local economic conditions; possible lack of availability
of mortgage funds; overbuilding; extended vacancies of properties; increases in
competition; property taxes and operating expenses; changes in zoning laws;
costs of clean-up of, and liability to third parties for damages resulting from,
environmental problems; casualty or condemnation losses, uninsured damage from
floods, earthquakes or other natural disasters; limitations on and variation in
rents; and changes in interest rates. REITS are subject to certain additional
risks. Equity REITs may be affected by changes in the value of the underlying
property, while mortgage REITs may be affected by the quality of any credit
extended. All REITs are dependent on management skills, are undiversified, and
are subject to the risks of financing projects. REITs are subject to heavy cash
flow dependency, default by borrowers, self-liquidation, and the possibility of
failing to qualify for the exemption from federal income tax for distributed
income and failing to maintain their exemptions from registration under the
Investment Company Act of 1940.
Crabbe Huson follows a basic value, contrarian approach in selecting
investments for the Fund's portfolio. This approach puts primary emphasis on
security price, balance sheet and cash flow analysis and the relationship
between the market price of a security and its estimated intrinsic value as a
share of an ongoing business. The basic value, contrarian approach is based on
Crabbe Huson's belief that the securities of many companies often sell at a
discount from their estimated intrinsic value. Crabbe Huson attempts to identify
such undervalued securities for investment by the Fund in the hope that their
market value will rise to their estimated intrinsic value.
Bond Funds
Colonial Strategic Income Fund seeks as high a level of current income
and total return as is consistent with prudent risk, by diversifying investments
primarily in U.S. and foreign government and corporate debt securities,
including lower rated corporate debt securities (see "Information About
Policies, Investments and Risks of Underlying Liberty Funds - Lower Rated
Securities" below, and see the Appendix to this Prospectus for a description of
the S&P and Moody's ratings). The Fund's allocation of its investments among
securities issued or guaranteed as to principal and interest by the U.S.
government or its agencies and instrumentalities, debt securities issued by
foreign companies, governments and government related entities, and lower rated
corporate debt securities at any given time is based on Colonial's estimate of
the expected performance of each type of investment. The Fund will purchase
bonds in the lowest rated categories (C for Moody's and D for S&P) and
comparable unrated securities only if Colonial believes that investing in such
securities would permit additional yield benefits. The Fund will limit its
investment in corporate debt securities so that not more than 25% of its assets
are invested in any one industry.
Colonial Strategic Income Fund may invest in debt securities of any
maturity that pay fixed, floating or adjustable interest rates. It may also
invest in zero coupon securities, pay-in-kind securities, or step coupon bonds.
Colonial High Yield Securities Fund seeks high current income and total
return by investing primarily (at least 80% of its total assets under normal
conditions) in lower rated debt securities. However, if economic conditions
narrow the spread between yields on lower and higher rated securities, the Fund
may invest up to 100% of its assets in higher rated securities. The Fund will
purchase bonds in the lowest rating categories (C for Moody's and D for S&P) and
comparable unrated securities only if Colonial believes that investing in such
securities would permit additional yield benefits. The Fund may invest in debt
securities of any maturity that pay fixed, floating or adjustable interest
rates. It may also invest in zero coupon securities, pay-in-kind securities, and
step coupon bonds. The Fund will not invest more than 25% of its total assets in
a single industry or in securities issued or guaranteed by foreign governments
or foreign companies.
Colonial High Yield Securities Fund may invest up to 20% of its total
assets in common and preferred stocks, warrants (rights) to purchase such stock,
and debt securities convertible into such stock. The Fund may, under certain
circumstances, invest in such equity securities to seek capital appreciation.
Colonial Income Fund seeks as high a level of current income and total
return as is consistent with prudent risk by investing primarily in corporate
debt securities. The Fund may invest up to 10% of its net assets in preferred
stocks. The Fund will not invest more than 25% of its total assets in a single
industry, in securities issued or guaranteed by foreign governments or foreign
companies, or in lower rated debt securities. The Fund may invest in debt
securities of any maturity that pay fixed, floating or adjustable interest
rates. It may also invest in zero coupon securities, pay-in-kind securities, and
step coupon bonds.
The type and maturity of the debt securities held by the Colonial
Income Fund will vary over time based on Colonial's judgement of market and
economic conditions, fiscal and monetary policy and interest rate trends.
Colonial Intermediate U.S. Government Fund seeks as high a level of current
income and total return as is consistent with prudent risk by investing
primarily in U.S. government securities. U. S. government securities include (1)
U.S. treasury obligations, or (2) obligations issued or guaranteed by U.S.
government agencies and instrumentalities (agency securities) that are supported
by: (a) the full faith and credit of the U.S. government, (b) the right of the
issuing agency to borrow under a line of credit with the U.S. treasury, (c) the
discretionary power of the U.S. government to purchase obligations of the
agency, or (d) the credit of the agency.
Agency securities include securities commonly referred to as
mortgage-backed securities, the principal and interest on which are paid from
principal and interest payments made on pools of mortgage loans. These include
securities commonly referred to as "pass-throughs", "collateralized mortgage
obligations" (CMOs), and "real estate mortgage investment conduits" (REMICs).
Because the Colonial Intermediate U.S. Government Fund invests
primarily in debt securities, the value of its shares generally will fall as
prevailing interest rates rise and will rise as prevailing interest rates fall,
although interest rate declines may result in the Fund paying lower income
distributions. Colonial attempts to control the magnitude of such fluctuations
by managing the Fund's duration. Duration measures how quickly the principal and
interest of a bond is expected to be paid. Investment managers use duration to
predict how much a bond's value will fluctuate given a change in interest rates.
Generally, when interest rates change, the shorter the duration, the less a
bond's market value would be expected to change. The Colonial Intermediate U.S.
Government Fund generally maintains a duration of less than 7 1/2 years.
Money Market Fund
Colonial Money Market Fund seeks maximum current income, consistent
with safety of capital and maintenance of liquidity. SR&F Portfolio, in which
the Colonial Money Market Fund invests all of its investable assets (see
"Information About Policies, Investments and Risks of Underlying Liberty Funds -
Master/Feeder Fund; Structure and Risk Factors" below), invests all of its
assets in U.S. dollar denominated money market instruments maturing in 397 days
or less from the time of investment. The dollar-weighted average maturity of the
Portfolio is maintained at a level, - not in excess of 90 days,- appropriate to
its objective of maintaining a stable net asset value of $1.00 per share,
although there is no assurance that such net asset value will be maintained.
Each security purchased by the Portfolio must be rated (or be issued by
an issuer that is rated with respect to its short-term debt) within the highest
rating category for short-term debt by at least two nationally recognized
statistical rating organizations (NRSRO) (or, if rated by only one NRSRO, by
that rating agency), or, if unrated, determined by or under the direction of the
Portfolio's Board of Trustees to be of comparable quality. These securities
include U.S. Government securities; securities issued or guaranteed by the
government of a foreign country rated at the time of purchase A or better (or
equivalent rating) by at least one NRSRO; certificates of deposit, bankers'
acceptances and time deposits of any bank (U.S. or foreign) having total assets
in excess of $1 billion, or of any branches, agencies or subsidiaries (U.S. or
foreign) of any such bank; commercial paper of U.S. or foreign issuers; notes,
bonds and debentures rated at the time of purchase A or better (or equivalent
rating) by at least one NRSRO; repurchase agreements with respect to any of the
foregoing securities; and other high-quality short-term obligations. Under
normal market conditions, the Portfolio will invest at least 25% of its total
assets in securities of issuers in the financial services industry.
INFORMATION ABOUT POLICIES, INVESTMENTS AND RISKS OF UNDERLYING LIBERTY FUNDS
Common Stock Generally. Under normal circumstances, the Underlying
Liberty Stock Funds invest primarily in common stocks. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, an Underlying Liberty Stock Fund
may participate in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Despite the risk of price volatility,
however, common stocks also generally offer greater potential for gain on
investment, compared to other classes of financial assets such as bonds or cash
equivalents.
Small Capitalization Stocks. Small capitalization stocks, in which
the Colonial Small Cap Value and Stein Roe Advisor Capital Opportunity Funds
primarily invest and in which the other Underlying Liberty Stock Funds may
invest some of their assets, may offer greater opportunities for capital
appreciation than the securities of larger, better established companies, but
may also involve certain special risks related to more limited product lines,
markets and financial resources and dependence on smaller management groups. In
addition, small capitalization stocks may trade less frequently and in smaller
volumes, and may fluctuate more sharply in their market value, than the
securities of larger companies.
Foreign Investments; Emerging Markets. Investments in foreign
securities and sponsored and unsponsored American Depository Receipts, in which
the Colonial International Horizons and [SoGen] Overseas Fund primarily invest
and in which the other Underlying Liberty Funds (both stock and bond funds) may
invest some of their assets, have special risks related to political, economic
and legal conditions outside of the U.S. As a result, the prices of foreign
securities may fluctuate substantially more than the prices of issuers based in
the U.S. Special risks associated with foreign securities include the
possibility of unfavorable currency exchange rates, the existence of less liquid
markets, the unavailability of reliable information about issuers, the existence
or potential imposition of exchange control regulations (including currency
blockage), and political and economic instability, among others. In addition,
transactions in foreign securities may be more costly due to currency conversion
costs and higher brokerage and custodial expenses.
Investments in securities of foreign issuers located in countries whose
economies or securities markets are not yet highly developed (Emerging Markets)
involve additional special risks, including, among others, greater political
uncertainties, the Emerging Market's dependence on revenues from particular
commodities or on international aid or development assistance, extreme or
volatile debt burdens or inflation rates, highly limited numbers of potential
buyers for such securities, heightened volatility of securities prices,
restrictions on repatriation of capital invested, and delays or disruptions in
securities settlement procedures.
Debt Securities Generally. The values of debt securities, in which all
the Underlying Liberty Bond Funds primarily invest and in which the Underlying
Liberty Stock Funds may invest a portion of their assets, generally fluctuate
inversely with changes in interest rates. This is less likely to be true for
adjustable or floating rate securities, since interest rate changes are more
likely to be reflected in changes in the rates of interest paid on these
securities. However, reductions in interest rates paid on adjustable or floating
rate debt securities may translate into lower distributions paid by the Fund.
Many bonds have call features that permit the issuer to repay the bond before
maturity. If this occurs, the Underlying Liberty Fund owning the bond may only
be able to reinvest the proceeds at a lower yield.
Lower Rated Debt Securities. Lower rated debt securities (commonly
referred to as junk bonds), in which the Colonial High Yield Securities Fund
primarily invests and in which all of the other Underlying Liberty Bond Funds
may invest a portion of their assets, are debt securities of U.S. or foreign
issuers which are not considered to be investment grade (that is, they are rated
below BBB by S&P or below Baa by Moody's, or are unrated but considered by
Colonial to be of comparable credit quality). Lower rated debt securities are
generally considered significantly more speculative and likely to default than
higher quality bonds. Because of the increased risk of default, lower rated debt
securities generally have higher interest rates than higher quality securities.
The values of lower rated securities are more likely to fluctuate
directly, rather than inversely, with changes in interest rates. This is because
increases in interest rates are often associated with an improving economy,
which may translate into an improved ability of the issuers to pay off their
bonds (lowering the risk of default). Relative to other debt securities, the
values of lower rated debt securities tend to be more volatile because: (i) an
economic downturn may more significantly impact their potential for default, or
(ii) the secondary market for such securities may at times be less liquid or
respond more adversely to negative publicity or investor perceptions, making it
more difficult to value or dispose of the securities. The likelihood that lower
rated securities will help a Liberty Underlying Fund to achieve its investment
objective is more dependent on Colonial's own credit analysis.
Foreign lower rated debt securities are subject to the additional risks
described under "Foreign Investments; Emerging Markets".
Asset-Backed Securities. Asset-backed securities, in which each of the
Underlying Liberty Bond Funds may invest, are interests in pools of debt
securities. Principal and interest on the underlying debt are passed through to
the holders of the asset-backed securities. A pool may issue more than one class
of asset-backed securities, representing different rights to receive principal
and/or interest. Principal on the asset-backed securities may be prepaid if the
underlying debt securities are prepaid. As a result, these securities may not
increase in value when interest rates fall. A Liberty Underlying 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.
Mortgage-Backed Securities. Mortgage-backed securities, including CMOs
and REMICs, in which the underlying Liberty Bond Funds may invest, 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. Principal on
mortgage-backed securities, CMOs or 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.
Zero Coupon Securities. Zero coupon securities, in which the Underlying
Liberty Bond Funds may invest, are debt securities which do not pay interest in
cash on a current basis, but instead are issued at a deep discount from their
par value. The value of the security increases over time to reflect the interest
accrued. The value of these securities may fluctuate more than similar
securities that are issued at par and pay interest periodically. Although these
securities pay no interest prior to maturity, interest on these securities is
reported as income to the Fund and is distributed to its shareholders. These
distributions must be made from the Fund's cash assets or, if necessary, from
the proceeds of sales of portfolio securities.
Pay-In-Kind Securities. Pay-in-kind securities, in which the Underlying
Liberty Bond Funds may invest, are debt securities that pay interest in
additional securities instead of cash. Because pay-in-kind securities may not
pay interest in cash but the Fund must nevertheless accrue and distribute to
investors the income deemed to be earned on a current basis, the Fund may have
to sell other investments to raise the cash needed to make income distributions.
Step Coupon Bonds. Step coupon bonds, in which the Underlying Liberty
Bond Funds may invest, are debt securities that pay interest at predetermined
rates that increase over time.
Derivatives. Consistent with its objective, each Underlying Liberty
Fund may invest in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange traded options; futures
contracts; futures options; securities collateralized by underlying pools of
mortgages or other receivable; floating rate instruments; and other instruments
that securitize assets of various types ("Derivatives"). In each case, the value
of the instrument or security is "derived" from the performance of an underlying
asset or a "benchmark" such as a security index, an interest rate, or a
currency.
Derivatives are most often used to manage investment risk or to create
an investment position indirectly because they are more efficient or less costly
than direct investment. They also may be used in an effort to enhance portfolio
returns.
The successful use of Derivatives depends on the ability of the
Underlying Liberty Funds' investment advisors to correctly predict changes in
the levels and directions of movements in currency exchange rates, security
prices, interest rates and other market factors affecting the Derivative itself
or the value of the underlying asset or benchmark. In addition, correlations in
the performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter Derivatives may
not be as well regulated and may be less marketable than exchange-traded
Derivatives.
In seeking to achieve its desired investment objective, provide
additional revenue, or hedge against changes in security prices, interest rates
or currency fluctuation, each Underlying Liberty Fund may engage in some or all
of the following practices: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter into interest
rate, index and foreign currency futures contracts; (3) write options on such
futures contracts; and (4) purchase other types of forward or investment
contracts linked to individual securities, indexes or other benchmarks. A Fund
may write a call or put option only if the option is covered. As the writer of a
covered call option, a Fund foregoes, during the option's life, the opportunity
to profit from increases in market value of the security covering the call
option above the sum of the premium and the exercise price of the call. There
can be no assurance that a liquid market will exist when a Liberty Underlying
Fund seeks to close out a position. In addition, because futures positions may
require low margin deposits, the use of futures contracts involves a high degree
of leverage and may result in losses in excess of the amount of the margin
deposit.
Master Fund/Feeder Fund: Structure and Risk Factors
Rather than investing directly in portfolio securities, the Stein Roe
Growth & Income, Stein Roe Growth Stock and Colonial Money Market Funds (Feeder
Funds) each seeks to achieve its investment objective by investing all of its
assets in another mutual fund (Portfolio) which has the same investment
objective and which invests directly in portfolio securities. Each Feeder Fund
bears its proportionate share of its Portfolio's expenses.
The investment objective of each Feeder Fund and the Portfolio in which
it invests all its assets is non-fundamental and may be changed without
shareholder approval. A Feeder Fund will notify its shareholders (including any
Liberty [XYZ] Fund investing in such Feeder Fund) in connection with any
material change in the investment objective of the Feeder Fund or its Portfolio.
A Feeder Fund will continue to invest in its Portfolio as long as the Feeder
Fund's Board of Trustees determines it to be in the best interest of the Feeder
Fund's shareholders to do so. In the event that the investment objective or
policies of a Feeder Fund's Portfolio were changed so as to be inconsistent with
the Feeder Fund's investment objective and policies, the Feeder Fund's Board of
Trustees would consider what action might be taken, including changes to the
Feeder Fund's investment objectives or policies, or withdrawal of the Feeder
Fund's assets from the Portfolio and investment of such assets in another pooled
investment entity or the retention of an investment Advisor to manage such
assets. Withdrawal of a Feeder Fund's assets from its Portfolio could result in
the distribution by the Portfolio to the Feeder Fund of portfolio securities in
kind (as opposed to a cash distribution), and the Feeder Fund could incur
brokerage fees and other transaction costs and could realize distributable
taxable gains in converting such securities to cash. See a distribution could
also result in a less diversified portfolio of investments for the Fund.
HOW THE LIBERTY [XYZ] FUNDS MEASURE THEIR PERFORMANCE
Performance may be quoted in sales literature and advertisements. The
average annual total return of each Class of each Liberty [XYZ] Fund is
calculated in accordance with the Securities and Exchange Commission's formula
and assumes the reinvestment of all distributions, the maximum initial sales
charge of 5.75% on Class A shares of the Balanced and Growth Funds and 4.75% on
Class A shares of the Income Fund, and the contingent deferred sales charge
applicable to the time period quoted on Class B and Class C shares. Other total
returns differ from the average annual total return only in that they may relate
to different time periods, may represent aggregate as opposed to average annual
total returns and may not reflect the initial or contingent deferred sales
charges.
The yield of each Class of each Liberty [XYZ] Fund, which differs from
total return because it does not consider changes in net asset value, is
calculated in accordance with the Securities and Exchange Commission's formula.
The distribution rate of each Class of a Liberty [XYZ] Fund is calculated by
dividing the most recent twelve months' distributions by the maximum offering
price of that Class at the end of the period. Each Class's performance may be
compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information. All performance
information is historical and does not predict future results.
HOW THE LIBERTY [XYZ] FUNDS ARE MANAGED
The Trustees of the Trust formulate each Liberty [XYZ] Fund's general
policies and oversee the Fund's affairs as conducted by the Advisor and the
Administrator.
The Advisor determines the asset allocation policies of each Liberty [XYZ]
Fund and allocates and reallocates its assets among the Underlying Liberty Funds
from time to time, as described under "Investment Objectives and Policies". For
these services, each Liberty [XYZ] Fund pays the Advisor a fee at the annual
rate of 0.__% of the Fund's average daily net assets.
William R. Parmentier, President, and Christopher S. Carabell, Vice
President-Investments, of the Advisor are responsible for the Advisor's
investment management of the Liberty [XYZ] Funds.
Liberty Funds Distributor, Inc. (Distributor), an affiliate of the Advisor
and the Administrator, serves as the distributor for the Funds' shares. Liberty
Funds Services, Inc. (Transfer Agent), also an affiliate of the Advisor and the
Administrator, serves as the shareholder services and transfer agent for the
Funds. The Advisor, the Administrator, the Distributor and the Transfer Agent
are all indirect wholly-owned subsidiaries of Liberty Financial Companies, Inc.,
a New York Stock Exchange listed financial services holding company the indirect
majority shareholder of which is Liberty Mutual Insurance Company (Liberty
Mutual). Liberty Mutual is considered to be the controlling entity of the
Advisor and its affiliates. Liberty Mutual is an underwriter of workers'
compensation insurance and is a property and casualty insurer in the U.S. The
Administrator provides the Liberty [XYZ] Funds with administrative personnel and
services, office space and other services at the Administrator's expense, for a
fee at the annual rate of 0.___% of the Funds' average daily net assets.
The Administrator also provides pricing and bookkeeping services to the
Funds for a monthly fee of $___________ plus a percentage of each Fund's average
net assets over $___ million. The Transfer Agent provides transfer agency and
shareholder services to the Fund, for a fee of ____. The fees payable to the
Advisor and the Administrator are subject to any reimbursement or fee waiver to
which the Administrator may agree.
YEAR 2000
The Advisor, Administrator, Distributor and Transfer agent of the Liberty
[XYZ] Funds, as well as those of the Underlying Liberty Funds (Liberty
Companies), are actively coordinating, managing and monitoring Year 2000
readiness for the Liberty [XYZ] Funds and the Underlying Liberty Funds. The
Administrator is working with the Liberty Companies and with vendors who provide
services, software and systems to the Funds to ensure that date-related
information and data can be properly processed and calculated on and after
January 1, 2000. Many service providers and vendors, including the Liberty
Companies, are in the process of making Year 2000 modifications to their
services, software and systems and believe that such modifications will be
completed on a timely basis prior to January 1, 2000. The cost of these
modifications will not affect the Liberty [XYZ] Funds or the Underlying Liberty
Funds. However, no assurances can be given that all modifications required to
ensure proper data processing and calculation on and after January 1, 2000 will
be timely made or that services to the Liberty [XYZ] Funds or the Underlying
Liberty Funds will not be adversely affected.
HOW THE LIBERTY [XYZ] FUNDS VALUE THEIR SHARES
The per share net asset value of a Class of a Liberty [XYZ] Fund is
calculated by dividing the total value of the Class's net assets by its number
of outstanding shares. Shares of the Funds are generally valued as of the close
of regular trading (normally 4:00 p.m. Eastern time) on the New York Stock
Exchange (Exchange) each day the Exchange is open, based on the net asset value
of the shares of the Underlying Liberty Funds held.
DISTRIBUTIONS AND TAXES
Each of the Liberty [XYZ] Funds intends to qualify as "regulated investment
company" under the Internal Revenue Code The Liberty [XYZ Income] Fund intends
to distribute net investment income to shareholders [monthly] [semi-annually]
[annually] and any net realized gains at least annually, and the Liberty [XYZ
Balanced and Growth] Funds intend to distribute net investment income at least
[semi-annually] [annually] and any net realized gains at least annually.
Each Fund's distributions are invested in additional shares of the same
Class of that 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 to shareholders but will be invested in additional
shares of the same Class of the Fund at net asset value.
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. To change your election, call the Transfer Agent for
information.
Whether you receive distributions in cash or in additional Fund shares, you
must report them as taxable income unless you are a tax-exempt institution. If
you buy shares shortly before a distribution is declared, the distribution will
be taxable although it is in effect a partial return of the amount invested.
Each January, information on the amount and nature of distributions for the
prior year is sent to shareholders.
HOW TO BUY SHARES
Shares of the Liberty [XYZ] Funds are offered continuously. Orders received
in good form prior to the time at which a Fund values its shares (or placed with
a financial service firm before such time and transmitted by the financial
service firm before the Fund processes that day's share transactions) will be
processed based on that day's closing net asset value, plus any applicable
initial sales charge.
The minimum initial investment is $25,000; subsequent investments may be
$1,000 or more. The minimum initial investment for the Fundamatic program is
$__; and the minimum initial investment for retirement accounts sponsored by the
Distributor is $___. Certificates will not be issued for Class B or Class C
shares and there are some limitations on the issuance of Class A share
certificates. The Funds may refuse any purchase order for its shares. See the
Statement of Additional Information for more information.
Class A Shares-Balanced and Growth Funds. The Class A shares of the
Balanced and Growth Funds are offered at net asset value plus an initial sales
charge as follows:
<PAGE>
Initial Sales Charge
--------------------------------------
Retained
by Financial
Service
Firm
as % of as % of
------------------------
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 6.10% 5.75% 5.00%
$50,000 to less than
$100,000 4.71% 4.50% 3.75%
$100,000 to less
than $250,000 3.63% 3.50% 2.75%
$250,000 to less
than $500,000 2.56% 2.50% 2.00%
$500,000 to less
than $1,000,000 2.04% 2.00% 1.75%
$1,000,000 or
more 0.00% 0.00% 0.00%
Class A Shares-Income Fund. The Class A shares of the Income Fund are
offered at net asset value plus an initial sales charge as follows:
<PAGE>
Initial Sales Charge
--------------------------------------
Retained
by Financial
Service
Firm
as % of as % of
------------------------
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than
$100,000 4.71% 4.50% 4.00%
$100,000 to less
than $250,000 3.63% 3.50% 3.00%
$250,000 to less
than $500,000 2.56% 2.50% 2.00%
$500,000 to less
than $1,000,000 2.04% 2.00% 1.75%
$1,000,000 or
more 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to the extent the shares remain outstanding.
In determining the sales charge and commission applicable to a new purchase
under the above schedules, the amount of the current purchase is added to the
current value of shares previously purchased and still held by an investor. If a
purchase results in an account having a value from $1 million to $5 million,
then the portion of the shares purchased that caused the account's value to
exceed $1 million will be subject to a 1.00% contingent deferred sales charge
payable to the Distributor, if redeemed within 18 months from the first day of
the month following each purchase. If the purchase results in an account having
a value in excess of $5 million, the contingent deferred sales charge will not
apply to the portion of the purchased shares comprising such excess amount.
Class B Shares (all Funds). Class B shares are offered at net asset value,
without an initial sales charge, and are subject to a 0.75% annual distribution
fee for approximately eight years (at which time they automatically convert to
Class A shares not bearing a distribution fee) and a declining contingent
deferred sales charge if redeemed within six years after purchase. As shown
below, the amount of the contingent deferred sales charge depends on the number
of years after purchase that the redemption occurs: Contingent Deferred Years
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
5.00% on Class B share purchases of the Balanced and Growth Funds and 4.00% on
the Income Fund.
Class C Shares (all Funds). Class C shares are offered at net asset value
and are subject to a 0.75% annual distribution fee and a 1.00% contingent
deferred sales charge on redemptions made within one year after the end of the
month in which the purchase was accepted.
The Distributor pays financial service firms an initial commission of 1.00%
on Class C share purchases and an ongoing commission of 0.75% annually,
commencing after the shares purchased have been outstanding for one year.
Payment of the ongoing commission is conditioned on receipt by the Distributor
of the 0.75% annual distribution fee referred to above. The commission may be
reduced or eliminated by the Distributor at any time.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments in the account, reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemptions). When a
redemption subject to a contingent deferred sales charge is made, generally,
older shares will be redeemed first unless the shareholder instructs otherwise.
See the Statement of Additional Information for more information.
Which Class is more beneficial to an investor depends on the amount and
intended length of the investment. Large investments, qualifying for a reduced
Class A sales charge, avoid the distribution fee. Investments in Class B shares
have 100% of the purchase invested immediately. Investors investing for a
relatively short period of time might consider Class C shares. Purchases of
$250,000 or more must be for Class A or Class C shares. Purchases of $1,000,000
or more must be for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for
selling different classes of shares. The Distributor may pay additional
compensation to financial service firms which have made or may make significant
sales. See the Statement of Additional Information for more information.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. The programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."
Shareholder Services and Account Fees. A variety of shareholder services
are available. For more information about these services or your account, call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.
In June of any year, the Fund may deduct $10 (payable to the Transfer
Agent) from accounts valued at less than $1,000 unless the account value has
dropped below $1,000 solely as a result of share value depreciation.
Shareholders will receive 60 days' written notice to increase the account value
before the fee is deducted. The Fund may also deduct annual maintenance and
processing fees (payable to the Transfer Agent) in connection with certain
retirement plan accounts. See "Special Purchase Programs/Investor Services" in
the Statement of Additional Information for more information.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either
directly to the Fund or through your financial service firm. 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 will delay sending proceeds for up to 15 days in order to
protect the Fund against financial losses and dilution in net asset value caused
by dishonored purchase payment checks. To avoid delay in payment, investors are
advised to purchase shares unconditionally, such as by federal fund wire.
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, 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 financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms
must receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge for this service.
General. The sale of shares is a taxable transaction for income tax
purposes and may be subject to a contingent deferred sales charge. The
contingent deferred sales charge may be waived under certain circumstances. See
the Statement of Additional Information for more information. Under unusual
circumstances, the Fund may suspend repurchases or postpone payment for up to
seven days or longer, as permitted by federal securities law. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
HOW TO EXCHANGE SHARES
Shares of any Liberty [XYZ] Fund may be exchanged at net asset value for
shares of any other Liberty [XYZ] Fund. Generally, such exchanges must be
between the same classes of shares. Shares will continue to age without regard
to the exchange for purposes of conversion and determining the contingent
deferred sales charge, if any, upon redemption. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction. The exchange
service may be changed, suspended or eliminated on 60 days' written notice. The
Liberty [XYZ] Funds will terminate the exchange privilege as to a particular
shareholder if the Advisor determines, in its sole and absolute discretion, that
the shareholder's exchange activity is likely to adversely impact the Advisor's
ability to manage the Funds' investments in accordance with their investment
objective or otherwise harm the Fund or its remaining shareholders.
Class B Shares. Exchanges of Class B shares are not subject to the
contingent deferred sales charge. However, if shares are redeemed within six
years after the original purchase, a contingent deferred sales charge will be
assessed using the schedule of the Liberty [XYZ] Fund into which the original
investment was made.
Class C Shares. Exchanges of Class C shares are not subject to the
contingent deferred sales charge. However, if shares are redeemed within one
year after the original purchase, a 1.00% contingent deferred sales charge will
be assessed. Only one "round-trip" exchange of a Liberty [XYZ] Fund's Class C
shares may be made per three-month period, measured from the date of the initial
purchase. For example, an exchange from Liberty [XYZ] Fund X to Liberty [XYZ]
Fund Y and back to Liberty [XYZ] Fund X would be permitted only once during each
three-month period.]
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisors are automatically eligible
to exchange Fund shares and to redeem up to $100,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemptions are limited to a total
of $100,000 in a 30-day period. Redemptions that exceed $100,000 may be done by
placing a wire order trade through a broker or furnishing a signature guaranteed
request. Telephone redemption privileges may be elected on the account
application. The Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and may be liable for
losses related to unauthorized or fraudulent transactions in the event
reasonable procedures are not employed. Such procedures include restrictions on
where proceeds of telephone redemptions may be sent, limitations on the ability
to redeem by telephone shortly after an address change, recording of telephone
lines and requirements that the redeeming shareholder and/or his or her
financial advisor provide certain identifying information. Shareholders and/or
their financial advisors wishing to redeem or exchange shares by telephone may
experience difficulty in reaching the Fund at its toll-free telephone number
during periods of drastic economic or market changes. In that event,
shareholders and/or their financial advisors should follow the procedures for
redemption or exchange by mail as described above under "How to Sell Shares."
The Advisor, the Transfer Agent and the Fund reserve the right to change, modify
or terminate the telephone redemption or exchange services at any time upon
prior written notice to shareholders. Shareholders and/or their financial
advisors are not obligated to transact by telephone.
12B-1 PLANS
Each Fund has a 12b-1 Plan which requires the Fund to pay the Distributor
monthly a distribution fee at an annual rate of 0.75% of the average daily net
assets attributable to its Class B and Class C shares. Because the Class B and
Class C shares bear the additional distribution fee, their dividends will be
lower than the dividends of Class A shares. Class B shares automatically convert
to Class A shares, approximately eight years after the Class B shares were
purchased. Class C shares do not convert. The multiple class structure could be
terminated should certain Internal Revenue Service rulings be rescinded. See the
Statement of Additional Information for more information. The Distributor uses
the fees to defray the cost of commissions and service fees paid to financial
service firms which have sold Fund shares, and to defray other expenses such as
sales literature, prospectus printing and distribution, shareholder servicing
costs and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plan also
authorizes other payments to the Distributor and its affiliates (including the
Advisor) which may be construed to be indirect financing of sales of Fund
shares.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in ______, 199_. Each
Liberty [XYZ] Fund represents the entire interest in a separate portfolio of the
Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Liberty [XYZ] Funds and of 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 the
Statement of Additional Information for more information.
<PAGE>
APPENDIX
Description of Certain Investment techniques Employed by the Underlying Liberty
Funds In Which the Liberty [XYZ] Funds May Invest
Repurchase Agreements. All of the Underlying Liberty Funds may invest in
repurchase agreements. Under a repurchase agreement, the Underlying Liberty Fund
purchases a security from a securities dealer or bank, which simultaneously
agrees to repurchase the security from the Fund on an agreed upon date (usually
not more than seven days from the date of purchase), or on demand, and at an
agreed upon repurchase price reflecting the original purchase price plus
interest. The obligation of the dealer or bank to repurchase the securities at
the agreed upon repurchase price is fully collateralized by the underlying
securities, which are held for the Fund by its custodian and marked to market on
a daily basis. In the event of the bankruptcy or default of the securities
dealer or bank, the Underlying Liberty Fund could experience costs and delays in
liquidating the underlying securities and might incur a loss if such collateral
declines in value during this period.
Borrowing of Money. Many of the Liberty Underlying Funds may borrow money from
banks for temporary or emergency purposes, usually limited to 10% of net assets.
In most cases, the Liberty Underlying Fund may not purchase additional portfolio
securities while such borrowings exceed 5% of net assets.
Foreign Currency Transactions. In connection with their investments in foreign
securities, the Colonial International Horizons and [SoGen] Overseas Funds (as
well as the other Underlying Liberty Funds that may invest a portion of their
assets in foreign securities) may purchase and sell (i) foreign currencies on a
spot or forward basis, (ii) foreign currency futures contracts, and (iii)
options on foreign currencies and foreign currency futures. Such transactions
will be entered into (i) to lock in a particular foreign exchange rate pending
settlement of a purchase or sale of a foreign security or pending the receipt of
interest, principal or dividend payments on a foreign security held by the Fund,
or (ii) to hedge against a decline in value, in U.S. dollars or in another
currency, of a foreign currency in which securities held by the Fund are
denominated. The Underlying Liberty Funds will not attempt, nor would they be
able, to eliminate all foreign currency risk. Further, although hedging may
lessen the risk of loss if the hedged currency's value declines, it limits the
potential gain from currency value increases.
Securities Loans. In order to increase income, many of the Underlying Liberty
Funds may lend securities to certain institutions considered by the Fund's
investment advisor to be qualified. Such loans are limited to 30% of each Fund's
total assets. Each such loan will be continuously secured by collateral at least
equal to the value of the securities loaned. Securities lending involves the
risk of loss to the lending Fund if the borrower defaults. The Fund will place
cash or liquid securities having a value at least equal to the amount of
collateral received on the loan in a segregated account with its custodian.
"When-Issued" and "Delayed Delivery" Securities. Many of the Underlying Liberty
Funds may acquire securities on a "when-issued" or "delayed delivery" basis by
contracting to purchase securities for a fixed price on a date beyond the
customary settlement time with no interest accruing until settlement. If made
through a dealer, the contract is dependent on the dealer completing the sale.
The dealer's failure to complete the sale could deprive the Fund of an
advantageous yield or price. These contracts also involve the risk that the
value of the underlying security may change prior to settlement. The Fund may
realize short-term gains or losses if the contracts are sold.
Mortgage Dollar Rolls. The Colonial Strategic Income and Crabbe Huson Real
Estate Investment Funds may engage in so-called "mortgage dollar roll"
transactions in which the Fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. 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 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. Finally, transaction
costs may exceed the return earned by the Fund from the transaction.
Short Sales Against the Box. Some of the Underlying Liberty Funds may sell short
securities they own or have the right to acquire without further consideration,
using a technique called selling short "against the box". Short sales against
the box may protect the Underlying Liberty Fund against the risk of declines in
the value of the portfolio securities sold short because any unrealized losses
with respect to such securities would be wholly or partly offset by a
corresponding gain in the short position. However, any potential gains in such
securities would be wholly or partly offset by a corresponding loss in the short
position.
<PAGE>
Description of Bond Ratings
The ratings of certain debt instruments in which one or more of the Funds may
invest are described below:
Standard and Poor's Corporation -- Bond Ratings
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 and CC bonds are regarded, on balance, as predominantly speculative
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
CC 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.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus (+) or minus (-) are modifiers relative to the standing within the major
rating categories.
Moody's Investors Services, Inc. - Bond Ratings
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 the 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 as
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 which 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 to be considered as
upper medium grade obligations. Facts giving security to principal and interest
are considered adequate, but elements may be present which 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 contact
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.
<PAGE>
Investment Advisor
Liberty Asset Management Company
600 Atlantic Avenue
Boston, MA 02210-2214
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017-2070
Shareholder Services and Transfer Agent
Liberty Funds Services, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
___________________, 1999
LIBERTY [XYZ] FUNDS
PROSPECTUS
For more detailed information about the Funds, call the Administrator at
1-800-426-3750 for the ___________, 1999 Statement of Additional Information.
Printed in U.S.A.
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
COLONIAL TRUST IV
Cross Reference Sheet
Liberty [XYZ Income] Fund
Liberty [XYZ Balanced] Fund
Liberty [XYZ Growth] Fund
<TABLE>
<CAPTION>
Location or Caption in Statement of Additional Information
Item Number of Form N-1A
Part B
<S> <C>
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies; Fundamental Investment
Policies; Other Investment Policies; Miscellaneous
Investment Practices of Underlying Liberty Funds
14. Fund Charges and Expenses; Management of the Funds
15. Fund Charges and Expenses
16. Fund Charges and Expenses; Management of the Funds
17. Fund Charges and Expenses; Management of the Funds
18. Shareholder Meetings
19. How to Buy Shares; Determination of Net Asset Value;
Suspension of Redemptions; Special Purchase
Programs/Investor Services; Programs for Reducing or
Eliminating Sales Charge; How to Sell Shares; How to
Exchange Shares
20. Taxes
21. Fund Charges and Expenses; Management of the Funds
22. Fund Charges and Expenses; Performance Measures
23. Independent Auditors
</TABLE>
<PAGE>
LIBERTY [XYZ] INCOME FUND
LIBERTY [XYZ] BALANCED FUND
LIBERTY [XYZ] GROWTH FUND
(collectively, the Funds)
STATEMENT OF ADDITIONAL INFORMATION
January , 1999
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of 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 January , 1999.
This SAI should be read together with the Prospectus. Investors may obtain a
free copy of a Prospectus from Liberty Funds Distributor, Inc. (LFDI), One
Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Funds. Part 2
includes information about the other open end mutual funds ("Underlying Liberty
Funds") in which the Fund s invest and additional information about certain
securities and investment techniques in which the Underlying Liberty Funds
invest in and engage.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part 1 Page
<S> <C>
Definitions b
Investment Objective and Policies b
Fundamental Investment Policies b
Other Investment Policies c
Fund Charges and Expenses c
Custodian f
Independent Auditors f
Part 2
<S> <C>
Miscellaneous Investment Practices of Underlying Liberty Funds 1
Taxes 11
Management of the Funds 13
Determination of Net Asset Value 16
How to Buy Shares 17
Special Purchase Programs/Investor Services 17
Programs for Reducing or Eliminating Sales Charges 19
How to Sell Shares 21
Distributions 23
How to Exchange Shares 23
Suspension of Redemptions 24
Shareholder Liability 24
Shareholder Meetings 24
Performance Measures 24
Appendix I 26
Appendix II 34
</TABLE>
<PAGE>
Part 1
LIBERTY [XYZ] INCOME FUND
LIBERTY [XYZ] BALANCED FUND
LIBERTY [XYZ] GROWTH FUND
Statement of Additional Information
________________, 1998
DEFINITIONS
"Trust" Colonial Trust IV
"Advisor" Liberty Asset Management Company, the Funds'
investment advisor
"Administrator" Colonial Management Associates, Inc., the Funds'
administrator
"LFDI" Liberty Funds Distributor, Inc., the Funds'
distributor
"LFSI" Liberty Funds Services, Inc., the Funds' shareholder
services and transfer agent
"Funds" Liberty [XYZ] Income Fund, Liberty [XYZ] Balanced Fund,
and Liberty [XYZ] Growth Fund
"Underlying
Liberty Funds" The open-end mutual funds listed in the Prospectus in
which the Funds may invest.
INVESTMENT OBJECTIVES AND POLICIES
The Funds' Prospectus describes the investment objective and investment policies
of each Fund. The Funds do not invest directly in a portfolio of securities;
rather, in seeking to achieve their investment objectives, they invest primarily
in shares of other mutual funds distributed by LFDI and managed by investment
advisory affiliates of LFDI (Underlying Liberty Funds). The Advisor allocates
each Fund's assets among the Underlying Liberty Funds. Part 1 of this SAI
includes information concerning the fundamental investment policies of the
Funds.
The investment objectives and policies of the Underlying Liberty Funds are
summarized in the Funds' Prospectus. Part 2 contains additional information
about the following securities and investment techniques in which the Underlying
Liberty Funds may invest and engage in:
Foreign Securities Pay-in Kind Securities
Foreign Currency Transactions Repurchase Agreements
Forward Commitments Rule 144A Securities
Futures Contracts and Related Options Securities Loans
Lower Rated Securities Small Companies
Money Market Instruments Short-Term Trading
Mortgage Dollar Rolls Step Coupon Bonds
Options on Securities Zero Coupon Securities
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of a 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 persons to the extent
permitted by applicable law, provided that a Fund's borrowings shall not
exceed 33 1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings), or such other
percentage permitted by law;
2. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets;
3. Purchase and sell futures contracts and related options as long as the
total initial margin and premiums do not exceed 5% of total assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans (a) through lending of securities, (b) through the purchase of
debt instruments or similar evidences of indebtedness typically sold
privately to financial institutions, (c) through an interfund lending
program with other affiliated funds provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33 1/3% of the
value of its total assets (taken at market value at the time of such
loans), and (d) through repurchase agreements; and
6. Not concentrate more than 25% of its total assets in any one industry or
with respect to 75% of the Fund's assets, purchase the securities of any
issuer (other than obligations issued or guaranteed as to principal and
interest by the government of the United States or any agency or
instrumentality thereof) if, as a result of such purchase, more than 5% of
the Fund's total assets would be invested in the securities of such issuer,
except that a Fund may invest up to 100% of its assets in one or more
investment companies.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, each Fund may not:
<PAGE>
1. Have a short sales position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of securities;
and
2. Invest more than 15% of its net assets in illiquid securities.
FUND CHARGES AND EXPENSES
Under the Funds' investment management agreements with the Advisor, each Fund
pays the Advisor a fee for its asset allocation services that accrues daily and
is payable monthly at an annual rate of ___% of the average daily net assets of
each Fund (subject to reductions that the Advisor may agree to periodically):
The Funds each pay the Administrator an administrative fee, accrued daily and
paid monthly, for providing the Funds with administrative personnel and
services, office space and other services, at an annual rate of ___% of the
average daily net assets of the Fund (subject to reductions that the
Administrator may agree to periodically).
The Funds also each pay the Administrator a monthly pricing and bookkeeping fee
of $_______ per Fund plus the following percentages of each Fund's average daily
net assets over $50 million (subject to reductions that the Administrator may
agree to periodically):
0.035% on the next $950 million
0.025% on the next $1 billion
0.015% on the next $1 billion
0.001% on the excess over $3 billion
LFSI provides transfer agency and shareholder services to the Funds without
charge.
In addition to the fees and expenses paid by the Funds directly, each Fund pays
it pro rata share of the fees and expenses of the Underlying Liberty Funds in
which it invests. Each Underlying Liberty Fund pays investment advisory fees to
its investment advisor (Colonial Management Associates, Inc., Stein Roe &
Farnham Incorporated, Crabbe Huson Group, Inc. or [SoGen] Asset Management
Corp.), administrative and pricing and bookkeeping fees to the Administrator,
and transfer agency and shareholder servicing fees to LFSI.
Brokerage Commissions
As stated under "Investment Objectives and Policies" above, the Funds seek to
achieve their respective investment objectives, not by buying, holding and
selling individual portfolio securities, but by investing all their assets in
shares of Underlying Liberty Funds and, to a limited extent, in shares of
open-end investment companies not managed by affiliates of LFDI ("Non-Affiliated
Funds"). The Funds will not incur brokerage commission expenses or sales charges
in connection with their purchases and redemptions of Underlying Liberty Funds,
and do not expect to do so in connection with any purchases or redemptions of
shares of Non-Affiliated Funds. The Funds bear their pro rata shares of the
brokerage and other transaction costs incurred by the Underlying Liberty Funds
and any Non-Affiliated Funds in connection with their purchases and sales of
individual portfolio securities.
Trustees and Trustees Fees
The Trustees of the Trust also serve as trustees of the Trusts of which the
Underlying Liberty Funds managed by Colonial Management Associates, Inc.,
Crabbe-Huson Group, Inc. and [SoGen] Asset Management Corp. are series, [and do
not receive fees from the Funds].
The table below shows the total compensation paid to the Trustees of the Trust
for the year ended December 31, 1997 by the Colonial Funds complex, consisting
of 39 open-end and 5 closed-end investment companies as of that date:
Total Compensation From Trust And
Fund Complex Paid To The Trustees
For The Calendar Year Ended
Trustee December 31, 1997(a)
[S] [C]
Robert J. Birnbaum $ 93,949
Tom Bleasdale 106,432(b)
Lora S. Collins 94,698
James E. Grinnell 94,698(c)
William D. Ireland, Jr. (e) 101,445
Richard W. Lowry 94,698
William E. Mayer 89,949
James L. Moody, Jr. 98,447(f)
John J. Neuhauser 94,948
George L. Shinn(j) 103,443
Robert L. Sullivan 99,945
Sinclair Weeks, Jr.(e) 101,445
(a) The Trust does not currently provide pension or retirement plan benefits
to the Trustees.
(b) Includes $57,454 payable in later years as deferred compensation.
(c) Includes $4,797 payable in later years as deferred compensation.
(e) Retired as Trustee of the Trust effective April 24, 1998.
(f) Total compensation of $98,447 for the calendar year ended December 31,
1997, will be payable in later years as deferred compensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry 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 Funds) for service during the calendar year ended December
31, 1997:
<PAGE>
Total Compensation From Liberty
Funds For The Calendar Year Ended
Trustee December 31, 1997 (g)
[S] [C]
Robert J. Birnbaum $ 26,800
James E. Grinnell 26,800
Richard W. Lowry 26,800
(g) The Liberty Funds are closed-end investment companies advised by the
Advisor.
Ownership of the Fund
As of _________, the officers and Trustees of the Trust as a group owned no
shares of the Fund.
As of __________, _______ owned ____________ Class __ shares of the Income Fund,
__________ Class ______ shares of the Balanced Fund, and _________ Class ___
shares of the Growth Fund.
12b-1 Plan, CDSC and Conversion of Shares
The Funds offer multiple classes of shares, including Class A, Class B and Class
C. The Funds may in the future offer other classes of shares. The Trustees have
approved 12b-1 plans (Plans) pursuant to Rule 12b-1 under the Act for each of
the Class A, Class B and Class C shares of the Funds. Under the Plans, each Fund
pays LFDI monthly a service fee at an annual rate of 0.25% of net assets
attributed to the Class A, Class B and Class C shares and a distribution fee at
an annual rate of 0.75% of average daily net assets attributed to Class B and
Class C shares. LFDI may use the entire amount of such fees to defray the cost
of commissions and service fees paid to financial service firms (FSFs) and for
certain other purposes. Since the distribution and service fees are payable
regardless of LFDI's expenses, LFDI may realize a profit from the fees.
The Plans authorize any other payments by a Fund to LFDI and its affiliates
(including the Advisor) to the extent that such payments might be construed to
be indirectly financing the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the growth and
retention of assets resulting in a more advantageous expense ratio and increased
investment flexibility which could benefit shareholders of each class of the
Funds. The Plans will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plans or
in any agreements related to the Plans (Independent Trustees), cast in person at
a meeting called for the purpose of voting on the Plans. The Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plans must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plans may be terminated at any time by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plans will only be effective if the selection and nomination of the
Trustees who are non-interested Trustees is effected by such non-interested
Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value subject to a
CDSC if redeemed within six years after purchase. Class C shares are offered at
net asset value and are subject to a 1.00% CDSC on redemptions within one year
after purchase. Class I shares are offered at net asset value. The CDSCs are
described in the Prospectuses.
No CDSC will be imposed on distributions or on amounts which represent an
increase in the value of the shareholder's account resulting from capital
appreciation. In determining the applicability and rate of any CDSC, it will be
assumed that a redemption is made first of shares representing capital
appreciation, next of shares representing reinvestment of distributions and
finally of other shares held by the shareholder for the longest period of time.
Eight years after the end of the month in which a Class B share is purchased,
such share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares having an
equal value, which are not subject to the distribution fee.
CUSTODIAN
The Chase Manhattan Bank is the custodian for the Funds. The custodian is
responsible for safeguarding and controlling the Funds' cash and securities,
receiving and delivering securities and collecting the each Fund's interest and
dividends.
INDEPENDENT AUDITORS
Price Waterhouse acts as the Funds' independent auditors. In such capacity,
Price Waterhouse LLP performs the annual audit of each Fund's financial
statements and assists in the preparation of tax returns.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART 2
MISCELLANEOUS INVESTMENT PRACTICES OF UNDERLYING LIBERTY FUNDS
Each Fund seeks to achieve its respective investment objectives by investing all
of its assets in shares of up to eight of the open-end mutual funds (Liberty
Underlying Funds) listed in the Prospectus. The mix of Underlying Liberty Funds
in which each Fund invests is determined by the Advisor as described in the
Prospectus. The investment advisors (Underlying Fund Managers) of the Liberty
Underlying Funds are Colonial Management Associates, Inc., Stein Roe & Farnham
Incorporated, Crabbe Huson Group, Inc., or [SoGen] Asset Management Corp., as
indicated in the name of the Liberty Underlying Fund, each of which is an
affiliate through common control by Liberty Financial Companies, Inc. of LFDI
and the Advisor.
The following describes certain of the investment practices of the Underlying
Liberty Funds. Certain of the practices described below are used by some, but
not all, of the Liberty Underlying Funds, as set forth in the Prospectus of the
Funds.
Short-Term Trading
In seeking the Underlying Liberty Fund's investment objective, the Underlying
Fund Manager will buy or sell portfolio securities whenever it believes it is
appropriate. The Underlying Fund Manager's decision will not generally be
influenced by how long the Underlying Liberty Fund may have owned the security.
From time to time the Underlying Liberty Fund will buy securities intending to
seek short-term trading profits. A change in the securities held by the
Underlying Liberty 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 an Underlying Liberty Fund's
investment policies, under certain market conditions its portfolio turnover rate
may be higher than that of other mutual funds. An Underlying Liberty 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. An Underlying Liberty Fund's portfolio turnover rate is
not a limiting factor when its Underlying Liberty Fund Manager considers a
change in the fund's portfolio.
Lower Rated Debt Securities Lower rated debt securities are those rated lower
than Baa by Moody's, BBB by S&P, or comparable unrated debt securities. Relative
to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default for lower
rated debt securities;
2. the secondary market for lower rated debt securities may at times become
less liquid or respond to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower rated debt securities may have a
greater impact on the fund's achievement of its investment objective; and
4. lower rated debt securities may be less sensitive to interest rate changes,
but are more sensitive to adverse economic developments.
In addition, certain lower rated debt securities may not pay interest in cash on
a current basis.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The Colonial International Horizons and [SoGen] Overseas Funds invest primarily,
and other Underlying Liberty Funds may invest a portion of their assets, in
securities traded in markets outside the United States. Foreign investments can
be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations. There may be less publicly available information
about a foreign company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing and financial reporting standards comparable
to those applicable to U.S. companies. Securities of some foreign companies are
less liquid or more volatile than securities of U.S. companies, and foreign
brokerage commissions and custodian fees may be higher than in the United
States. Investments in foreign securities can involve other risks different from
those affecting U.S. investments, including local political or economic
developments, expropriation or nationalization of assets and imposition of
withholding taxes on dividend or interest payments. Foreign securities, like
other assets of the Underlying Liberty Fund, will be held by the fund's
custodian or by a subcustodian or depository. See also "Foreign Currency
Transactions" below.
The Underlying Liberty 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. The
PFIC tax is the highest ordinary income rate, and it could be increased by an
interest charge on the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxation" below.
Zero Coupon Securities (Zeros)
The Underlying Liberty Bond Funds may invest in zero coupon securities which are
securities issued at a significant discount from face value and pay interest
only at maturity rather than at intervals during the life of the security and in
certificates representing undivided interests in the interest or principal of
mortgage-backed securities (interest only/principal only), which tend to be more
volatile than other types of securities. The Fund will accrue and distribute
income from stripped securities and certificates on a current basis and may have
to sell securities to generate cash for distributions.
Step Coupon Bonds (Steps)
The Underlying Liberty Bond Funds may invest in debt securities which pay
interest at a series of different rates (including 0%) in accordance with a
stated schedule for a series of periods. In addition to the risks associated
with the credit rating of the issuers, these securities may be subject to
additional volatility risk than fixed rate debt securities.
Pay-In-Kind (PIK) Securities
The Underlying Liberty Bond Funds 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.
<PAGE>
Securities Loans
Most of the Underlying Liberty Funds may make secured loans of its portfolio
securities amounting to not more than a specified percentage of its total
assets, 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)
Many of the Underlying Liberty Funds 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 upon the
sale of forward commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the Colonial Strategic Income and Crabbe Huson Real
Estate Investment Funds sell a mortgage-backed security and simultaneously enter
into a commitment to purchase a similar security at a later date. The fund
either will be paid a fee by the counterparty upon entering into the transaction
or will be entitled to purchase the similar security at a discount. As with any
forward commitment, mortgage dollar rolls involve the risk that the counterparty
will fail to deliver the new security on the settlement date, which may deprive
the fund of obtaining a beneficial investment. In addition, the security to be
delivered in the future may turn out to be inferior to the security sold upon
entering into the transaction. Also, the transaction costs may exceed the return
earned by the fund from the transaction.
Repurchase Agreements
All of the Underlying Liberty Funds may enter into repurchase agreements. A
repurchase agreement is a contract under which the fund acquires a security for
a relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the fund to resell such security at a
fixed time and price (representing the fund's cost plus interest). It is the
fund's present intention to enter into repurchase agreements only with
commercial banks and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or instrumentalities.
Repurchase agreements may also be viewed as loans made by the fund which are
collateralized by the securities subject to repurchase. The Advisor will monitor
such transactions to determine that the value of the underlying securities is at
least equal at all times to the total amount of the repurchase obligation,
including the interest factor. If the seller defaults, the fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale including accrued interest are less than the resale price provided in the
agreement including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, the fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal and interest
if the fund is treated as an unsecured creditor and required to return the
underlying collateral to the seller's estate.
Options on Securities
Writing covered options. Each Underlying Liberty Fund may write covered call
options and covered put options on securities held in its portfolio when, in the
opinion of the Underlying Fund Manager, 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 Underlying Liberty Funds 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. Each Underlying Liberty Funds may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. Such hedge protection is provided during the life of the put
option since the fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. For a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, the fund will reduce any profit it might otherwise have realized
from appreciation of the underlying security by the premium paid for the put
option and by transaction costs.
Purchasing call options. Each Underlying Liberty 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 an Underlying Liberty 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 Underlying Liberty Funds intend to enter into OTC
options transactions only with primary dealers in U.S. government securities
and, in the case of OTC options written by a 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.
Risk factors in options transactions. The successful use of options strategies
by an Underlying Liberty Fund depends on the ability of the its Underlying Fund
Manager 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 Liberty Underlying Fund's
ability to terminate option positions at times when its Underlying Fund Manager
deems it desirable to do so. Although the fund will take an option position only
if the its Underlying Fund Manager 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 options 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 Liberty
Underlying Fund's obligation under the contract (less any applicable margin
deposits and any assets that constitute "cover" for such obligation), will be
segregated with the fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade known as "contract markets"
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures 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. An Underlying Liberty 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 an Underlying Liberty Fund is subject to its Underlying
Fund Manager`s ability to predict correctly, movements in the direction of
interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. An Underlying Liberty 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 Underlying Fund Manager
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 Underlying Fund Manager's ability to predict correctly movements in the
direction of the market. It is possible that, where the fund has sold futures to
hedge its portfolio against a decline in the market, the index on which the
futures are written may advance and the value of securities held in the fund's
portfolio may decline. If this occurs, the fund would lose money on the futures
and also experience a decline in the value in its portfolio securities. However,
while this could occur to a certain degree, the Underlying Fund Manager believes
that over time the value of the fund's portfolio will tend to move in the same
direction as the market indices which are intended to correlate to the price
movements of the portfolio securities sought to be hedged. It is also possible
that, if the fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the fund will lose part or all of the benefit of the increased
values of those securities that it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Advisor may still not result in a
successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the 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 Underlying Liberty Funds 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 Colonial International Horizons and [SoGen] Overseas Funds (as well as the
other Underlying Liberty Funds that may invest a portion of their assets in
foreign securities) 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.
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.
An Underlying Liberty Fund will only purchase or write currency options when its
Underlying Fund Manager believes that a liquid secondary market exists for such
options. There can be no assurance that a liquid secondary market will exist for
a particular option at any specified time. Currency options are affected by all
of those factors which influence exchange rates and investments generally. To
the extent that these options are traded over the counter, they are considered
to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the an Underlying
Liberty Fund's investments in foreign securities and to the fund's foreign
currency exchange transactions may be more complex than settlements with respect
to investments in debt or equity securities of U.S. issuers, and may involve
certain risks not present in the fund's domestic investments, including foreign
currency risks and local custom and usage. Foreign currency transactions may
also involve the risk that an entity involved in the settlement may not meet its
obligations.
Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
Rule 144A Securities
The Underlying Liberty Funds 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 an Underlying Liberty Fund, to trade in privately
placed securities that have not been registered for sale under the 1933 Act. The
Underlying Fund Manager, under the supervision of the board of trustees
responsible for the Liberty Underlying Fund considering an investment in Rule
144A securities, 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 Underlying Fund Manager
will consider the trading markets for the specific security, taking into account
the unregistered nature of a Rule 144A security. In addition, the Underlying
Fund Manager 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 Underlying Fund Manager
that a Rule 144A security is no longer liquid, the fund's holdings of illiquid
securities would be reviewed to determine what, if any, steps are required to
assure that the fund does not invest more than its investment restriction on
illiquid securities allows. Investing in Rule 144A securities could have the
effect of increasing the amount of the fund's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
TAXES
In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax advisor for state, local and foreign tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons.
Taxation of the Liberty [XYZ] Funds and Their Shareholders
Each Fund intends to qualify annually and elects to be treated as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, each Fund is required to distribute to its shareholders at least 90
percent of its investment company taxable income (including net short-term
capital gain) and generally is not subject to federal income tax to the extent
that it distributes annually its investment company taxable income and net
realized capital gains in the manner required under the Internal Revenue Code.
Each Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of each Fund's ordinary income for the calendar year, at least 98% of the excess
of its capital gains over capital losses (adjusted for certain ordinary losses)
realized during the one-year period ending October 31 during such year, and all
ordinary income and capital gains for prior years that were not previously
distributed.
Investment company taxable income generally is made up of dividends, interest
and net short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carry forward of a Fund.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
To the extent that an Underlying Liberty Fund derives dividends from domestic
corporations, a portion of the income distributions of a Fund which invests in
that Underlying Liberty Fund may be eligible for the 70% deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends received deduction is reduced to the
extent the shares held by the Underlying Liberty Fund with respect to which the
dividends are received are treated as debt-financed under federal income tax law
and is eliminated if either those shares or the shares of the Underlying Liberty
Fund or the Fund are deemed to have been held by the Underlying Liberty Fund,
the Fund or the shareholders, as the case may be, for less than 46 days during
the 90-day period beginning 45 days before the shares become ex-dividend.
Income received by an Underlying Liberty Fund from sources within a foreign
country may be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of an Underlying Liberty Fund's total assets at
the close of its taxable year consists of stock or securities of foreign
corporations, the Underlying Liberty Fund will be eligible and may elect to
"pass-through" to its shareholders, including a Fund, the amount of such foreign
income and similar taxes paid by the Underlying Liberty Fund. Pursuant to this
election, the Fund would be required to include in gross income (in addition to
taxable dividends actually received), its pro rata share of foreign income and
similar taxes and to deduct such amount in computing its taxable income or to
use it as a foreign tax credit against its U.S. federal income taxes, subject to
limitations. A Fund, would not, however, be eligible to elect to "pass-through"
to its shareholders the ability to claim a deduction or credit with respect to
foreign income and similar taxes paid by the Underlying Liberty Fund.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders at a maximum 20% or
28% capital gains rate (depending on the Fund's holding period for the assets
giving rise to the gain), regardless of the length of time the shares of a Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a long
term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-months period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such month will be deemed to
have been received by the Fund's shareholders on December 31, if paid during
January of the following year. Redemptions of shares, including exchanges for
shares of another Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
Distributions by a Fund result in a reduction in the net asset value of the
Fund's shares. Should distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described able, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Each Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of investment company taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in the
case of certain exempt shareholders. Under the backup withholding provisions of
Section 3406 of the Code, distributions of investment company taxable income and
capital gains and proceeds from the redemption or exchange of the shares of a
regulated investment company may be subject to withholding of federal income tax
at the rate of 31% in the case of non-exempt shareholders who fail to furnish
the investment company with their taxpayers identification numbers and with
required certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of a Fund may be subject to state and local taxes on distribution
received from the Fund and on redemptions of the Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. person, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of a Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.s. sources under
the Code.
Taxation of the Underlying Liberty Funds
Each Underlying Liberty Fund intends to qualify annually and elects to be
treated as a regulated investment company under Subchapter M of the Code. In any
year in which an Underlying Liberty Fund qualifies as a regulated investment
company and timely distributes all of its taxable income, the Underlying Liberty
Fund generally will not pay any federal income or excise tax.
Distributions of an Underlying Liberty Fund's investment company taxable income
are taxable as ordinary income to a Fund which invests in the Underlying Liberty
Fund. Distributions of the excess of an Underlying Liberty Fund's net long-term
capital gain over its net short-term capital loss, which are properly designated
as "capital gain dividends," are taxable as long-term capital gain to a Fund
which invests in the Underlying Liberty Fund regardless of how long the Fund
held the Underlying Liberty Fund's shares, and are not eligible for the
corporate dividends-received deduction. Upon the sale or other disposition by a
Fund of shares of an Underlying Liberty Fund, the Fund generally will realize a
capital gain or loss which will be long-term or short-term, generally depending
upon the Fund's holding period for the shares.
Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
MANAGEMENT OF THE FUNDS
The Advisor is a subsidiary of Liberty Financial Companies, Inc. (Liberty
Financial), Corporation, which in turn is a majority-owned subsidiary of Liberty
Mutual Insurance Company (Liberty Mutual). Liberty Mutual is an underwriter of
workers' compensation insurance and a property and casualty insurer in the U.S.
Liberty Financials address is 600 Atlantic Avenue, Boston, MA 02210. Liberty
Mutual's address is 175 Berkeley Street, Boston, MA 02117.
<TABLE>
<CAPTION>
Trustees and Officers
Position with
Name and Address Age Fund Principal Occupation During Past Five Years
- ---------------- --- -------------- --------------------------------------------
<S> <C> <C>
Robert J. Birnbaum 70 Trustee Consultant (formerly Special Counsel, Dechert Price &
313 Bedford Road Rhoads from September, 1988 to December, 1993, President,
Ridgewood, NJ 07450 New York Stock Exchange from May, 1985 to June, 1988,
President, American Stock Exchange, Inc. from 1977 to
May, 1985).
Tom Bleasdale 68 Trustee Retired (formerly Chairman of the Board and Chief
11 Carriage Way Executive Officer, Shore Bank & Trust Company from
Danvers, MA 01923 1992-1993), is a Director of The Empire Company since
June, 1995.
John V. Carberry * 51 Trustee Senior Vice President of Liberty Financial Companies,
56 Woodcliff Road Inc. (formerly Managing Director, Salomon Brothers
Wellesley Hills, MA 02481 (investment banking) from January, 1988 to January, 1998).
Lora S. Collins 62 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis &
1175 Hill Road Frankel from September, 1986 to November, 1996).
Southold, NY 11971
James E. Grinnell 68 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
Richard W. Lowry 62 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
Salvatore Macera 67 Trustee Private Investor (formerly Executive Vice President of
26 Little Neck Lane Itek Corp. and President of Itek Optical & Electronic
New Seabury, MA 02649 Industries, Inc. (electronics)).
William E. Mayer* 58 Trustee Partner, Development Capital, LLC (formerly Dean, College
500 Park Avenue, 5th Floor of Business and Management, University of Maryland from
New York, NY 10022 October, 1992 to November, 1996; Dean, Simon Graduate
School of Business, University of Rochester from
October, 1991 to July, 1992).
James L. Moody, Jr. 66 Trustee Retired (formerly Chairman of the Board, Hannaford Bros.
16 Running Tide Road Co. from May, 1984 to May, 1997, and Chief Executive
Cape Elizabeth, ME 04107 Officer, Hannaford Bros. Co. from May, 1973 to May, 1992).
John J. Neuhauser 55 Trustee Dean, Boston College School of Management since
140 Commonwealth Avenue September, 1977.
Chestnut Hill, MA 02167
Thomas E. Stitzel 58 Trustee Professor of Finance, College of Business, Boise State
2208 Tawny Woods Place University (higher education); Business consultant and
Boise, ID 83706 author.
Robert L. Sullivan 70 Trustee Retired Partner, KPMG Peat Marwick LLP
45 Sankaty Avenue
Siaconset, MA 02564
Anne-Lee Verville 51 Trustee Consultant (formerly General Manager, Global Education
359 Stickney Hill Road Industry from 1994 to 1997, and President, Applications
Hopkinton, NH 03229 Solutions Division from 1991 to 1994, IBM Corporation
(global education and global applications).
Stephen E. Gibson 45 President Chairman of the Board since July, 1998, Chief Executive
Officer and President since December 1996, and
President of Funds since June, 1998; Director, since
July 1996 of the Advisor (formerly Executive Vice
President from July, 1996 to December, 1996); Director,
Chief Executive Officer and President of TCG since
December, 1996 (formerly Managing Director of Marketing
of Putnam Investments, June, 1992 to July, 1996.)
J. Kevin Connaughton 34 Controller and Controller and Chief Accounting Officer of Funds since
Chief Accounting February, 1998, Vice President of the Advisor since
Officer February, 1998 (formerly Senior Tax Manager, Coopers &
Lybrand, LLP from April, 1996 to January, 1998; Vice
President, 440 Financial Group/First Data Investor
Services Group from March ,1994 to April, 1996; Vice
President, The Boston Company (subsidiary of Mellon
Bank) from December, 1993 to March, 1994; Assistant
Vice President and Tax Manager, The Boston Company from
March, 1992 to December, 1993).
Timothy J. Jacoby 45 Treasurer and Treasurer and Chief Financial Officer of Funds since
Chief Financial October, 1996 (formerly Controller and Chief Accounting
Officer Officer from October, 1997 to February, 1998), is
Senior Vice President of the Advisor since September, 1996
(formerly Senior Vice President, Fidelity Accounting
and Custody Services from September, 1993
to September, 1996 and Assistant Treasurer to the
Fidelity Group of Funds from August, 1990 to September,
1993).
Nancy L. Conlin 44 Secretary Secretary of the Funds since April, 1998 (formerly
Assistant Secretary from July, 1994 to April, 1998), is
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 - Legal, General Counsel and Clerk of
TCG since April, 1998 (formerly Assistant Clerk from
July, 1994 to April, 1998)
Davey S. Scoon 51 Vice President Vice President of the Funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Advisor (formerly Senior Vice
President and Treasurer of the Advisor from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995).
</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 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.
Management and Other Agreements
Under an investment management agreement, the Advisor allocates and reallocates
each Fund's assets among Underlying Liberty Funds and, to the limited extent set
forth under "Miscellaneous Investment Practices" above, Non-Liberty Funds. Under
administrative and pricing and bookkeeping agreements, the Administrator
provides the Funds with administrative personnel and services, office space, and
pricing and bookkeeping services. See "Fund Charges and Expenses" for the fees
payable by the Funds under these agreements. Under the agreements, any liability
of the Advisor or the Administrator to a Fund, the Trust or any shareholder of a
Fund is limited to situations involving the Advisor's or the Administrator's own
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties.
The investment management agreements with the Advisor may be terminated with
respect to any 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. LFDI pays the cost of printing and distributing all other
Prospectuses.
<PAGE>
Principal Underwriter
LFDI is the principal underwriter of the Funds' shares. LFDI has no obligation
to buy the Funds' shares, and purchases the Funds' shares only upon receipt of
orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
LFSI is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent) . The agreement continues indefinitely but may be terminated
by 90 days' notice by the fund to LFSI or generally by 6 months' notice by LFSI
to the fund. The agreement limits the liability of LFSI to the fund for loss or
damage incurred by the fund to situations involving a failure of LFSI to use
reasonable care or to act in good faith in performing its duties under the
agreement. It also provides that the fund will indemnify LFSI against, among
other things, loss or damage incurred by LFSI on account of any claim, demand,
action or suit made on or against LFSI not resulting from LFSI's bad faith or
negligence and arising out of, or in connection with, its duties under the
agreement.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each Class as of the
close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern
time, 3:00 p.m. Central time) each day the Exchange is open. Currently, the
Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
the Fourth of July, Labor Day, Thanksgiving and Christmas.
The NAV of a Fund is based on the NAV of the shares of the Liberty Underlying
Funds and any Non-Liberty Funds held by it. For the purpose of determining the
NAV of the shares of the Underlying Liberty Funds, debt securities held by an
Underlying Liberty Fund 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 applicable
Underlying Fund Manager deems it appropriate to do so, an over-the-counter or
exchange bid quotation is used. Securities held by an Underlying Liberty Fund
that are 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
responsible for the Underlying Liberty Fund. 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 applicable
Underlying Fund Manager in good faith under the direction of the Board of
Trustees responsible for the Underlying Liberty fund.
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 NAV
of the Underlying Liberty Funds is not calculated. The values of these
securities used in determining the NAV are computed as of such times. Also,
because of the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of certain
securities (such as convertible bonds, U.S. government securities, and
tax-exempt securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the close of the
Exchange. Occasionally, events affecting the value of such securities may occur
between such times and the close of the Exchange which will not be reflected in
the computation of the Underlying Liberty 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 Board of Trustees responsible for the Underlying Liberty Fund.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Funds and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Funds will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the fund before the fund
processes that day's transactions. If the FSF fails to transmit before the fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to LFSI,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, LFDI's commission is the sales charge shown in the
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that LFDI retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFDI generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFDI for any up-front and/or ongoing commissions paid to FSFs. Checks
presented for the purchase of shares of the Fund which are returned by the
purchaser's bank or check writing privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S.
bank and must be payable in U.S. dollars.
LFSI acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to LFSI, provided the new FSF has a sales agreement
with LFDI.
Shares credited to an account are transferable upon written instructions in good
order to LFSI and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B or C
shares.
Shareholders may send any certificates which have been previously acquired to
LFSI for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of the Funds may be
purchased through the Fundamatic Program. Preauthorized monthly bank drafts or
electronic funds transfer for a fixed amount of at least $50 are used to
purchase a Fund's shares at the public offering price next determined after LFDI
receives the proceeds from the draft (normally the 5th or the 20th of each
month, or the next business day thereafter). If your Fundamatic purchase is by
electronic funds transfer, you may request the Fundamatic purchase for any day.
Further information and application forms are available from FSFs or from LFDI.
Automated Dollar Cost Averaging (Classes A, B and C). The Automated Dollar Cost
Averaging program allows you to exchange $100 or more on a monthly basis from
any Fund in which you have a current balance of at least $5,000 into the same
class of shares of any or all of the 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 a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Liberty Funds Services,
Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment advisor to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
LFDI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges. These plans may be altered or discontinued at
any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. LFDI offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. BankBoston, N.A. is the
Trustee of LFDI prototype plans and charges a $10 annual fee. Detailed
information concerning these Retirement Plans and copies of the Retirement Plans
are available from LFDI.
Participants in non-LFDI prototype Retirement Plans (other than IRAs) also are
charged a $10 annual fee unless the plan maintains an omnibus account with LFSI.
Participants in LFDI prototype Plans (other than IRAs) who liquidate the total
value of their account will also be charged a $15 close-out processing fee
payable to LFSI. The fee is in addition to any applicable CDSC. The fee will not
apply if the participant uses the proceeds to open a LFDI IRA Rollover account
in any fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax advisor regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling LFSI, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Cash Connection. Dividends and any other distributions, including Systematic
Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another fund. An ADD account must be in the same name as the shareholder's
existing open account with the particular fund. Call LFSI for more information
at 1-800-422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A). Reduced sales charges
on Class A 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 LFDI. 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).
LFDI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by LFSI. A fund may terminate or
amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A shares
made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, T and Z shares
held by the shareholder on the date of the Statement in funds (except shares of
any money market fund, unless such shares were acquired by exchange from Class A
shares of another non-money market fund). The value is determined at the public
offering price on the date of the Statement. Purchases made through reinvestment
of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, LFSI will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to LFDI the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
LFDI an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, LFSI will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from LFSI at 1-800-345-6611.
Reinstatement Privilege. An investor who has redeemed Class A, B, or C shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Fund at the NAV next determined
after LFSI receives a written reinstatement request and payment. Any CDSC paid
at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or LFSI. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes.
Consult your tax advisor.
Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Advisor" refers to Colonial Management Associates, Inc. in its capacity as
the Advisor or Administrator to certain Funds). Class A shares of certain funds
may be sold at NAV to the following individuals whether currently employed or
retired: Trustees of funds advised or administered by the Advisor; directors,
officers and employees of the Advisor, LFDI 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 LFDI; and such persons' families and their beneficial accounts.
Sponsored Arrangements. Class A shares of certain funds may be purchased at
reduced or no sales charge pursuant to sponsored arrangements, which include
programs under which an organization makes recommendations to, or permits group
solicitation of, its employees, members or participants in connection with the
purchase of shares of the fund on an individual basis. The amount of the sales
charge reduction will reflect the anticipated reduction in sales expense
associated with sponsored arrangements. The reduction in sales expense, and
therefore the reduction in sales charge, will vary depending on factors such as
the size and stability of the organization's group, the term of the
organization's existence and certain characteristics of the members of its
group. The funds reserve the right to revise the terms of or to suspend or
discontinue sales pursuant to sponsored plans at any time.
Class A of certain funds may also be purchased at reduced or no sales charge by
clients of dealers, brokers or registered investment advisors that have entered
into agreements with LFDI pursuant to which the funds are included as investment
options in programs involving fee-based compensation arrangements, and by
participants in certain retirement plans.
Waiver of Contingent Deferred Sales Charges (CDSCs) (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:
1. Death. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii)
the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers
to Minors Act (UTMA) or other custodial account. If, upon the occurrence of
one of the foregoing, the account is transferred to an account registered
in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year after the
death. If the Class B shares are not redeemed within one year of the death,
they will remain subject to the applicable CDSC, when redeemed from the
transferee's account. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP established
with LFSI Advisor, to the extent the redemptions do not exceed, on an
annual basis, 12% of the account's value, so long as at the time of the
first SWP redemption the account had had distributions reinvested for a
period at least equal to the period of the SWP (e.g., if it is a quarterly
SWP, distributions must have been reinvested at least for the three month
period prior to the first SWP redemption); otherwise CDSCs will be charged
on SWP redemptions until this requirement is met; this requirement does not
apply if the SWP is set up at the time the account is established, and
distributions are being reinvested. See below under "Investor Services -
Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise after the purchase of shares and (ii) the
disabled shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will
be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase and
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return the
applicable portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to
make distributions from qualified retirement plans following normal
retirement (as stated in the Plan document). CDSCs also will be waived on
SWP redemptions made to make required minimum distributions from qualified
retirement plans that have invested in funds distributed by LFDI for at
least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will delay
sending proceeds for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to LFSI, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, LFSI and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call LFSI for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to LFSI and may charge for this service.
Systematic Withdrawal Plan. If a shareholder's account balance is at least
$5,000, the shareholder may establish a SWP. A specified dollar amount or
percentage of the then current net asset value of the shareholder's investment
in any fund designated by the shareholder will be paid monthly, quarterly or
semi-annually to a designated payee. The amount or percentage the shareholder
specifies generally may not, on an annualized basis, exceed 12% of the value, as
of the time the shareholder makes the election, of the shareholder's investment.
Withdrawals from Class B and Class C shares of the fund under a SWP will be
treated as redemptions of shares purchased through the reinvestment of fund
distributions, or, to the extent such shares in the shareholder's account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares of such fund in the shareholder's account. No CDSCs apply to a redemption
pursuant to a SWP of 12% or less, even if, after giving effect to the
redemption, the shareholder's account balance is less than the shareholder's
base amount. Qualified plan participants who are required by Internal Revenue
Service regulation to withdraw more than 12%, on an annual basis, of the value
of their Class B and Class C share account may do so but will be subject to a
CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If
a shareholder wishes to participate in a SWP, the shareholder must elect to have
all of the shareholder's income dividends and other fund distributions payable
in shares of the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's account balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, LFSI will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name," the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All Fund shareholders and/or their FSFs advisor 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 time at
which the Fund values its shares. Telephone redemptions are limited to a total
of $100,000 in a 30-day period. Redemptions that exceed a $100,000 are done by
placing a wire order trade through a broker or furnishing a signature guaranteed
request. Transactions received after 4:00 p.m. Eastern time will receive the
next business day's closing price. Telephone redemption privileges for larger
amounts may be elected on the Application. LFSI will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days and proceeds and confirmations will only be mailed or sent
to the address of record unless the redemption proceeds are being sent to a
pre-designated bank account. Shareholders and/or their FSFs advisor will be
required to provide their name, address and account number. FSFs advisor 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.
Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a fund's net asset
value, a fund may make the payment or a portion of the payment with portfolio
securities held by that fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. Shareholders may reinvest all or
a portion of a recent cash distribution without a sales charge. A shareholder
request must be received within 30 calendar days of the distribution. A
shareholder may exercise this privilege only once. No charge is currently made
for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Money Market Fund and Colonial
Municipal Money Market Fund will be earned starting with the day after that fund
receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of a Fund may be exchanged for the same class of shares of any other Fund
on the basis of the NAVs per share at the time of exchange.
By calling LFSI, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting LFSI by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. LFSI
will also make exchanges upon receipt of a written exchange request and, share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, LFSI will require customary additional documentation.
Prospectuses of the other funds are available from the LFDI Literature
Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A shares for five months before exchanging to
certain funds having a higher maximum sales charge. Consult your FSF or LFSI. In
all cases, the shares to be exchanged must be registered on the records of the
fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at
NAV for the same class of shares of the fund.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for
more than seven days unless the Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the SEC during periods
when trading on the Exchange is restricted or during any emergency which makes
it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the fund or the
Trust's Trustees. The Declaration provides for indemnification out of fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the fund would be unable to meet its obligations and
the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History" in the Prospectus, the
Funds 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 a Fund,
made at the beginning of a stated period, adjusted for the maximum sales charge
or applicable CDSC for the class of shares of the fund and assuming that all
distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or may not reflect the sales charge or CDSC.
Yield
The yield for each class of shares of a Fund is determined by (i) calculating
the income (as defined by the SEC for purposes of advertising yield) during the
base period and subtracting actual expenses for the period (net of any
reimbursements), and (ii) dividing the result by the product of the average
daily number of shares of the fund that were entitled to dividends during the
period and the maximum offering price of the fund on the last day of the period,
(iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after-tax yield for any given federal and state tax rate, and
adding to that the portion of the yield which is fully taxable. Adjusted yield
is calculated in the same manner as yield except that expenses voluntarily borne
or waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares of a Fund is
calculated by annualizing the most current period's distributions and dividing
by the maximum offering price on the last day of the period. Generally, a 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). A Fund's yield for any period may be more or less than
the amount actually distributed in respect of such period.
The Funds may compare their performance to various unmanaged indices published
by such sources as are listed in Appendix II.
The Funds may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Administrator to be reputable, and
publications in the press pertaining to a Fund's performance or to the Advisor
or its affiliates, including comparisons with competitors and matters of
national and global economic and financial interest. Examples include Forbes,
Business Week, Money Magazine, The Wall Street Journal, The New York Times, The
Boston Globe, Barron's National Business & Financial Weekly, Financial Planning,
Changing Times, Reuters Information Services, Wiesenberger Mutual Funds
Investment Report, Lipper Analytical Services Corporation, Morningstar, Inc.,
Sylvia Porter's Personal Finance Magazine, Money Market Directory, SEI Funds
Evaluation Services, FTA World Index and Disclosure Incorporated.
All data are based on past performance and do not predict future results.
General. From time to time, the Funds may discuss or quote its Advisor as well
the investment personnel of the Underlying Liberty Funds, 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 Underlying
Liberty Funds, including the New ValueTM investment strategy that expands upon
the principles of traditional value investing; the Funds' and the Underlying
Liberty Funds' 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 costs 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.
<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.
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.
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:
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. 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.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX II
1997
SOURCE CATEGORY RETURN (%)
<S> <C> <C>
Donoghue Tax-Free Funds 4.93
Donoghue U.S. Treasury Funds 4.65
Dow Jones & Company Industrial Index 24.87
Morgan Stanley Capital International EAFE Index 1.78
Morgan Stanley Capital International EAFE GDP Index 5.77
Libor Six-month Libor N/A
Lipper Short U.S. Government Funds 5.82
Lipper California Municipal Bond Funds 9.15
Lipper Connecticut Municipal Bond Funds 8.53
Lipper Closed End Bond Funds 12.01
Lipper Florida Municipal Bond Funds 8.53
Lipper General Municipal Bonds 9.11
Lipper Global Funds 13.04
Lipper Growth Funds 25.30
Lipper Growth & Income Funds 27.14
Lipper High Current Yield Bond Funds 12.96
Lipper High Yield Municipal Bond Debt 10.11
Lipper Fixed Income Funds 8.67
Lipper Insured Municipal Bond Average 8.39
Lipper Intermediate Muni Bonds 7.16
Lipper Intermediate (5-10) U.S. Government Funds 8.08
Lipper Massachusetts Municipal Bond Funds 8.64
Lipper Michigan Municipal Bond Funds 8.50
Lipper Mid Cap Funds 19.76
Lipper Minnesota Municipal Bond Funds 8.15
Lipper U.S. Government Money Market Funds 4.90
Lipper New York Municipal Bond Funds 8.99
Lipper North Carolina Municipal Bond Funds 8.84
Lipper Ohio Municipal Bond Funds 8.16
Lipper Small Cap Funds 20.75
Lipper General U.S. Government Funds 8.84
Lipper Pacific Region Funds-Ex-Japan (35.52)
Lipper International Funds 5.44
Lipper Balanced Funds 19.00
Lipper Tax-Exempt Money Market 3.08
Lipper Multi-Sector 8.77
Lipper Corporate Debt BBB 10.08
Lipper High Yield Municipal - Closed Ends 9.66
Lipper High Current Yield - Closed Ends 14.31
Lipper General Municipal Debt - Closed Ends 10.26
Lipper Intermediate Investment Grade Debt 8.57
Lipper Utilities 26.01
Lipper Japan (14.07)
Lipper China (22.92)
Shearson Lehman Composite Government Index 9.59
Shearson Lehman Government/Corporate Index 9.76
Shearson Lehman Long-term Government Index 9.58
Shearson Lehman Municipal Bond Index 9.19
Shearson Lehman U.S. Government 1-3 6.65
S&P S&P 500 Index 33.35
S&P Utility Index 24.65
S&P Barra Growth 36.38
S&P Barra Value 29.99
S&P Midcap 400 19.00
First Boston High Yield Index 12.63
<PAGE>
SOURCE CATEGORY RETURN (%)
<S> <C> <C>
Swiss Bank 10 Year U.S. Government (Corporate Bond) 11.20
Swiss Bank 10 Year United Kingdom (Corporate Bond) 12.54
Swiss Bank 10 Year France (Corporate Bond) (4.79)
Swiss Bank 10 Year Germany (Corporate Bond) (6.13)
Swiss Bank 10 Year Japan (Corporate Bond) (3.39)
Swiss Bank 10 Year Canada (Corporate Bond) 7.79
Swiss Bank 10 Year Australia (Corporate Bond) (3.93)
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 19.18
Morgan Stanley Capital International 10 Year Belgium (Equity) 14.43
Morgan Stanley Capital International 10 Year Austria (Equity) 7.58
Morgan Stanley Capital International 10 Year France (Equity) 13.27
Morgan Stanley Capital International 10 Year Netherlands (Equity) 18.61
Morgan Stanley Capital International 10 Year Japan (Equity) (2.90)
Morgan Stanley Capital International 10 Year Switzerland (Equity) 18.53
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 13.95
Morgan Stanley Capital International 10 Year Germany (Equity) 13.75
Morgan Stanley Capital International 10 Year Italy (Equity) 6.15
Morgan Stanley Capital International 10 Year Sweden (Equity) 17.62
Morgan Stanley Capital International 10 Year United States (Equity) 17.39
Morgan Stanley Capital International 10 Year Australia (Equity) 9.25
Morgan Stanley Capital International 10 Year Norway (Equity) 13.29
Morgan Stanley Capital International 10 Year Spain (Equity) 10.58
Morgan Stanley Capital International World GDP Index 13.35
Morgan Stanley Capital International Pacific Region Funds Ex-Japan (31.00)
Bureau of Labor Statistics Consumer Price Index (Inflation) 1.70
FHLB-San FranLFSIo 11th District Cost-of-Funds Index N/A
Salomon Six-Month Treasury Bill 5.41
Salomon One-Year Constant-Maturity Treasury Rate N/A
Salomon Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell Company Russell 2000(R)Index 22.36
Frank Russell Company Russell 1000(R)Value Index 35.18
Frank Russell Company Russell 1000(R)Growth Index 30.49
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA
</TABLE>
The Russell 2000(R) Index, the Russell 1000(R) Value Index and the Russell
1000(R) Growth Index are each a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
*in U.S. currency
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Summary of Expenses
(b) Exhibits:
1. Amendment No. 4 to the Agreement and Declaration
of Trust(a)
2. (a) Amended By-Laws (2/16/96) (b)
3. Not Applicable
4. Form of Specimen of Share Certificate (c)
5.(a) Form of Management Agreement
(b) Form of Pricing and Bookkeeping Agreement
6.(a) Form of Distributor's Contract with Liberty Funds
Distributor, Inc. - filed as Exhibit 6(i) in Part
C, Item 24(b) of Post-Effective Amendment No. 37
to the Registration Statement on Form N-1A of
Colonial Trust II (File Nos. 2-66976 and
811-3009), filed with the Commission on or about
October 30, 1998,and is hereby incorporated by
reference and made a part of this Registration
Statement
(b) Form of Selling Agreement - filed as Exhibit 6(b)
in Part C, Item 24(b) of Post-Effective Amendment
No. 10 to the Registration Statement on Form N-1A
of 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
(c) Form of Bank and Bank Affiliated Selling
Agreement - filed as Exhibit 6(c) in Part C, Item
24(b) of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of 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
<PAGE>
(d) 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 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
7. Not Applicable
8. (a) Global Custody Agreement with The Chase
Manhattan Bank - filed as Exhibit 8. to Part C,
Item 24(b) of Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 &
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
(b) Amendment No. 1 to Appendix A of Global Custody
Agreement with The Chase Manhattan Bank - filed
as Exhibit 8(a)(2) to Part C, Item 24(b) of
Post-Effective Amendment No. 14 to the
Registration Statement Form N-1A of Colonial
Trust VI (File Nos. 33-45117 & 811-6529), filed
with the Commission on or about June 11, 1998,
and is hereby incorporated by reference and made
a part of this Registration Statement.
9. (a) Amended and Restated Shareholders' Servicing and
Transfer Agent Agreement as amended - filed as
Exhibit 9(b) to Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of 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
(b) Form of Amendment to Schedule A of Amended and
Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit
9.(ii) in Part C, Item 24(b) of Post-Effective
Amendment No. 37 to the Registration Statement
on Form N-1A of Colonial Trust II (File Nos.
2-66976 & 811-3009), filed with the Commission on
or about October 30, 1998, and is hereby
incorporated by reference and made a part of this
Registration Statement
<PAGE>
(c) Form of Amendment to Appendix I of Amended and
Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit
9.(ii)(b) in Part C, Item 24(b) of Post-Effective
Amendment No. 37 to the Registration Statement on
Form N-1A of Colonial Trust II (File Nos.
2-66976 and 811-3009), filed with the Commission
on October 30, 1998, and is hereby
incorporated by reference and made a part of this
Registration Statement
(d) Form of Administration Agreement
10. Opinion and Consent of Counsel(c)
11. Not Applicable
12. Not Applicable
13. Not Applicable
14.(a) Form of Colonial Mutual Funds Money Purchase
Pension and Profit Sharing Plan Document and
Employee Communications Kit - filed as Exhibit
14(a) in Part C, Item 24(b) of Post-Effective
Amendment No. 99 to the Registration Statement on
Form N-1A of Colonial Trust III (File Nos.
2-15184 & 811-881), filed with the Commission on
or about December 19, 1997, and is hereby
incorporated by reference and made a part of this
Registration Statement
(b) Form of Colonial Mutual Funds Money Purchase
Pension and Profit Sharing Plan Establishment
Book - filed as Exhibit 14(b) in Part C, Item
24(b) of Post-Effective Amendment No. 99 to the
Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 & 811-881), filed
with the Commission on or about December 19,
1997, and is hereby incorporated by reference and
made a part of this Registration Statement
(c) Form of Colonial IRA Application, Forms,
Custodial Agreement and Disclosure Statement and
Distribution Form - filed as Exhibit 14(c) in
Part C, Item 24(b) of Post-Effective Amendment
No. 99 to the Registration Statement on Form N-1A
of Colonial Trust III (File Nos. 2-15184 &
811-881), filed with the Commission on or about
December 19, 1997, and is hereby incorporated by
reference and made a part of this Registration
Statement
<PAGE>
(d) IRA Application and Fact Kit - filed as Exhibit
14(d) in Part C, Item 24(b) of Post-Effective
Amendment No. 99 to the Registration Statement on
Form N-1A of Colonial Trust III (File Nos.
2-15184 & 811-881), filed with the Commission on
or about December 19, 1997, and is hereby
incorporated by reference and made a part of this
Registration Statement
(e) Form of Colonial Mutual Funds Simplified Employee
Pension Plan and Salary Reduction Simplified
Employee Pension Plan Application and Fact Kit -
filed as Exhibit 14(e) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the
Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 & 811-881), filed
with the Commission on or about December 19,
1997, and is hereby incorporated by reference and
made a part of this Registration Statement
(f) Form of Colonial Mutual Funds 401(k) Plan
Document, Trust Agreement and IRS Opinion Letter
(incorporated herein by reference to Exhibit
14.(v) to Post-Effective Amendment No. 27 to the
Registration Statement of Colonial Trust II,
Registration Nos. 2-66976 and 811-3009, filed
with the Commission on November 18, 1996)
(g) Form of Colonial Mutual Funds 401(k) Plan
Establishment Booklet and Employee Communications
Kit (incorporated herein by reference to Exhibit
14.(vi) to Post-Effective Amendment No. 27 to the
Registration Statement of Colonial Trust II,
Registration Nos. 2-66976 and 811-3009, filed
with the Commission on November 18, 1996)
(h) Form of Colonial 401(k) Beneficiary Designation
and Participant Enrollment Forms - filed as
Exhibit 14(h) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the
Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 & 811-881), filed
with the Commission on or about December 19,
1997, and is hereby incorporated by reference and
made a part of this Registration Statement
(i) Form of Liberty Simple IRA Plan (incorporated
herein by reference to Exhibit 14.(i) to
Post-Effective Amendment No. 45 to the
Registration Statement of Colonial Trust I,
Registration Nos. 2-41251 and 811-2214, filed
with the Commission on February, 1998)
(j) Form of Liberty Roth IRA (incorporated herein by
reference to Exhibit 14.(j) to Post-Effective
Amendment No. 45 to the Registration Statement of
Colonial Trust I, Registration Nos. 2-41251 and
811-2214, filed with the Commission on February,
1998)
15. Distribution Plan adopted pursuant to Section
12b-1 of the Investment Company Act of 1940,
incorporated by reference to the Distributor's
Contract filed as Exhibit 6(a) hereto
16. Not Applicable
<PAGE>
17. Not Applicable
18.(a) Power of Attorney for: Robert J. Birnbaum,
Tom Bleasdale, John V. Carberry,
Lora S. Collins, James E. Grinnell,
Richard W. Lowry, Salvatore Macera,
William E. Mayer, James L. Moody, Jr., John J.
Neuhauser, Thomas E. Stitzel,
Robert L. Sullivan and Anne-Lee Verville
<PAGE>
18.(b) Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940 filed as Exhibit
18(b) in Part C, Item 24(b) of Post-Effective
Amendment No. 47 to the Registration Statement on
Form N-1A of Colonial Trust I (File Nos. 2-41251
& 811-2214), filed with the Commission on or
about September 1, 1998, and is hereby
incorporated by reference and made a part of this
Registration Statement
- ---------------------------------
(a) Incorporated by reference to Post-Effective
Amendment No. 46 filed on July 31, 1997.
(b) Incorporated by reference to Post-Effective
Amendment No. 42 filed on 3/22/96.
(c) Incorporated by reference to Post-Effective
Amendment No. 45 filed on March 21, 1997.
Item 25. Persons Controlled by or Under Common Control with Registrant
None
<PAGE>
Item 26. Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders as of 11/6/98
Shares of beneficial interest Liberty [XYZ] Funds -- None
Item 27. Indemnification
See Article VIII of Amendment No. 4 to the Agreement and
Declaration of Trust filed as Exhibit 1 hereto.
The Registrant and the Liberty [XYZ] Fund's
advisor and administrator, has an ICI Mutual Insurance Company
Directors and Officers/Errors and Omissions Liability insurance
policy. The policy provides indemnification to the Trust's
trustees and officers.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Liberty Asset Management Company ("LAMCO"), the fund manager of
the Liberty [XYZ] Funds, is primarily engaged in the provision
of its multi-management services to Liberty All-Star Equity
Fund and Liberty All-Star Growth Fund, Inc., multi-managed
closed-end investment companies, and Liberty All-Star Equity
Fund, Variable Series, a multi-managed open-end investment
company that serves as an investment vehicle for variable
annuity contracts and variable life insurance policies issued
by insurance companies.
Kenneth R. Leibler, Chairman of the Board, Lindsay Cook, Senior
Vice President and a Director, J. Andrew Hilbert, Vice President
and Treasurer, John A. Benning, Vice President and Secretary,
and Michael E. Santilli, Controller, of LAMCO, are each officers
(and in the case of Mr. Leibler, a Director) of LAMCO's indirect
parent, Liberty Financial Companies, Inc.("Liberty Financial"),
and devote substantially all of their business time to the
business of Liberty Financial and its subsidiaries. The
remaining officers of LAMCO devote all or substantially all of
their business time to its affairs.
<PAGE>
Item 29 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 Colonial
Trust I, Colonial Trust II, Colonial Trust III, Colonial Trust IV,
Colonial Trust V, Colonial Trust VI and Colonial Trust VII, Stein Roe
Advisor Trust, Stein Roe Income Trust, Stein Roe Municipal Trust,
Stein Roe Investment Trust and Stein Roe Trust.
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ------------------ ------------------- --------------
Anderson, Judith V.P. None
Anetsberger, Gary Sr. V.P. None
Babbitt, Debra V.P. and None
Comp. Officer
Ballou, Rick Sr. V.P. None
Balzano, Christine R. V.P. None
Bartlett, John Managing Director None
Blakeslee, James Sr. V.P. None
Blumenfeld, Alex V.P. None
Bozek, James Sr. V.P. None
Brown, Beth V.P. None
Burtman, Tracy V.P. None
Butch, Tom Sr. V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Claiborne, V.P. None
Douglas
Clapp, Elizabeth A. Managing Director None
Conlin, Nancy L. Dir; Clerk Secretary
Davey, Cynthia Sr. V.P. None
Desilets, Marian V.P. Asst. Sec
Devaney, James Sr. V.P. None
DiMaio, Steve V.P. None
Downey, Christopher V.P. None
Emerson, Kim P. Sr. V.P. None
Erickson, Cynthia G. Sr. V.P. None
Evans, C. Frazier Managing Director None
Feldman, David Managing Director None
Fifield, Robert V.P. None
Gauger, Richard V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman President
of the Board
Goldberg, Matthew Sr. V.P. None
Guenard, Brian V.P. None
Harrington, Tom Sr. V.P. None
Harris, Carla V.P. None
Hodgkins, Joseph Sr. V.P. None
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia V.P. None
Jones, Jonathan V.P. None
Karagiannis, Managing Director None
Marilyn
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Libutti, Chris V.P. None
Martin, Peter V.P. None
McCombs, Gregory Sr. V.P. None
McKenzie, Mary V.P. None
Menchin, Catherine V.P. None
Miller, Anthony V.P. None
Moberly, Ann R. Sr. V.P. None
Morse, Jonathan V.P. None
O'Shea, Kevin Managing Director None
Piken, Keith V.P. None
Place, Jeffrey Managing Director None
Pollard, Brian V.P. None
Predmore, Tracy V.P. None
Quirk, Frank V.P. None
Raftery-Arpino, Linda V.P. None
Reed, Christopher B. Sr. V.P. None
Riegel, Joyce V.P. None
Robb, Douglas V.P. None
Sandberg, Travis V.P. None
Santosuosso, Louise V.P. None
Scarlott, Rebecca V.P. None
Schulman, David Sr. V.P. None
Scoon, Davey Director V.P.
Scott, Michael W. Sr. V.P. None
Shea, Terence V.P. None
Sideropoulos, Lou V.P. None
Smith, Darren V.P. None
Soester, Trisha V.P. None
Studer, Eric V.P. None
Sweeney, Maureen V.P. None
Tambone, James CEO None
Tasiopoulos, Lou President None
VanEtten, Keith H. Sr. V.P. None
Wallace, John V.P. None
Walter, Heidi V.P. None
Wess, Valerie Sr. V.P. None
Young, Deborah V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
<PAGE>
Item 30. 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 advisor,
LAMCO, and 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 LAMCO is 600 Atlantic
Avenue, Boston, MA 02210-2214 and the address for each other
person except the Registrant's custodian is One Financial
Center, Boston, MA 02111. The address for The Chase Manhattan
Bank is 270 Park Avenue, New York, NY 10017-2070.
Item 31. Management Services
See Item 5(c), Part A and Item 16(d), Part B.
Item 32. Undertakings
(a) Not applicable
(b) The Registrant hereby undertakes to promptly call a
meeting of shareholders for the purpose of voting upon
the question of removal of any trustee or trustees 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.
(c) 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 information required by Item 5A
of Form N-1A.
<PAGE>
************
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Colonial
Trust IV (Trust) is on file with the Secretary of State of the Commonwealth of
Massachusetts and notice is hereby given that this 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 is 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, Colonial Trust IV, has duly
caused this Post-Effective Amendment No. 50 to its Registration Statement under
the Securities Act of 1933 and Amendment No. 48 to its Registration Statement
under the Investment Company Act of 1940, to be signed in this City of Boston in
The Commonwealth of Massachusetts on this 9th day of November, 1998.
COLONIAL TRUST IV
By: 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 November 9, 1998
executive officer)
Timothy J. Jacoby Treasurer and Chief November 9, 1998
Financial Officer
J. Kevin Connaughton Controller and Chief November 9, 1998
Accounting Officer
<PAGE>
ROBERT J. BIRNBAUM* Trustee
TOM BLEASDALE* Trustee
JOHN CARBERRY* Trustee
LORA S. COLLINS* Trustee
JAMES E. GRINNELL* Trustee
RICHARD W. LOWRY* Trustee * WILLIAM J. BALLOU
Attorney-in-fact
For each Trustee
SALVATORE MACERA* Trustee November 9, 1998
WILLIAM E. MAYER* Trustee
JAMES L. MOODY, JR.* Trustee
JOHN J. NEUHAUSER* Trustee
THOMAS E. STITZEL* Trustee
ROBERT L. SULLIVAN* Trustee
ANNE-LEE VERVILLE* Trustee
<PAGE>
EXHIBIT INDEX
5.(a) Form of Management Agreement
(b) Form of Pricing and Bookkeeping Agreement
9.(d) Form of Administration Agreement
18.(a) Power of Attorney for: Robert J. Birnbaum, Tom Bleasdale,
John V. Carberry, Lora S. Collins, James E. Grinnell,
Richard W. Lowry, Salvatore Macera, William E. Mayer,
James L. Moody, Jr., John J. Neuhauser, Thomas E. Stitzel,
Robert L. Sullivan and Anne-Lee Verville
COLONIAL TRUST IV
LIBERTY [XYZ] INCOME FUND
LIBERTY [XYZ] BALANCED FUND
LIBERTY [XYZ] GROWTH FUND
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT ("Agreement"), made this ____ day of January,
1999, between COLONIAL TRUST IV, a business trust organized under the laws of
The Commonwealth of Massachusetts (the "Trust"), on its own behalf and on behalf
of each of Liberty [XYZ] Income Fund, Liberty [XYZ] Balanced Fund, and Liberty
[XYZ] Growth Fund (collectively, the "Funds"), and Liberty Asset Management
Company, a corporation organized under the laws of the State of Delaware
("LAMCO").
WHEREAS, the Trust has been organized as an open-end management
investment company registered as such under the Investment Company Act of 1940,
as amended ("Investment Company Act"), and is authorized to issue shares of
beneficial interest in one or more separate series (each representing interests
in a separate portfolio of securities and other assets), including the Funds;
WHEREAS, each of the Funds invests all or substantially all of its
assets in one or more other open-end mutual funds ("Underlying Liberty Funds")
distributed by Liberty Funds Distributor, Inc. and managed by affiliates of
LAMCO, as described in the Funds' prospectus as amended from time to time (the
"Prospectus");
WHEREAS, the Trust desires that LAMCO allocate each of the Fund's
assets among shares of one or more Underlying Liberty Funds in accordance with
its investment objective and policies as set forth in the Prospectus; and
WHEREAS, LAMCO is registered as an investment adviser under the
Investment Adviser's of 1940 (the "Investment Act Adviser's Act"), and desires
to provide services to the Trust and the Funds, in the manner contemplated
above, in consideration of and on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the Trust, on its own behalf and on behalf of each of
the Funds, and LAMCO hereby agree as follows:
1. Services to be provided by LAMCO.
A. Asset Allocation Services.
LAMCO shall allocate and reallocate from time to time, in its
sole discretion, the assets of each Fund among one or more Underlying Liberty
Funds as it deems appropriate giving consideration to such Fund's investment
objective, and shall render regular reports to the Board of Trustees of the
Trust relating to the performance of such duties.
B. Provision of Information Necessary for Preparation of
Registration Statement Amendments and Other Materials.
LAMCO will make available and provide such information
relating to itself and the Funds as the Trust may reasonably request for use in
the preparation of its Registration Statement, reports and other documents
required by federal laws and any securities and insurance laws of the states and
other jurisdictions in which shares of the Funds are sold.
C. Other Services.
LAMCO shall make its officers and employees available to the
Trustees and officers of the Trust for consulting and discussions regarding the
management of the Funds and their investment activities.
2. Expenses of the Trust.
It is understood that LAMCO shall not be obligated to bear any
expenses incidental to the operations and business of the Trust or its funds
(including the Funds), and that the Trust (or each of its funds (including the
Funds), where applicable) will pay, or will enter into arrangements that require
third parties to pay, all of the expenses of the Trust or such funds, including
without limitation:
A. Advisory, sub-advisory and administrative fees;
B. Fees for services of independent public accountants;
C. Legal and consulting fees;
D. Fees for transfer agent, custodian and portfolio
pricing, recordkeeping and tax information services;
E. Expenses of periodic calculations of the net asset
values of the funds of the Trust (including the
Funds) and of equipment for communication among such
funds' custodian, transfer agent and others;
F. Taxes and the preparation of the tax returns of the
funds of the Trust (including the Funds);
G. Brokerage fees and commissions;
H. Interest;
I. Costs of Board of Trustees and shareholder meetings;
J. Updates and printing of prospectuses, proxy
statements and reports to shareholders;
K. Fees for filing reports with regulatory bodies and
the maintenance of the Trust's existence;
L. Membership dues for industry trade associations;
M. Fees to federal authorities for the registration of
the shares of the funds of the Trust (including the
Funds);
N. Fees and expenses of Trustees who are not directors,
officers, employees or stockholders of LAMCO or any
of its affiliates;
O. Distribution fees pursuant to Rule 12b-1;
P. Insurance and fidelity bond premiums; and
Q. Litigation and other extraordinary expenses
of a non-recurring nature.
3. Activities and Affiliates of the Manager.
A. The Trust acknowledges that LAMCO or one or more of its
affiliates may have investment or administrative responsibilities or render
investment advice to or perform other investment advisory services for other
individuals or entities, and that LAMCO, its affiliates or any of its or their
directors, officers, agents or employees may buy, sell or trade in securities
for its or their respective accounts ("Affiliated Accounts"). The Trust agrees
that LAMCO or its affiliates may give advice or exercise investment
responsibility and take such other action with respect to Affiliated Accounts
which may differ from the advice given or the timing or nature of action with
respect to the Funds, provided that it acts in good faith. The Trust
acknowledges that one or more of the Affiliated Accounts may at any time hold,
acquire, increase, decrease, dispose of or otherwise deal with positions in
investments in which the Funds may have an interest.
B. Subject to and in accordance with the Declaration of Trust
and By-Laws of the Trust as currently in effect and the Investment Company Act
and the rules thereunder, it is understood that Trustees, officers and agents of
the Trust and shareholders of the Trust are or may be interested persons as
defined by the Investment Company Act of LAMCO or of its affiliates as
directors, officers, agents and shareholders thereof; that directors, officers,
agents and shareholders of LAMCO or of its affiliates are or may be interested
persons of the Trust as Trustees, officers, agents, shareholders or otherwise;
LAMCO its affiliates may be interested persons of the Trust as shareholders or
otherwise; and that the effect of any such interests shall be governed by said
Declaration of Trust and By-Laws and the Investment Company Act and the rules
thereunder.
4. Compensation of LAMCO.
For all services to be rendered by LAMCO pursuant to this Agreement,
(a) the Trust, on its own behalf and on behalf of each Fund, will pay LAMCO
monthly in arrears a fee at an annual rate equal to ____% of the net asset value
of such Fund. Such fee shall be accrued for each calendar day and the sum of the
daily fee accruals shall be paid monthly on or before the tenth day of the
following calendar month. The daily accruals of the fee will be computed by (i)
multiplying the annual percentage rate referred to above by the fraction the
numerator of which is one and the denominator of which is the number of calendar
days in the year, and (ii) multiplying the product obtained pursuant to clause
(i) above by the net asset value of each Fund as determined in accordance with
the Prospectus as of the previous business day on which such Fund was open for
business. The foregoing fee shall be prorated for any month during which this
Agreement is in effect for only a portion of the month.
5. Liabilities of LAMCO.
A. Except as provided below, in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of LAMCO, LAMCO shall not be subject to
liability to the Trust or to any shareholder of the Trust for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
B. No provision of this Agreement shall be construed to
protect any Trustee or officer of the Trust, or LAMCO, as the case may be, from
liability in violation of Sections 17(h) and (i) of the Investment Company Act.
6. Effective Date: Term.
This Agreement shall become effective on the date hereof and shall
continue until ___________, 2001, and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually by a vote of
the Trustees, including the vote of a majority of the Trustees who are not
interested persons of the Trust, cast in person at a meeting called for the
purpose of voting on such approval, or by vote of a majority of the outstanding
voting securities. The aforesaid provision shall be construed in a manner
consistent with the Investment Company Act and the rules and regulations
thereunder.
7. Assignment.
No assignment of this Agreement shall be made by LAMCO, and this
Agreement shall terminate automatically in the event of any such assignment.
LAMCO shall notify the Trust in writing in advance of any proposed change of
control with respect to it to enable the Trust to take the steps necessary to
enter into a new advisory contract.
8. Amendment
This Agreement may be amended at any time, but only by written
agreement between LAMCO and the Trust, which is subject to the approval of the
Trustees of the Trust and the shareholders of any affected Fund in the manner
required by the Investment Company Act and the rules thereunder.
9. Termination.
This Agreement:
(a) may at any time be terminated without payment of any
penalty, by the Trust (by the Board of Trustees of
the Trust or by the vote of a majority of the
outstanding voting securities of the Fund) on sixty
(60) days' written notice to LAMCO;
(b) shall immediately terminate in the event of its
assignment; and
(c) may be terminated by LAMCO on sixty (60) days written
notice to the other parties hereto.
10. Definitions.
As used in this Agreement, the terms "affiliated person," "assignment,"
"control," "interested person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act and
the rules and regulations thereunder, subject to any applicable orders of
exemption issued by the Securities and Exchange Commission.
11. Notice.
Any notice under this Agreement shall be given in writing addressed and
delivered or mailed postpaid to the other party to this Agreement at its
principal place of business.
12. Severability.
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13. Shareholder Liability.
LAMCO is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Declaration of Trust of the Trust and
agrees that obligations assumed by the Trust pursuant to this Agreement shall be
limited in all cases to the Trust and its assets, and if the liability relates
to one or more Funds, the obligations thereunder shall be limited to the
respective assets of such Funds. LAMCO further agrees that it shall not seek
satisfaction of any such obligation from the shareholders of the Funds, nor from
the Trustees or any individual Trustee of the Trust.
14. Governing Law.
This Agreement shall be interpreted under, and the performance of LAMCO
under this Agreement shall be consistent with, the provisions of the Agreement
and Declaration of Trust and By-Laws of the Trust, the terms of the Investment
Company Act, applicable rules and regulations thereunder, the Code and
regulations thereunder, and the Trust's Prospectus and Statement of Additional
Information in so far as they relate to the Funds, in each case as from time to
time in effect. The provisions of this Agreement shall be construed and
interpreted in accordance with the domestic substantive laws of The Commonwealth
of Massachusetts without giving effect to any choice or conflict of laws rules
or provisions that would result in the application of the domestic substantive
laws of any other jurisdiction; provided, however, that if such law or any of
the provisions of this Agreement conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
15. Use of Manager's Name.
The Funds may use the names "__________" or any other name derived from
such names only for so long as this Agreement or any extension, renewal, or
amendment hereof remains in effect. At such time as this Agreement or any
extension, renewal or amendment hereof, or each such other similar successor
organization agreement shall no longer be in effect, the Trust will cause the
Funds to cease to use any name derived from any such names similar thereto, or
any other name indicating the Funds are managed by or otherwise connected with
the LAMCO, or with any organization which shall have succeeded to LAMCO's
business as investment advisor or manager.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement on the date first above written.
COLONIAL TRUST IV,
on its own behalf and on behalf of each of
Liberty [XYZ] Income Fund, Liberty [XYZ]
Balanced Fund, and Liberty [XYZ] Growth Fund
By: __________________________________
Title:
LIBERTY ASSET MANAGEMENT COMPANY
By: ___________________________________
Title:
PRICING AND BOOKKEEPING AGREEMENT
AGREEMENT dated as of January , 1999 between Colonial Trust IV, a
Massachusetts Business Trust (Trust), on behalf of each of Liberty [XYZ] Income
Fund, Liberty [XYZ] Balanced Fund and Liberty [XYZ] Growth Fund (collectively
the "Funds"), and Colonial Management Associates, Inc. (Colonial), a
Massachusetts corporation.
The Trust and Colonial agree as follows:
1. Appointment. The Trust on behalf of each of the Funds appoint
Colonial as agent to perform the services described below, effective on the date
hereof.
2. Services. Colonial shall (i) determine and timely communicate to
persons designated by the Trust each Fund's net asset values and offering prices
per Share in accordance with the applicable provisions of the Trust's
Registration Statement on Form N-1A; and (ii) maintain and preserve in a secure
manner the accounting records of the Funds, including all such accounting
records as the Funds are obligated to maintain and preserve under the Investment
Company Act of 1940 and the rules thereunder, applicable federal and state tax
laws and any other applicable laws, rules and regulations. All records shall be
the property of the Trust. Colonial will provide disaster planning to minimize
possible service interruption.
3. Audit, Use and Inspection. Colonial shall make available on its
premises during regular business hours all records of the Funds for reasonable
audit, use and inspection by the Trust, its agents and any regulatory agency
having authority over the Funds.
4. Compensation. The Trust on behalf of each of the Funds will pay
Colonial a monthly fee of $3,000 per Fund, plus a monthly percentage fee on the
average daily net assets of the Fund for the month in excess of $50 million at
the following annual rates: 0.035% on the next $950 million; 0.025% on the next
$1 billion; 0.015% on the next $1 billion; and 0.001% on the excess over $3
billion.
5. Compliance. Colonial shall comply with applicable provisions
relating to pricing and bookkeeping of the prospectus and statement of
additional information of the Trust relating to the Funds and applicable laws
and rules in the provision of services under this Agreement.
6. Limitation of Liability. In the absence of willful misfeasance, bad
faith or gross negligence on the part of Colonial, or reckless disregard of its
obligations and duties hereunder, Colonial shall not be subject to any liability
to the Trust or any of the Funds, to any shareholder of the Trust or the Funds
or to any other person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder.
7. Amendments. The Trust shall submit to Colonial a reasonable time in
advance of filing with the Securities and Exchange Commission copies of any
changes in the Trust's Registration Statement relating to the Funds. If a change
in documents or procedures materially increases the cost to Colonial of
performing its obligations, Colonial shall be entitled to receive reasonable
additional compensation.
8. Duration and Termination, etc. This Agreement may be changed only by
writing executed by each party. This Agreement: (a) shall continue in effect
from year to year so long as approved annually by vote of a majority of the
Trustees of the Trust who are not affiliated with Colonial; (b) may be
terminated at any time without penalty by sixty days' written notice to either
party; and (c) may be terminated at any time for cause by either party if such
cause remains unremedied for a reasonable period not to exceed ninety days after
receipt of written specification of such cause. Paragraph 6 of this Agreement
shall survive termination. If the Trust designates a successor to any of
Colonial's obligations, Colonial shall, at the expense and direction of the
Trust, transfer to the successor all Trust records maintained by Colonial.
9. Miscellaneous. This Agreement shall be governed by the laws of The
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above.
COLONIAL TRUST IV on behalf of
LIBERTY [XYZ] INCOME FUND
LIBERTY [XYZ] BALANCED FUND
LIBERTY [XYZ] GROWTH FUND
BY:_________________________________
Title:
COLONIAL MANAGEMENT ASSOCIATES, INC.
BY:_________________________________
Title:
A copy of the document establishing the Trust is filed with the
Secretary of The Commonwealth of Massachusetts. This Agreement is executed by
officers not as individuals and is not binding upon any of the Trustees,
officers or shareholders of the Trust individually but only upon the assets of
the Fund.
ADMINISTRATION AGREEMENT
AGREEMENT dated as of January , 1999, between COLONIAL TRUST IV, a
Massachusetts business trust (the "Trust"), with respect to each of Liberty
[XYZ] Income Fund, Liberty [XYZ] Balanced Fund, and Liberty [XYZ] Growth Fund
(collectively the "Funds"), and COLONIAL MANAGEMENT ASSOCIATES, INC., a
Massachusetts corporation (the "Administrator").
In consideration of the promises and covenants herein, the parties
agree as follows:
1. Subject to the general direction and control of the Board of Trustees of
the Trust, the Administrator shall perform such administrative services as
may from time to time be reasonably requested by the Trust, which shall
include without limitation: (a) providing office space, equipment and
clerical personnel necessary for maintaining the organization of the Funds
and for performing the administrative functions herein set forth; (b)
arranging, if desired by the Trust, for Directors, officers and employees
of the Administrator to serve as Trustees, officers or agents of the Trust
if duly elected or appointed to such positions and subject to their
individual consent and to any limitations imposed by law; (c) preparing
and, if applicable, filing all documents required for compliance by the
Trust and the Funds with applicable laws and regulations, including
registration statements, registration fee filings, semi-annual and annual
reports to shareholders, proxy statements and tax returns; (d) preparation
of agendas and supporting documents for and minutes of meetings of
Trustees, committees of Trustees and shareholders; (e) coordinating and
overseeing the activities of the Trust's other third-party service
providers to the Funds; and (f) maintaining books and records of the Funds
(exclusive of records required by Section 31(a) of the 1940 Act).
Notwithstanding the foregoing, the Administrator shall not be deemed to
have assumed or have any responsibility with respect to functions
specifically assumed by any transfer agent or custodian of the Funds, by
Liberty Asset Management Company ("LAMCO") under the Management Agreement
between LAMCO and the Trust on behalf of the Funds.
2. The Administrator shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
3. Each Fund shall pay the Administrator monthly a fee at the annual rate of
0.20% of the average daily net assets of such Fund.
4. This Agreement shall become effective as of the date of its execution, and
may be terminated without penalty by the Board of Trustees of the Trust or
by the Administrator, in each case on sixty days' written notice to the
other party.
5. This Agreement may be amended only by a writing signed by both parties.
6. In the absence of willful misfeasance, bad faith or gross negligence on the
part of the Administrator, or reckless disregard of its obligations and
duties hereunder, the Administrator shall not be subject to any liability
to the Trust or any of the Funds, to any shareholder of the Trust or the
Funds or to any other person, firm or organization, for any act or omission
in the course of, or connected with, rendering services hereunder.
COLONIAL TRUST IV on behalf
of Liberty [XYZ] Income
Fund, Liberty [XYZ]
Balanced Fund, and Liberty
[XYZ] Growth Fund
By: _____________________________
J. Kevin Connaughton
Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: _____________________________
Nancy L. Conlin
Senior Vice President
A copy of the document establishing the Trust is filed with the
Secretary of The Commonwealth of Massachusetts. This Agreement is executed by
officers not as individuals and is not binding upon any of the Trustees,
officers or shareholders of the Trust individually but only upon the assets of
the Fund.
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
Thomas E. Stitzel
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
Salvatore Macera
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
John Carberry
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
Anne-Lee Verville
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
Robert J. Birnbaum
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
Tom Bleasdale
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
Lora S. Collins
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
James E. Grinnell
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
Richard W. Lowry
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
William E. Mayer
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
James L. Moody, Jr.
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
John J. Neuhauser
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes William J. Ballou, Suzan M. Barron, Truman S.
Casner, Nancy L. Conlin, Ellen Harrington, Timothy J. Jacoby, John M. Loder and
John W. Reading, Jr., individually, as my true and lawful attorney, with full
power to each of them to sign for me and in my name, any and all registration
statements and any and all amendments to the registration statements filed under
the Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of certain
mutual funds for which Liberty Funds Distributor, Inc. serves as principal
underwriter or Colonial Management Associates, Inc. serves as investment manager
or administrator (Colonial Mutual Funds), or of the LFC Utilities Trust (LFC
Trust), or of Colonial Investment Grade Municipal Trust, Colonial High Income
Municipal Trust, Colonial InterMarket Income Trust I, Colonial Municipal Income
Trust and Colonial Intermediate High Income Fund (together "Colonial Closed-End
Funds"). This Power of Attorney authorizes the above individuals to sign my name
and will remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds, LFC Trust or Closed-End Funds, with the Securities and
Exchange Commission and I request that this Power of Attorney then constitutes
authority to sign additional amendments and registration statements by virtue of
its incorporation by reference into the registration statements and amendments
for the Colonial Mutual Funds, LFC Trust or Colonial Closed-End Funds.
In witness, I have signed this Power of Attorney on this 30th day of October,
1998.
Robert L. Sullivan
