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. 54 [ X ]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 52 [ X ]
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LIBERTY FUNDS TRUST IV
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(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of Principal Executive Office)
(617) 426-3750
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(Registrant's Telephone Number, Including Area Code)
Name and Address of Agent for Service: Copy to:
- -------------------------------------- --------
[S] [C]
Nancy L. Conlin, Esquire John M. Loder, Esquire
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts 02110-2624
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b).
[ X ] on May 28, 1999 pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
LIBERTY FUNDS TRUST IV
Cross Reference Sheet
Colonial Counselor Select Income Portfolio
Colonial Counselor Select Balanced Portfolio
Colonial Counselor Select Growth Portfolio
<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 Colonial Counselor Select Portfolios
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 Colonial Counselor Select Portfolios 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>
<PAGE>
May 28, 1999 FF-xx/xxxx-0599
COLONIAL
COUNSELOR SELECT(SM) PORTFOLIOS
CLASS Z SHARES
PROSPECTUS
BEFORE YOU INVEST
Liberty Funds Distributor, Inc. (Distributor) 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:
The Colonial Counselor Select Income Portfolio seeks current income.
The Colonial Counselor Select Balanced Portfolio seeks a balance of long term
growth of capital and current income.
The Colonial Counselor Select Growth Portfolio seeks long term growth of
capital.
The Colonial Counselor Select Portfolios, each a series of Liberty Funds Trust
IV (formerly 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 the
Distributor and managed by Colonial Management Associates, Inc. (Administrator),
Stein Roe & Farnham Incorporated, Newport Fund Management, Inc. and Crabbe Huson
Group, Inc., each of which is an investment advisory affiliate of the
Distributor.
This Prospectus explains concisely what you should know before investing in the
Class Z shares of the Colonial Counselor Select Portfolios. Read it carefully
and retain it for future reference. More detailed information about the
Portfolios is in the January 29, 1999, Revised February 26, 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.
The following eligible institutional investors may purchase Class Z shares: (i)
any retirement plan with aggregate assets of at least $5 million at the time of
purchase of Class Z shares and which purchases shares directly from the
Distributor or through a third party broker-dealer; (ii) any insurance company,
trust company or bank purchasing shares for its own account; and (iii) any
endowment, investment company or foundation. In addition, Class Z shares may be
purchased directly or by exchange by any clients of investment advisory
affiliates of the Distributor provided that the clients meet certain criteria
established by the Distributor and its affiliates.
<TABLE>
<CAPTION>
Contents Page
<S> <C>
Investment Highlights
Summary of Expenses
Investment Objectives and Policies
Description of the Underlying Liberty Funds
Information about the Policies, Investments
and Risks of the Underlying Liberty Funds
How the Colonial Counselor Select Portfolios
Measure Their Performance
How the Colonial Counselor Select Portfolios
are Managed
Year 2000
How the Colonial Counselor Select Portfolios
Value Their Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
Organization and History
Appendix
</TABLE>
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.
<PAGE>
INVESTMENT HIGHLIGHTS
Fund of Funds Structure. The Counselor Select Portfolios 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 Counselor Select Portfolio 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 have a greater risk of 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 decisions an investor has to make. The
Counselor Select Income, Balanced and Growth Portfolios represent different
combinations of stock and bond investments involving different degrees of
potential risk and reward. Investors may select from the three Counselor Select
Portfolios based on their individual investment objective, time horizon,
tolerance for risk, and tax and financial circumstances.
The Colonial Counselor Select Income Portfolio seeks current income by investing
primarily in bond (fixed income) funds.
The Colonial Counselor Select Balanced Portfolio seeks a balance of long term
growth of capital and current income by investing in mix of stock mutual funds
and bond mutual funds.
The Colonial Counselor Select Growth Portfolio seeks long term growth of capital
by investing primarily in stock mutual funds.
This chart illustrates the relative degrees to which each Counselor Select
Portfolio seeks to obtain income or growth of capital and involves risk of loss
of principal:
<TABLE>
<CAPTION>
Potential
Counselor Select Portfolio Potential Income Growth of Capital Risk of Loss of Principal
- -------------------------- ---------------- ----------------- -------------------------
<S> <C> <C> <C>
Income High Negligible Medium
Balanced Medium Medium Medium
Growth Low High High
</TABLE>
There is no assurance that the Counselor Select Portfolios will achieve their
stated objectives. The performance of each Counselor Select Portfolio 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 Counselor Select Portfolio
will vary from day to day, reflecting changes in the values of the Underlying
Liberty Funds. When you sell your Counselor Select Portfolio shares, they may be
worth more or less than what you paid for them.
2
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in a Counselor
Select Portfolio. The following tables summarize your maximum transaction costs
and annual expenses for an investment in the Class Z shares
of a Counselor Select Portfolio. See "How the Colonial Counselor Select
Portfolios are Managed" for more complete descriptions of the
Portfolios' various costs and expenses.
Shareholder Transaction Expenses (1)(2)
<TABLE>
<CAPTION>
Income, Balanced and Growth Portfolios: Class Z
<S> <C>
Maximum Initial Sales Charge Imposed on a Purchase
(as a % of offering price) 0.00%
Maximum Contingent Deferred Sales Charge (as a % of offering price) 0.00%
</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.
Estimated Annual Operating Expenses (all three Portfolios)
(as a % of average net assets)
<TABLE>
<CAPTION>
Class Z
<S> <C>
Management fee (after fee waiver) 0.00%
12b-1 fees 0.00%
Other expenses (after fee waiver) 0.05
----
Total Portfolio operating expenses (after fee waiver) 0.05%
====
</TABLE>
The total operating expenses of the Counselor Select Portfolios, excluding
interest, taxes, brokerage, 12b-1 service and distribution fees, and
extraordinary expenses, will, until further notice, be limited to 0.05% per
annum of average net assets. Absent this arrangement, the Management fee would
be 0.0125% and the Total Portfolio operating expenses would be 0.06%.
In addition to the direct operating expenses of the Counselor Select Portfolios
shown above, each Counselor Select Portfolio 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 Counselor Select Portfolio, 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 Counselor Select Portfolios are currently expected to invest1,
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 Counselor
Select Income, Balanced and Growth Portfolios, including their pro rata shares
of the expenses of the Underlying Liberty Funds, are expected to be 0.924% to
0.991%, 0.966% to 1.042%, and 1.051% to 1.118%, respectively. Ranges are
provided since the percentages of the average assets of the Counselor Select
Portfolios invested in each of the Underlying Liberty Funds will fluctuate.
- --------
(1) The Counselor Select Portfolios 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 Counselor Select Portfolios 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.
3
<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 Z shares of each Counselor
Select Portfolio 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.
<TABLE>
<CAPTION>
Counselor Select Income Portfolio
- ---------------------------------
Class Z
Period:
<S> <C>
1 Year $10
3 Years $31
</TABLE>
<TABLE>
<CAPTION>
Counselor Select Balanced Portfolio
- -----------------------------------
Class Z
Period:
<S> <C>
1 Year $10
3 Years $32
</TABLE>
<TABLE>
<CAPTION>
Counselor Select Growth Portfolio
- ---------------------------------
Class Z
Period:
<S> <C>
1 Year $11
3 Years $34
</TABLE>
4
<PAGE>
INVESTMENT OBJECTIVES AND
POLICIES
Each Counselor Select Portfolio seeks its investment objective by investing in a
select mix of up to eight mutual funds (Underlying Liberty Funds) managed by
investment advisors that are, or as of the date of this Prospectus are expected
shortly to become, affiliates of the Distributor, namely Colonial Management
Associates, Inc. (Colonial), Newport Fund Management, Inc. (Newport), Stein Roe
& Farnham Incorporated (Stein Roe), or Crabbe Huson Group, Inc. (Crabbe Huson).
The Counselor Select Portfolios' investment objectives are as follows:
The Counselor Select Income Portfolio seeks current income.
The Counselor Select Balanced Portfolio seeks a balance of long-term growth of
capital and current income.
The Counselor Select Growth Portfolio seeks long-term growth of capital.
The pie charts below illustrate the expected asset allocation for each Portfolio
under normal market conditions:
- --------------------------------- [PIE CHARTS] ---------------------------------
Income Portfolio
----------------
20% Stock Funds
80% Bond Funds
Allocation Ranges
Stock Funds.......... 0% to 30%
Bond Funds........... 60% to 100%
Money Market Funds .. 0 to 10%
Balanced Portfolio
------------------
55% Stock Funds
45% Bond Funds
Allocation Ranges
Stock Funds.......... 25% to 75%
Bond Funds........... 25% to 75%
Money Market Funds .. 0 to 10%
Growth Portfolio
----------------
80% Stock Funds
20% Bond Funds
Allocation Ranges
Stock Funds.......... 60% to 100%
Bond Funds........... 0% to 30%
Money Market Funds .. 0 to 10%
- ------------------------------- [END PIE CHARTS] -------------------------------
Liberty Asset Management Company (Advisor), an investment advisory affiliate of
the Distributor, first allocates each Counselor Select Portfolio'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. large and 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 it believes offers the best combination in terms of
performance, volatility and correlation of returns.
In general, the Advisor intends to manage each Counselor Select Portfolio
according to its expected allocation strategy and within the allocation ranges
shown above. However, the Advisor reserves the right in its discretion, without
prior notice to shareholders, to modify the allocation strategy for any
Counselor Select Portfolio 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 Counselor Select
Portfolio's allocation falls outside the applicable range shown above, the
Advisor will consider, in its discretion, whether to reallocate that Portfolio's
investments in the Underlying Liberty Funds to bring its allocation back within
such range. As shown above, each Counselor Select Portfolio 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 Counselor Select Portfolios may invest are listed below:
5
<PAGE>
Stock 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 Value Fund
Colonial Select Value Fund
Colonial Utilities Fund
Crabbe Huson Real Estate Investment Fund
Newport Tiger Fund
Bond Funds
- ----------
Colonial Strategic Income Fund
Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Intermediate U.S. Government Fund
Stein Roe Intermediate Bond Fund
Money Market Fund
- -----------------
Colonial Money Market Fund
From time to time, the Counselor Select Portfolios' 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 Counselor Select Portfolios in that Underlying Liberty Fund
or close that Underlying Liberty Fund to new investments generally.
The Counselor Select Portfolios 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 Counselor Select Portfolios 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 under "Information About the Policies,
Investments and Risks of the Underlying Funds" below, 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 the
Policies, Investments and Risks of the 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 the Policies, Investments and Risks of
the 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
6
<PAGE>
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 Depositary 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, the 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 Value Fund seeks long-term growth and current income by investing
primarily in income-producing equity securities. Normally, at least 65% of the
Fund's assets will be invested in equity securities, including common and
preferred stocks, warrants (rights) to purchase such stock, debt securities
convertible into stock, sponsored and unsponsored ADRs, and Global Depositary
Receipts.
Colonial Select Value Fund seeks long-term growth by investing primarily in
middle-capitalization U.S. equity securities, including common and preferred
stock, warrants (rights) to purchase such stock, debt securities convertible
into such stock, and sponsored unsponsored ADRs. Middle-capitalization equity
securities are defined as equity securities of companies with equity market
capitalizations between $400 million and $8 billion at the time of purchase by
the Fund. The Fund may also invest in equity securities of foreign issuers and
in U.S. and foreign corporate debt securities. Normally, no more than 15% of the
Fund's total assets will be invested in U.S. and foreign convertible debt
securities and preferred stock, and no more than 25% will be invested in foreign
securities (equity and debt). Colonial must determine that any non-U.S. equity
security and the underlying common stock of any convertible security purchased
by the Fund is comparable to stocks included in the S&P 500 Index in terms of
liquidity. Up to 5% of the Fund's net assets may be invested in lower-rated debt
securities.
Colonial Utilities Fund seeks current income and long-term growth by investing
primarily in common and
7
<PAGE>
preferred equity securities of companies engaged in the manufacture, production,
generation, transmission, sale or distribution of electricity, natural gas or
other types of energy; companies engaged in the sale or distribution of 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 production 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.
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.
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Newport Tiger Fund seeks capital appreciation by investing primarily in equity
securities of companies located in the nine Tigers of Asia (Hong Kong,
Singapore, South Korea, Taiwan, Malaysia, Thailand, Indonesia, China and the
Philippines). Normally, the Fund will remain fully invested in equity securities
of larger, well-established companies located in the Tiger countries. Dividend
income will not be considered in choosing the investments of the Fund. Equity
securities include common and preferred stock, warrants (rights) to purchase
stock, debt securities convertible into tocks, sponsored and unsponsored ADRs,
Global Depositary Receipts, and (up to 10% of the Fund's total assets) shares of
closed-end investment companies that invest primarily in the foregoing
securities.
Substantially all of the Fund's investments will consist of securities issued by
companies located in emerging markets and are accordingly subject to the risks
of investing in such markets described under "Information About the Policies,
Investments and Risks of the Underlying Funds - Foreign Investments; Emerging
Markets" below, in addition to the risks described therein of foreign
investments generally. As of July 1, 1997, sovereignty over Hong Kong, in which
a substantial portion of the Fund's portfolio has been and may continue to be
concentrated, was transferred from Great Britain to China and Hong Kong became a
Special Administrative Region of China. China has agreed to maintain for 50
years Hong Kong's existing economic and social systems. Nevertheless, it is
impossible to predict with certainty the ultimate effect Chinese sovereignty
will have on Hong Kong's business environment. Chinese sovereignty could result
in the imposition of significant restrictions on social or economic activity
within Hong Kong. These and other potential actions could adversely affect the
Fund's Hong Kong investments. The Tiger countries and countries in other parts
of Southeast Asia have experienced rapid economic growth. While these countries
are expected to continue to grow economically over the long term, they can be
expected to do so at varying rates and to experience periods of high inflation,
economic recession and currency fluctuations along the way. Such periods may be
associated with greater, and sometimes extreme, fluctuations in the value of
investments in the Region, compared to investments in more developed economies.
Further, events in one country may impact investments in other countries.
Monetary, fiscal and other governmental policies adopted by countries in and
around the Region in response to such economic developments could exacerbate any
such fluctuations.
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 the Policies,
Investments and Risks of the Underlying Liberty Funds - Lower-Rated Debt
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 (see "Information About the
Policies Investments and Risks of the Underlying Liberty Funds-Lower-Rated Debt
Securities" below, and see the Appendix to this Prospectus for a description of
the S&P and Moody's ratings). 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.
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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.
Stein Roe Intermediate Bond Fund seeks a high level of current income. SR&F
Intermediate Portfolio, in which Stein Roe Intermediate Bond Fund invests all of
its investable assets (see "Information About the Policies, Investments and
Risks of the Underlying Liberty Funds - Master Fund/Feeder Fund: Structure and
Risk Factors" below), pursues a high level of current income, consistent with
preservation of capital, by investing primarily in marketable debt securities.
At least 60% of its assets will be invested in debt securities rated within the
three highest grades assigned by Moody's or by S&P, or in U.S. government
securities, commercial paper, and certain bank obligations. Under normal market
conditions, the SR&F Intermediate Portfolio invests at least 65% of its assets
in securities with an average life of between three and 10 years, and expects
that the dollar-weighted average life of its portfolio will be between three and
10 years.
Money Market Fund
Colonial Money Market Fund seeks maximum current income, consistent with
preservation 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 the Policies, Investments and Risks of the 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
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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 THE
POLICIES, INVESTMENTS AND
RISKS OF THE UNDERLYING
LIBERTY FUNDS
Common Stocks 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 and
the potential for greater loss, 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 Depositary Receipts in which Colonial
International Horizons Fund and Newport Tiger 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 special risks in addition to the risks of foreign securities described
above, 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.
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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 for the following reasons:
(i) an economic downturn may impact their potential for default more
significantly, 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. An Underlying Liberty 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.
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<PAGE>
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 receivables; 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 (hedging) or to gain
market exposure more efficiently and less expensively than is possible with
direct investments. 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. If the advisor's prediction is
inaccurate, the Underlying Liberty Fund may be worse off than if it had not
hedged. In addition, transactions in Derivatives may not precisely achieve the
goals of hedging or gaining market exposure to the extent there is an imperfect
correlation between the price movements of the Derivatives and the underlying
securities to be hedged or to which market exposure is sought. Derivative
transactions may also limit gains. 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 an Underlying Liberty 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 each of the Stein Roe
Growth & Income, Stein Roe Growth Stock, Stein Roe Intermediate Bond and
Colonial Money Market Funds (Feeder Funds) 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 Counselor
Select Portfolio 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. Such a distribution could
also result in a less diversified portfolio of investments for the Fund.
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HOW THE COLONIAL
COUNSELOR SELECT
PORTFOLIOS MEASURE THEIR
PERFORMANCE
Performance may be quoted in sales literature and advertisements. The Class Z
share average annual total return of each Counselor Select Portfolio is
calculated in accordance with the Securities and Exchange Commission's formula
and assumes the reinvestment of all distributions. Other total returns differ
from the average annual total return only in that they may relate to different
time periods and may represent aggregate as opposed to average annual total
returns.
The Class Z share yield of each Counselor Select Portfolio, 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 Class Z share distribution rate of a Counselor Select Portfolio is usually
calculated by dividing annual or annualized distributions by the maximum
offering price of that Class on the last day of the period. Class Z share
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 COLONIAL
COUNSELOR SELECT
PORTFOLIOS ARE MANAGED
The Trustees of the Trust formulate each Colonial Counselor Select Portfolio's
general policies and oversee the Portfolio's affairs as conducted by the Advisor
and the Administrator.
The Advisor determines the asset allocation policies of each Counselor Select
Portfolio 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 Counselor Select Portfolio pays the Advisor
a fee at the annual rate of 0.01% of the Portfolio'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 Portfolios.
Mr. Parmentier joined the Advisor in April, 1995 as Senior Vice President and
Chief Investment Officer (CIO) and was appointed President in June, 1999. He was
CIO of Grumman from 1979-1994 and also President of GQ Asset Management from
July, 1993 to October, 1994.
Mr. Carabell joined the Advisor as Vice President-Investments in March, 1996. He
was Associate Director, U.S. Equity Research, of Rogers Casey & Associates,
investment consultants, from January, 1995 to February, 1996, and was Director
of Investments of Boy Scouts of America, Inc. from June, 1990 to January, 1995.
Liberty Funds Distributor, Inc. (Distributor), an affiliate of the Advisor and
the Administrator, serves as the distributor for the Portfolios' 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
Portfolios. 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 Counselor Select Portfolios with administrative
personnel and services, office space and other services at the Administrator's
expense, for a fee at the annual rate of 0.0025% of the Portfolios' average
daily net assets.
The Administrator also provides pricing and bookkeeping services to each
Portfolio for a monthly fee of $300 plus a percentage of each Portfolio's
average net assets over $50 million. The Transfer Agent provides transfer agency
and shareholder services to the Portfolios for a fee at the annual rate of
0.0025% of the Portfolios' average daily net assets. 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 Counselor
Select Portfolios, as well as those of the Underlying Liberty Funds (Liberty
Companies), are actively managing Year
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2000 readiness for the Counselor Select Portfolios and the Underlying Liberty
Funds. The Liberty Companies are taking steps that they believe are reasonably
designed to address the Year 2000 problem and are communicating with vendors who
provide services, software and systems to the Portfolios and the Underlying
Liberty Funds to provide 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 software and systems and believe that such
modifications will be completed on a timely basis prior to January 1, 2000.
However, no assurances can be given that all modifications required to ensure
proper data processing and calculation on and after January 1, 2000 will be
timely made or that services to the Counselor Select Portfolios or the
Underlying Liberty Funds will not be adversely affected.
HOW THE COUNSELOR SELECT PORTFOLIOS VALUE THEIR SHARES
The per share net asset value of a Counselor Select Portfolio Class Z share is
calculated by dividing the total value of the Class's net assets by its number
of outstanding shares. Shares of the Portfolios 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 Counselor Select Portfolios intends to qualify as a "regulated
investment company" under the Internal Revenue Code. The Counselor Select Income
Portfolio intends to distribute net investment income to shareholders monthly.
The Counselor Select Balanced Portfolio intends to distribute net investment
income at least quarterly, and the Growth Portfolio intends to distribute net
investment income at least annually. All three Portfolios intend to distribute
any net realized gains at least annually.
Each Portfolio's distributions are invested in additional shares of the same
Class of that Portfolio 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 Portfolio 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 Counselor Select Portfolios are offered continuously. Orders
received in good form prior to the time at which a Portfolio values its shares
(or placed with a financial service firm before such time and transmitted by the
financial service firm before the Portfolio processes that day's share
transactions) will be processed based on that day's closing net asset value.
The minimum initial investment is $1,000; subsequent investments must be $50 or
more. The minimum initial investment for the Fundamatic program is $50; and the
minimum initial investment for retirement accounts sponsored by the Distributor
is $25. Certificates will not be issued for Class Z shares. The Portfolios may
refuse any purchase order for their shares. See the Statement of Additional
Information for more information.
Other Classes of Shares. In addition to Class Z shares, the Portfolios each
offer three other classes of shares, Classes A, B and C, through a separate
Prospectus. Which Class is more beneficial to an investor depends on the amount
and intended length of the investment. In general, investors eligible to
purchase Class Z shares, which do not bear 12b-1 fees or initial or contingent
deferred sales charges, should do so in preference over other classes.
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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.
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 Portfolios 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 Portfolios 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 Portfolios may be sold on any day the Exchange is open, either
directly to the Portfolios 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 Portfolios will delay sending proceeds for up to 15 days in order
to protect the Portfolios 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. The sale price is the net asset value
next calculated after a Portfolio 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 Portfolios value their 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.
Under unusual circumstances, the Portfolios 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 Counselor Select Portfolio may be exchanged at net asset value for
the Class Z shares of certain other mutual funds distributed by the Distributor.
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 Counselor Select Portfolios 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
Portfolios' investments in accordance with their investment objectives or
otherwise harm the Portfolios or their remaining shareholders.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisors are automatically eligible to
exchange Portfolio shares and to redeem up to $100,000 of Portfolio shares by
calling 1-800-422-3737 toll-free any business day between 9:00 a.m. and the time
at which the Portfolios value their shares. Telephone redemptions are limited to
a total of $100,000 in a 30-day period. Redemptions that exceed $100,000 may be
accomplished by placing a wire order trade through a broker or furnishing a
signature
16
<PAGE>
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 Portfolios at their
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 Portfolios 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.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1978. Each Counselor
Select Portfolio commenced operations in 1999, and each represents the entire
interest in a separate portfolio of the Trust. As of the date of this
Prospectus, Colonial Management Associates, Inc. owned all the outstanding
shares of each Portfolio.
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 Portfolio share. Shares of the Counselor Select Portfolios 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 portfolio 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.
17
<PAGE>
APPENDIX
Description of Certain Investment Techniques Employed by the
Underlying Liberty Funds In Which the Counselor Select
Portfolios 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 33-1/3% of total
assets.
Foreign Currency Transactions. In connection with their investments in foreign
securities, the Colonial International Horizons Fund (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 may 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.
18
<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 are 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.
19
<PAGE>
[back cover]
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:
Printed in U.S.A.
[front cover]
May 28, 1999
COLONIAL
COUNSELOR SELECT(SM)
PORTFOLIOS
CLASS Z SHARES
PROSPECTUS
For more detailed information about the
Portfolios, call the Administrator at
1-800-426-3750 for the January 29, 1999,
Revised February 26, 1999 Statement of
Additional Information.
- ----------------------------- --------------------------
Not FDIC-Insured May lose value
No bank guarantee
- ----------------------------- --------------------------
<PAGE>
LIBERTY FUNDS TRUST IV
Cross Reference Sheet
Colonial Counselor Select Income Portfolio
Colonial Counselor Select Balanced Portfolio
Colonial Counselor Select Growth Portfolio
<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>
COLONIAL COUNSELOR SELECT(sm) INCOME PORTFOLIO
COLONIAL COUNSELOR SELECT(sm) BALANCED PORTFOLIO
COLONIAL COUNSELOR SELECT(sm) GROWTH PORTFOLIO
(each a Portfolio and collectively, the Portfolios)
STATEMENT OF ADDITIONAL INFORMATION
January 29, 1999, Revised February 26, 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
Portfolios. This SAI is not a prospectus and is authorized for distribution only
when accompanied or preceded by the Prospectus of the Portfolios dated January
29, 1999, Revised February 26, 1999. This SAI should be read together with the
Prospectus. Investors may obtain a free copy of the Prospectus from Liberty
Funds Distributor, Inc. (LFDI), One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Portfolios. Part 2
includes information about the other open end mutual funds ("Underlying Liberty
Funds") in which the Portfolio s invest and additional information about certain
securities and investment techniques in which the Underlying Liberty Funds
invest and engage.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part 1 Page
<S> <C>
Definitions b
Investment Objectives and Policies b
Fundamental Investment Policies b
Other Investment Policies c
Portfolio Charges and Expenses c
Custodian e
Independent Accountants e
Part 2
Miscellaneous Investment Practices of Underlying Liberty Funds 1
Taxes 9
Management of the Portfolios 11
Determination of Net Asset Value 14
How to Buy Shares 14
Special Purchase Programs/Investor Services 15
Programs for Reducing or Eliminating Sales Charges 16
How to Sell Shares 18
Distributions 19
How to Exchange Shares 19
Suspension of Redemptions 20
Shareholder Liability 20
Shareholder Meetings 20
Performance Measures 20
Appendix I 22
Appendix II 27
</TABLE>
FF-16/780G-0399
a
<PAGE>
Part 1
COLONIAL COUNSELOR SELECT INCOME PORTFOLIO
COLONIAL COUNSELOR SELECT BALANCED PORTFOLIO
COLONIAL COUNSELOR SELECT GROWTH PORTFOLIO
Statement of Additional Information
January 29, 1999, Revised February 26, 1999
DEFINITIONS
<TABLE>
<S> <C>
"Trust" Colonial Trust IV
"Advisor" Liberty Asset Management Company, the
Portfolios' investment advisor
"Administrator" Colonial Management Associates, Inc., the
Portfolios' administrator
"LFDI" Liberty Funds Distributor, Inc., the
Portfolios' distributor
"LFSI" Liberty Funds Services, Inc., the
Portfolios' shareholder services and
transfer agent
"Portfolios" Colonial Counselor Select Income Portfolio,
Colonial Counselor Select Balanced
Portfolio, and Colonial Counselor Select
Growth Portfolio
"Underlying Liberty Funds" The open-end mutual funds listed in the
Prospectus in which the Portfolios may
invest.
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
The Portfolios' Prospectus describes the investment objectives and investment
policies of each Portfolio. The Portfolios 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 Portfolio's assets among the Underlying Liberty Funds.
Part 1 of this SAI includes information concerning the fundamental investment
policies of the Portfolios.
The investment objectives and policies of the Underlying Liberty Funds are
summarized in the Portfolio' Prospectus. Part 2 contains additional information
about the following securities and investment techniques in which the Underlying
Liberty Funds may invest and engage:
<TABLE>
<S> <C>
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
</TABLE>
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 Portfolio, 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 Portfolio may:
1. Borrow from banks, other affiliated funds and other persons to the extent
permitted by applicable law, provided that a Portfolio's borrowings shall
not exceed 33-1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings), or such other
percentage permitted by law;
2. Own real estate acquired only as the result of owning securities and such
holdings may not exceed 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
b
<PAGE>
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 Portfolio'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 Portfolio's total assets would be invested in the securities of such
issuer, except that a Portfolio 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 Portfolio may not:
1. Have a short sales position, unless the Portfolio 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.
PORTFOLIO CHARGES AND EXPENSES
Under the Portfolios' investment management agreements with the Advisor, each
Portfolio pays the Advisor a fee for its asset allocation services that accrues
daily and is payable monthly at an annual rate of 0.01% of the average daily net
assets of each Portfolio (subject to reductions that the Advisor may agree to
periodically):
The Portfolios each pay the Administrator an administrative fee, accrued daily
and paid monthly, for providing the Portfolios with administrative personnel and
services, office space and other services, at an annual rate of 0.0025% of the
average daily net assets of the Portfolio (subject to reductions that the
Administrator may agree to periodically).
The Portfolios also each pay the Administrator a monthly pricing and bookkeeping
fee of $300 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 each of the Portfolios
for an annual fee of 0.0025% of the average daily net assets of the Portfolio
(subject to reductions that LFSI may agree to periodically).
In addition to the fees and expenses paid by the Portfolios directly, each
Portfolio pays its 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 or Crabbe Huson Group, Inc.), 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 Portfolios 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. The Portfolios will not incur brokerage
commission expenses or sales charges in connection with their purchases and
redemptions of Underlying Liberty Funds. The Portfolios bear their pro rata
shares of the brokerage and other transaction costs incurred by the Underlying
Liberty Funds and 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. and
Crabbe-Huson Group, Inc. are series, and do not receive fees from the
Portfolios.
c
<PAGE>
The table below shows the total compensation paid to the Trustees of the Trust
for the year ended December 31, 1998 by the Liberty Funds Complex and nine funds
of Liberty Variable Investment Trust:
Total Compensation Liberty
Fund Complex Paid To The Trustees
For The Calendar Year Ended
Trustee December 31, 1998(a)
- ------- ---------------------------------
Robert J. Birnbaum $ 124,429
Tom Bleasdale 115,000(c)
John V. Carberry -0-
Lora S. Collins 97,429
James E. Grinnell 128,071
Richard W. Lowry 123,214
Salvatore Macera 25,250
William E. Mayer 113,286
James L. Moody, Jr. 105,857(c)
John J. Neuhauser 130,323
Thomas E. Stitzel 25,250
Robert L. Sullivan 104,100
Anne-Lee Verville 23,445(c)
(a) The Trust does not currently provide pension or retirement plan benefits to
the Trustees.
(b) At December 31, 1998, the Liberty Funds Complex consisted of 52 open-end
and 5 closed-end management investment company portfolios (not including
the Portfolios) advised by the Administrator or its affiliates, Newport
Fund Management, Inc., Crabbe Huson Group, Inc., Stein Roe & Farnham
Incorporated and the Advisor, and the closed-end Liberty All-Star Equity
Fund and Liberty All-Star Growth Fund, Inc. advised by the Advisor.
(c) Payable in later years as deferred compensation.
Ownership of the Portfolios
As of the date hereof, the officers and Trustees of the Trust as a group owned
no shares of the Portfolios.
As of the date hereof, the Administrator owned all the outstanding shares of
each Class of each Portfolio.
12b-1 Plan, CDSC and Conversion of Shares
The Portfolios offer multiple classes of shares, including Class A, Class B and
Class C. The Portfolios 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 Portfolios. Under
each Plan, each Portfolio 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 Portfolio to LFDI and its affiliates
(including the Advisor) to the extent that such payments might be construed to
be indirectly financing the distribution of Portfolio 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
Portfolios. 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.
d
<PAGE>
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. 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 Portfolios. The custodian is
responsible for safeguarding and controlling the Portfolios' cash and
securities, receiving and delivering securities and collecting the each
Portfolio's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse acts as the Portfolios' independent accountants. In such
capacity, Price Waterhouse LLP performs the annual audit of each Portfolio's
financial statements and assists in the preparation of tax returns.
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STATEMENT OF ADDITIONAL INFORMATION
PART 2
MISCELLANEOUS INVESTMENT PRACTICES OF UNDERLYING LIBERTY FUNDS
Each Portfolio 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 (Underlying Liberty Funds) listed in the Prospectus. The mix of Underlying
Liberty Funds in which each Portfolio 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 or Crabbe Huson Group, Inc., as indicated in the name
of the Underlying Liberty Fund, each of which is, or as of the date hereof is
expected shortly to become, 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 Underlying Liberty Funds, as set forth in the Prospectus of the
Portfolios.
Short-Term Trading
In seeking an 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 and in smaller volumes, and may fluctuate more sharply
in value than securities of larger companies.
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Foreign Securities
The Colonial International Horizons Fund invests 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 an Underlying
Liberty Fund, will be held by the fund's custodian or by a subcustodian or
depository. See also "Foreign Currency Transactions" below.
An 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.
Securities Loans
Most of the Underlying Liberty Funds may make secured loans of their portfolio
securities amounting to not more than a specified percentage of their 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.
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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 Fund or the Crabbe
Huson Real Estate Investment Fund sells 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
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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 Fund may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. Such hedge protection is provided during the life of the put
option since the fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. For a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, the fund will reduce any profit it might otherwise have realized
from appreciation of the underlying security by the premium paid for the put
option and by transaction costs.
Purchasing call options. 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 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 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
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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 Underlying
Liberty Fund's obligation under the contract (less any applicable margin
deposits and any assets that constitute "cover" for such obligation), will be
segregated with the fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchanges or boards of trade known as "contract markets"
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. government securities. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on futures contracts. 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.
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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
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futures market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators than the
securities market. Increased participation by speculators in the futures market
may also cause temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the imperfect correlation
between movements in the index and movements in the prices of index futures,
even a correct forecast of general market trends by the Advisor may still not
result in a successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put options on
index futures, the 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 Fund (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.
7
<PAGE>
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 the
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. dollar, may be affected by complex
political and economic factors applicable to the issuing country. In addition,
the exchange rates of currencies (and therefore the values of currency options)
may be significantly affected, fixed, or supported directly or indirectly by
government actions. Government intervention may increase risks involved in
purchasing or selling currency options, since exchange rates may not be free to
fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an
8
<PAGE>
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 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 Underlying Liberty 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 Counselor Select Portfolios and Their Shareholders
Each Portfolio intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Code. As a regulated
investment company, each Portfolio 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 Portfolio 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 Portfolio'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 Portfolio.
9
<PAGE>
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 Portfolio 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 Portfolio are deemed to have been held by the Underlying
Liberty Fund, the Portfolio 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 Portfolio, the amount of such
foreign income and similar taxes paid by the Underlying Liberty Fund. Although a
Portfolio may itself be entitled to a deduction for such taxes paid by an
Underlying Liberty Fund in which the Portfolio invests, the Portfolio will not
be able to pass any such credit or deduction through to its own shareholders.
A Portfolio will not be able to offset gains realized by one Underlying Liberty
Fund in which such Portfolio invests against losses realized by another
Underlying Liberty Fund in which Portfolio invests. The Portfolio's use of a
fund-of-funds structure could therefore affect the amount, timing and character
of distributions to shareholders.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as such, regardless
of the length of time the shares of a Portfolio 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-month 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 Portfolio's shareholders on December 31, if paid
during January of the following year. Redemptions of shares, including exchanges
for shares of another Portfolio, may result in tax consequences (gain or loss)
to the shareholder and are also subject to these reporting requirements.
Dividends and distributions on shares of a Portfolio are generally subject to
federal income tax as described herein to the extent they do not exceed the
Portfolio's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when the net asset value of a Portfolio reflects gains that
are either unrealized, or realized but not distributed. In particular, investors
should consider the tax implications of buying shares just prior to a
distribution.
Each Portfolio 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 Portfolio 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 taxpayer identification
numbers and with required certifications regarding their status under the
federal income tax law. Withholding may also be required if a Portfolio 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 Portfolio may be subject to state and local taxes on
distributions received from the Portfolio and on redemptions of the Portfolio's
shares.
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<PAGE>
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, 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 Portfolio, including the possibility that such a shareholder may
be subject to a U.S. withholding tax at 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 Portfolio 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 Portfolio which invests in the Underlying Liberty Fund regardless of how long
the Portfolio held the Underlying Liberty Fund's shares, and are not eligible
for the corporate dividends-received deduction. Depending on a Portfolio's
percentage ownership in an Underlying Liberty Fund both before and after a
redemption, a Portfolio's redemption of shares of such Underlying Liberty Fund
may cause the Portfolio to be treated as not receiving capital gain income on
the amount by which the distribution exceeds the Portfolio's tax basis in the
shares of the Underlying Liberty Fund, but instead to be treated as receiving a
dividend taxable as ordinary income on the full amount of the distribution. This
could cause shareholders of the Portfolio to recognize higher amounts of
ordinary income than if the shareholders had held the shares of the Underlying
Liberty Funds directly.
To the extent such investments are permissible for an Underlying Liberty Fund,
the Underlying Liberty Fund's transactions in options, futures contracts,
hedging transactions, forward contracts, straddles and foreign currencies will
be subject to special tax rules (including mark-to-market, constructive sale,
straddle, wash sale and short sale rules), the effect of which may be to
accelerate income to the Underlying Liberty Fund, defer losses to the Underlying
Liberty Fund, cause adjustments in the holding periods of the Underlying Liberty
Fund's securities, convert long-term capital gains into short-term capital gains
and convert short-term capital losses into long-term capital gains into
short-term capital gains and convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount, timing and
character of distributions to shareholders of the Underlying Liberty Funds,
including the Portfolios.
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 PORTFOLIOS
The Advisor is a subsidiary of Liberty Financial Companies, Inc. (Liberty
Financial), which in turn is an indirect 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 Financial's address is 600 Atlantic Avenue, Boston, MA 02210.
Liberty Mutual's address is 175 Berkeley Street, Boston, MA 02117.
Trustees and Officers
<TABLE>
<CAPTION>
Name and Address Age Position with Fund Principal Occupation During Past Five Years
- ---------------- --- ------------------ ----------------------------------------------------------
<S> <C> <C> <C>
Robert J. Birnbaum 70 Trustee Consultant (formerly Special Counsel, Dechert Price &
313 Bedford Road Rhoads (law firm), from September, 1988 to December,
Ridgewood, NJ 07450 1993; President, 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 1992
Danvers, MA 01923 to 1993). Director of The Empire Company since June,
1995.
John V. Carberry * 51 Trustee Senior Vice President, Liberty Financial Companies, Inc.,
56 Woodcliff Road since February, 1998 (formerly Managing Director, Salomon
Wellesley Hills, MA 02481 Brothers (investment banking) from December, 1974 to
February, 1998).
11
<PAGE>
Lora S. Collins 62 Trustee Attorney (formerly Partner, 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 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, Colonial Trusts, since June, 1998; Director,
since July, 1996 of the Administrator (formerly
Executive Vice President from July, 1996 to December,
1996); Director, Chief Executive Officer and President
of The Colonial Group, Inc. (TCG) since December, 1996
(formerly Managing Director of Marketing of Putnam
Investments, June, 1992 to July, 1996.) ; Assistant
Chairman of Stein Roe & Farnham Incorporated (SR&F)
since August, 1998.
12
<PAGE>
J. Kevin Connaughton 34 Controller and Controller and Chief Accounting Officer of Funds since
Chief Accounting February, 1998, Vice President of the Administrator
Officer since February, 1998 (formerly Senior Tax Manager,
Coopers & Lybrand, LLP from April, 1996 to January, 1998;
Vice President, 440 Financial Group/First Data Investor
Services Group from March ,1994 to April, 1996; Vice
President, The Boston Company (subsidiary of Mellon Bank)
from December, 1993 to March, 1994; Assistant Vice
President and Tax Manager, The Boston Company from March,
1992 to December, 1993).
Timothy J. Jacoby 45 Treasurer and Treasurer and Chief Financial Officer of Funds since
Chief Financial October, 1996 (formerly Controller and Chief Accounting
Officer Officer from October, 1997 to February, 1998); Senior
Vice President of the Administrator 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);
Director, Senior Vice President, General Counsel, Clerk
and Secretary of the Administrator 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; Executive
Vice President since July, 1993 and Director since
March, 1985 of the Administrator (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); Executive Vice
President of SR&F since August, 1998.
</TABLE>
* A Trustee who is an "interested person" (as defined in the Investment
Company Act of 1940 ("1940 Act")) of the Portfolios or the Advisor.
The business address of the officers of each Portfolio 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 Portfolio'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 Portfolios with administrative personnel and
services, office space, and pricing and bookkeeping services. See "Portfolio
Charges and Expenses" for the fees payable by the Portfolios under these
agreements. Under the agreements, any liability of the Advisor or the
Administrator to a Portfolio, 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.
13
<PAGE>
The investment management agreements with the Advisor may be terminated with
respect to any Portfolio 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 Portfolio. 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
Portfolio and (ii) by vote of a majority of the Trustees who are not interested
persons (as such term is defined in the 1940 Act) of the Advisor or the Trust,
cast in person at a meeting called for the purpose of voting on such approval.
The Administrator pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Administrator including, but not limited to,
auditing, legal, custodial, investor servicing and shareholder reporting
expenses. The Trust pays the cost of printing and mailing any Prospectuses sent
to shareholders. LFDI pays the cost of printing and distributing all other
Prospectuses.
Principal Underwriter
LFDI is the principal underwriter of the Portfolios' shares. LFDI has no
obligation to buy the Portfolios' shares, and purchases the Portfolios' 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 Trust's agreement with LFSI continues indefinitely but
may be terminated by 90 days' notice by the Portfolio to LFSI or generally by 6
months' notice by LFSI to the Portfolio. The agreement limits the liability of
LFSI to the Portfolio for loss or damage incurred by the Portfolio 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 Portfolio
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 Portfolio 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 Portfolio is based on the NAV of the shares of the Underlying
Liberty 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
may take 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 Portfolios and tables of charges. This SAI contains additional information
which may be of interest to investors.
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The Portfolios 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 Portfolio before the
Portfolio processes that day's transactions. If the FSF fails to transmit before
the Portfolio 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 Portfolio 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 Portfolio must
be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
The Portfolio 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 Portfolio 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 Portfolios 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 Portfolio'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 Portfolio 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 Portfolios. 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 Portfolio 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 Portfolio, exchange
between the same Class of shares of Portfolios by written instruction or by
telephone exchange if you have so elected and withdraw amounts from any
Portfolio, subject to the imposition of any applicable CDSC.
Any additional payments or exchanges into your Portfolio 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.
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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 Portfolio, 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 Portfolio 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 Portfolio automatically invested in the same class of
shares of another Portfolio. An ADD account must be in the same name as the
shareholder's existing open account with the particular Portfolio. 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.
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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 Portfolio 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 Portfolio
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 Liberty Employees or Financial Service Firms. Class A shares of
certain funds may be sold at NAV to the following individuals whether currently
employed or retired: Trustees of funds advised or administered by the Advisor;
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 shares of certain funds may also be purchased at reduced or no sales
charge by clients of dealers, brokers or registered investment advisors that
have entered into agreements with LFDI pursuant to which the funds are included
as investment options in programs involving fee-based compensation arrangements,
and by participants in certain retirement plans.
Waiver of Contingent Deferred Sales Charges (CDSCs) (Classes A, B and C): CDSCs
may be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii)
the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers
to Minors Act (UTMA) or other custodial account. If, upon the occurrence of
one of the foregoing, the account is transferred to an account registered
in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year after the
death. If the Class B shares are not redeemed within one year of the death,
they will remain subject to the applicable CDSC, when redeemed from the
transferee's account. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP established
with LFSI, to the extent the redemptions do not exceed, on an annual basis,
12% of the account's value, so long as at the time of the first SWP
redemption the account had had distributions reinvested for a period at
least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three month period
prior to the first SWP redemption); otherwise CDSCs will be charged on SWP
redemptions until this requirement is met. This requirement does not apply
if the SWP is set up at the time the account is established, and
distributions are being reinvested. See below under "Investor Services -
Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise after the purchase of shares and (ii) the
disabled shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will
be charged.
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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
Portfolio 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
Portfolio will delay sending proceeds for up to 15 days in order to protect the
Portfolio against financial losses and dilution in net asset value caused by
dishonored purchase payment checks.
To sell shares directly to the Portfolio, 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 Portfolio 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 Portfolio'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 Portfolio 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 Portfolio under a SWP will be
treated as redemptions of shares purchased through the reinvestment of Portfolio
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 Portfolio 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 Portfolio distributions
payable in shares of the Portfolio 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
Portfolio (other than through the reinvestment of dividends) and a SWP at the
same time.
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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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio shareholders and/or their FSFs are
automatically eligible to redeem up to $100,000 of the Portfolio's shares by
calling 1-800-422-3737 toll-free any business day between 9:00 a.m. and the time
at which the Portfolio 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
accomplished 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
will be required to provide their name, address and account number. FSFs will
also be required to provide their broker number. All telephone transactions are
recorded. A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to
execute the telephone authorization form or to use the telephone to execute
transactions.
Non-Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Portfolio's net asset
value, a Portfolio may make the payment or a portion of the payment with
portfolio securities held by that Portfolio 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
Portfolio 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 Portfolio 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 Portfolios that pay daily dividends will normally earn dividends
starting with the date the Portfolio 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 Portfolio may be exchanged for the same class of shares of any other
Portfolio 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 Portfolio, completion of an exchange may be delayed under unusual
circumstances, such as if the Portfolio suspends repurchases or postpones
payment for the Portfolio 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,
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partnership, agent, or surviving joint owner, LFSI will require customary
additional documentation. Prospectuses of the other Portfolios 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 a
Portfolio 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
Portfolio in the name of the shareholder desiring to exchange.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time on 60
days' notice.
SUSPENSION OF REDEMPTIONS
A Portfolio 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 an Underlying Liberty Fund to dispose of its
securities or for a Portfolio or an Underlying Liberty Fund 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
Portfolio and the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the
Portfolio or the Trust's Trustees. The Declaration provides for indemnification
out of Portfolio property for all loss and expense of any shareholder held
personally liable for the obligations of the Portfolio. 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 Portfolio
would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular Portfolio 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
Portfolios 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
Portfolio, made at the beginning of a stated period, adjusted for the maximum
sales charge or applicable CDSC for the class of shares of the Portfolio and
assuming that all distributions were reinvested at NAV, converted to an average
annual return assuming annual compounding.
20
<PAGE>
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 Portfolio 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), (ii) dividing the result by the product of the average
daily number of shares of the Portfolio that were entitled to dividends during
the period and the maximum offering price of the Portfolio on the last day of
the period, and (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
Portfolio is usually calculated by dividing annual or annualized distributions
by the maximum offering price of that class on the last day of the period.
Generally, a Portfolio's distribution rate reflects total amounts actually paid
to shareholders, while yield reflects the current earning power of the
Underlying Liberty Fund's portfolio securities (net of the Portfolio's
expenses). A Portfolio's yield for any period may be more or less than the
amount actually distributed in respect of such period.
The Portfolios may compare their performance to various unmanaged indices
published by such sources as are listed in Appendix II.
The Portfolios also may 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 Portfolio's performance or to the
Advisor or its affiliates, including comparisons with competitors and matters of
national and global economic and financial interest. Examples include Forbes,
Business Week, Money Magazine, The Wall Street Journal, The New York Times, The
Boston Globe, Barron's National Business & Financial Weekly, Financial Planning,
Changing Times, Reuters Information Services, Wiesenberger Mutual Funds
Investment Report, Lipper, Inc., Morningstar, Inc., Sylvia Porter's Personal
Finance Magazine, Money Market Directory, SEI Funds Evaluation Services, FTA
World Index and Disclosure Incorporated.
All data are based on past performance and do not predict future results.
General. From time to time, the Portfolios may discuss or quote their 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 Portfolios' 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 Portfolio 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 Portfolio 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
Portfolio at periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low.
From time to time, the Portfolio 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 quote 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.
21
<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+.
22
<PAGE>
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.
23
<PAGE>
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.
24
<PAGE>
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
25
<PAGE>
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.
26
<PAGE>
APPENDIX II
1998
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
CREDIT SUISSE FIRST BOSTON:
<S> <C> <C>
First Boston High Yield 0.58
LIPPER, INC.:
AMEX Composite Index P 0.64
AMEX Computer Tech IX P 81.46
AMEX Institutional IX P 37.59
AMEX Major Market IX P 18.32
Aust Crdtstlt:Osh IX P N/A
Bse Sensex Index -16.50
CAC 40:FFR IX P 31.47
CD Rate 1 Month Index Tr 5.61
CD Rate 3 Month Index Tr 5.59
CD Rate 6 Month Index Tr 5.58
Consumer Price Index 1.61
Copnhgn SE:Dkr IX P N/A
DAX:Dm IX Tr 17.71
Dow Jones 65 Comp Av P 10.10
Dow Jones Ind Average P 16.10
Dow Jones Ind Dly Reinv 18.13
Dow Jones Ind Mth Reinv 18.15
Dow Jones Trans Av P -3.29
Dow Jones Trans Av Tr 0.02
Dow Jones Util Av P 14.37
Dow Jones Util Av Tr 18.88
FT-SE 100:Pd IX P 14.55
Hang Seng:Hng Kng $ IX -6.29
Jakarta Composite Index N/A
Jasdaq Index:Yen P N/A
Klse Composite Index -1.40
Kospi Index N/A
Lear High Growth Rate IX 1.53
Lear Low Priced Value IX -1.52
Lehman 1-3 Govt/Corp Tr 6.96
Lehman Aggregate Bd P 2.03
Lehman Aggregate Bd Tr 8.69
Lehman Cp Bd Int Tr 8.29
Lehman Govt Bd Int P 1.99
Lehman Govt Bd Int Tr 8.49
Lehman Govt Bd Long P 6.59
Lehman Govt Bd Long Tr 13.41
Lehman Govt Bd P 3.27
Lehman Govt Bd Tr 9.85
Lehman Govt/Cp Bd P 2.70
Lehman Govt/Cp Bd Tr 9.47
Lehman Govt/Cp Int P 1.78
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
<S> <C> <C>
Lehman Govt/Cp Int Tr 8.44
Lehman High Yield P -6.46
Lehman High Yield Tr 1.60
Lehman Muni 10 Yr IX Tr 6.76
Lehman Muni 3 Yr IX Tr 5.21
Lehman Muni Bond IX Tr 6.48
Lehman 7-Year Muni Bond 6.23
ML 0-3 Yr Muni IX P 0.02
ML 0-3 Yr Muni IX Tr 5.01
ML 1-3 Yr Treasury IX P 0.60
ML 1-3 Yr Treasury IX Tr 7.00
ML 1-5 Yr Gv/Cp Bd IX P 1.12
ML 1-5 Yr Gv/Cp Bd IX Tr 7.68
ML 1-5 Yr Treasury IX P 1.32
ML 1-5 Yr Treasury IX Tr 7.74
ML 10+ Yr Treasury IX Tr 13.55
ML 15 Yr Mortgage IX P 0.85
ML 15 Yr Mortgage IX Tr 7.30
ML 3-5 Yr Govt IX P 2.40
ML 3-5 Yr Govt IX Tr 8.87
ML Corp Master Index P 1.47
ML Corp Master Index Tr 8.72
ML Glbl Govt Bond Inx P 7.71
ML Glbl Govt Bond Inx Tr 14.12
ML Glbl Gv Bond IX II P 8.32
ML Glbl Gv Bond IX II Tr 14.97
ML Global Bond Index P 6.07
ML Global Bond Index Tr 12.78
ML Gov Corp Master IX P 2.69
ML Gov Corp Master IX Tr 9.53
ML Govt Master Index P 3.17
ML Govt Master Index Tr 9.85
ML High Yld Master IX P -5.59
ML High Yld Master IX Tr 3.66
ML Mortgage Master IX P 0.68
ML Mortgage Master IX Tr 7.19
ML Treasury Master IX P 3.35
ML Treasury Master IX Tr 10.03
MSCI AC Americas Free GD 25.77
MSCI AC Americas Free ID 23.77
MSCI AC Asia Fr-Ja IX GD -7.79
MSCI AC Asia Fr-Ja IX ID -10.27
MSCI AC Asia Pac - Ja GD -4.77
MSCI AC Asia Pac - Ja ID -7.30
MSCI AC Asia Pac Fr-J GD -4.42
MSCI AC Asia Pac Fr-J ID -7.12
MSCI AC Asia Pac IX GD 2.03
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
<S> <C> <C>
MSCI AC Asia Pac IX ID 0.53
MSCI AC Europe IX GD 27.18
MSCI AC Europe IX ID 24.84
MSCI AC Fe - Ja IX GD -4.83
MSCI AC Fe - Ja IX ID -7.16
MSCI AC Fe Fr-Ja IX GD -4.82
MSCI AC Fe Fr-Ja IX ID -7.39
MSCI AC Fe Free IX GD 3.38
MSCI AC Fe Free IX ID 2.07
MSCI AC Pac Fr-Jpn IX GD -2.07
MSCI AC Pac Fr-Jpn IX ID -4.86
MSCI AC World Fr-USA GD 14.46
MSCI AC World Fr-USA ID 12.36
MSCI AC World Free IX GD 21.97
MSCI AC World IX GD 21.72
MSCI AC World IX ID 19.69
MSCI AC World-USA IX GD 14.09
MSCI AC Wrld Fr-Ja IX GD 24.09
MSCI AC Wrld Fr-Ja IX ID 21.93
MSCI AC Wrld-Ja IX GD 23.80
MSCI AC Wrld-Ja IX ID 21.64
MSCI Argentina IX GD -24.30
MSCI Argentina IX ID -27.30
MSCI Australia IX GD 7.06
MSCI Australia IX ID 3.80
MSCI Australia IX ND 6.07
MSCI Austria IX GD 0.77
MSCI Austria IX ID -0.91
MSCI Austria IX ND 0.35
MSCI Belgium IX GD 68.73
MSCI Belgium IX ID 64.84
MSCI Belgium IX ND 67.75
MSCI Brazil IX GD -39.62
MSCI Brazil IX ID -44.07
MSCI Canada IX GD -5.70
MSCI Canada IX ID -7.44
MSCI Canada IX ND -6.14
MSCI Chile IX GD -28.50
MSCI Chile IX ID -30.65
MSCI China Dom Fr IX ID -51.52
MSCI China Free IX ID -43.83
MSCI China Non Dom IX ID -42.06
MSCI Colombia IX GD -42.17
MSCI Colombia IX ID -45.32
MSCI Czech Rep IX GD 0.54
MSCI Czech Rep IX ID -0.66
MSCI Denmark IX GD 9.38
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
<S> <C> <C>
MSCI Denmark IX ID 7.82
MSCI Denmark IX ND 8.99
MSCI EAFE + Canada IX GD 19.11
MSCI EAFE + Canada IX ID 17.02
MSCI EAFE + Canada IX ND 18.76
MSCI EAFE + EMF IX GD 15.25
MSCI EAFE + EMF IX ID 13.13
MSCI EAFE + Em IX GD 14.94
MSCI EAFE + Em IX ID 12.84
MSCI EAFE - UK IX GD 21.02
MSCI EAFE - UK IX ID 19.17
MSCI EAFE - UK IX ND 20.59
MSCI EAFE Fr IX ID 18.32
MSCI EAFE GDP Wt IX GD 27.12
MSCI EAFE GDP Wt IX ID 25.12
MSCI EAFE GDP Wt IX ND 26.71
MSCI EAFE IX GD 20.33
MSCI EAFE IX ID 18.23
MSCI EAFE IX ND 20.00
MSCI EASEA IX GD 25.42
MSCI EASEA IX ID 22.94
MSCI EASEA IX ND 25.03
MSCI EMF Asia IX GD -11.00
MSCI EMF Asia IX ID -12.36
MSCI EMF Far East IX GD -6.23
MSCI EMF Far East IX ID -7.33
MSCI EMF IX GD -25.34
MSCI EMF IX ID -27.52
MSCI EMF Latin Am IX GD -35.11
MSCI EMF Latin Am IX ID -38.04
MSCI Em Asia IX GD -8.57
MSCI Em Asia IX ID -9.90
MSCI Em Eur/Mid East GD -26.01
MSCI Em Eur/Mid East ID -27.37
MSCI Em Europe IX GD -30.11
MSCI Em Europe IX ID -31.17
MSCI Em Far East IX GD -4.12
MSCI Em Far East IX ID -5.28
MSCI Em IX GD -23.21
MSCI Em IX ID -25.30
MSCI Em Latin Am IX GD -35.29
MSCI Em Latin Am IX ID -38.19
MSCI Europe - UK IX GD 33.95
MSCI Europe - UK IX ID 31.86
MSCI Europe - UK IX ND 33.38
MSCI Europe GDP Wt IX ID 31.74
MSCI Europe IX GD 28.91
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
<S> <C> <C>
MSCI Europe IX ND 28.53
MSCI European Union GD 30.44
MSCI European Union ID 27.93
MSCI Far East Free IX ID 1.52
MSCI Far East IX GD 2.56
MSCI Far East IX ID 1.22
MSCI Far East IX ND 2.39
MSCI Finland IX GD 122.63
MSCI Finland IX ID 119.10
MSCI Finland IX ND 121.64
MSCI France IX GD 42.06
MSCI France IX ID 40.00
MSCI France IX ND 41.54
MSCI Germany IX GD 29.88
MSCI Germany IX ID 28.17
MSCI Germany IX ND 29.43
MSCI Greece IX GD 78.11
MSCI Greece IX ID 75.01
MSCI Hongkong IX GD -2.92
MSCI Hongkong IX ID -7.60
MSCI Hongkong IX ND -2.92
MSCI Hungary IX GD -8.16
MSCI Hungary IX ID -8.70
MSCI India IX GD -21.24
MSCI India IX ID -22.89
MSCI Indonesia IX GD -31.53
MSCI Indonesia IX ID -32.40
MSCI Ireland IX ID 32.99
MSCI Israel Dom IX ID -16.20
MSCI Israel IX ID -7.91
MSCI Israel Non Dom Ixid 42.21
MSCI Italy IX GD 53.20
MSCI Italy IX ID 50.99
MSCI Italy IX ND 52.52
MSCI Japan IX GD 5.25
MSCI Japan IX ID 4.27
MSCI Japan IX ND 5.05
MSCI Jordan IX GD -11.01
MSCI Jordan IX ID -14.26
MSCI Kokusai IX GD 27.46
MSCI Kokusai IX ID 25.30
MSCI Kokusai IX ND 26.96
MSCI Korea IX GD 141.15
MSCI Korea IX ID 137.54
MSCI Luxembourg IX ID 8.63
MSCI Malaysia IX GD -29.49
MSCI Malaysia IX ID -31.04
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
<S> <C> <C>
MSCI Mexico Free IX GD -33.53
MSCI Mexico Free IX ID -34.50
MSCI Mexico IX GD -34.18
MSCI Mexico IX ID -35.12
MSCI Netherland IX GD 23.93
MSCI Netherland IX ID 21.13
MSCI Netherland IX ND 23.23
MSCI New Zealand IX GD -21.48
MSCI New Zealand IX ID -25.23
MSCI New Zealand IX ND -22.62
MSCI Nordic IX GD 23.83
MSCI Nordic IX ID 21.78
MSCI Nordic IX ND 23.25
MSCI Norway IX GD -29.67
MSCI Norway IX ID -31.21
MSCI Norway IX ND -30.06
MSCI Nth Amer IX GD 29.04
MSCI Nth Amer IX ID 27.11
MSCI Nth Amer IX ND 28.46
MSCI Pac - Japan IX GD -6.22
MSCI Pac - Japan IX ID -9.55
MSCI Pac - Japan IX ND -6.64
MSCI Pacific Fr-Jpn ID -8.40
MSCI Pacific Free IX ID 1.43
MSCI Pacific IX GD 2.69
MSCI Pacific IX ID 1.16
MSCI Pacific IX ND 2.44
MSCI Pakistan IX GD -56.61
MSCI Pakistan IX ID -60.56
MSCI Peru IX GD -40.22
MSCI Peru IX ID -42.11
MSCI Philippines Fr Ixgd 13.45
MSCI Philippines Fr Ixid 12.60
MSCI Philippines IX GD 16.10
MSCI Philippines IX ID 14.89
MSCI Portugal IX GD 27.90
MSCI Portugal IX ID 25.42
MSCI Russia IX GD -82.99
MSCI Russia IX ID -83.16
MSCI Sing/Mlysia IX GD -12.88
MSCI Sing/Mlysia IX ID -14.62
MSCI Sing/Mlysia IX ND -12.88
MSCI Singapore Fr IX GD -3.59
MSCI Singapore Fr IX ID -5.31
MSCI South Africa IX GD -27.56
MSCI South Africa IX ID -29.84
MSCI Spain IX GD 50.58
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
<S> <C> <C>
MSCI Spain IX ID 47.87
MSCI Spain IX ND 49.90
MSCI Sri Lanka IX GD -25.57
MSCI Sri Lanka IX ID -27.30
MSCI Sweden IX GD 14.54
MSCI Sweden IX ID 12.62
MSCI Sweden IX ND 13.96
MSCI Swtzrlnd IX GD 24.05
MSCI Swtzrlnd IX ID 22.57
MSCI Swtzrlnd IX ND 23.53
MSCI Taiwan IX GD -20.64
MSCI Taiwan IX ID -21.45
MSCI Thailand IX GD 19.09
MSCI Thailand IX ID 18.74
MSCI Turkey IX GD -52.51
MSCI Turkey IX ID -53.53
MSCI UK IX GD 17.80
MSCI UK IX ID 14.84
MSCI UK IX ND 17.80
MSCI USA IX GD 30.72
MSCI USA IX ID 28.79
MSCI USA IX ND 30.14
MSCI Venezuela IX GD -49.16
MSCI Venezuela IX ID -52.69
MSCI World - UK IX GD 25.63
MSCI World - UK IX ID 23.73
MSCI World - UK IX ND 25.11
MSCI World - USA IX GD 19.11
MSCI World - USA IX ID 17.02
MSCI World - USA IX ND 18.76
MSCI World GDP Wt IX ID 25.61
MSCI World IX Free ID 22.82
MSCI World IX GD 24.80
MSCI World IX ID 22.78
MSCI World IX ND 24.34
MSCI Wrld - Austrl IX GD 25.03
MSCI Wrld - Austrl IX ID 23.03
MSCI Wrld - Austrl IX ND 24.58
Madrid SE:Pst IX P 37.19
NASDAQ 100 IX P 85.31
NASDAQ Bank IX P -11.77
NASDAQ Composite IX P 39.63
NASDAQ Industrial IX P 6.82
NASDAQ Insurance IX P -0.06
NASDAQ Natl Mkt Cmp IX 40.23
NASDAQ Natl Mkt Ind IX 6.27
NASDAQ Transport IX P -7.85
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
<S> <C> <C>
NYSE Composite P 16.55
NYSE Finance IX P 5.13
NYSE Industrials IX P 17.97
NYSE Transportation IX 3.46
NYSE Utilities IX P 33.04
Nikkei 225 Avg:Yen P -9.28
Oslo SE Tot:Fmk IX P N/A
PSE Technology IX P 54.60
Philippines Composite IX N/A
Russell 1000(R)Grow IX Tr 38.71
Russell 1000(R)IX P 25.12
Russell 1000(R)IX Tr 27.02
Russell 1000(R)Value IX Tr 15.63
Russell 2000(R)Grow IX Tr 1.23
Russell 2000(R)IX P -3.45
Russell 2000(R)IX Tr -2.55
Russell 2000(R)Value IX Tr -6.45
Russell 3000(R)IX P 22.32
Russell 3000(R)IX Tr 24.14
Russell Midcap(TM)Grow IX 17.86
Russell Midcap(TM)Inx Tr 10.09
Russell Midcap(TM)Value IX 5.09
S & P 100 Index P 31.33
S & P 500 Daily Reinv 28.58
S & P 500 Index P 26.67
S & P 500 Mnthly Reinv 28.60
S & P 600 Index P -2.10
S & P 600 Index Tr -1.31
S & P Financial IX Tr 11.43
S & P Financial Idx P 9.58
S & P Industrial IX Tr 33.71
S & P Industrials P 31.91
S & P Midcap 400 IX P 17.68
S & P Midcap 400 IX Tr 19.11
S & P Transport IX Tr -1.94
S & P Transport Index P -3.03
S & P Utility Index P 10.10
S & P Utility Index Tr 14.77
S & P/Barra Growth IX Tr 42.15
S & P/Barra Value IX Tr 14.68
S Afr All Mng:Rnd IX P 3.72
SB Cr-Hdg Nn-US Wd IX Tr 11.53
SB Cr-Hdg Wd Gv Bd IX Tr 11.03
SB Non-US Wd Gv Bd IX Tr 17.79
SB USD 3month Dom CD IX 5.74
SB USD 3month Euro CD IX 6.19
SB USD 3month Eurodep IX 5.74
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
<S> <C> <C>
SB USD 3month Tbill IX 5.11
SB Wd Gv Bd:Austrl IX Tr 3.88
SB Wd Gv Bd:Germny IX Tr 19.76
SB Wd Gv Bd:Japan IX Tr 15.85
SB Wd Gv Bd:UK IX Tr 20.88
SB Wd Gv Bd:US IX Tr 10.00
SB World Govt Bond IX Tr 15.31
SB World Money Mkt IX Tr 9.11
Straits Times Index -7.62
Swiss Perf:Sfr IX Tr 15.37
T-Bill 1 Year Index Tr 4.93
T-Bill 3 Month Index Tr 4.88
T-Bill 6 Month Index Tr 4.94
Taiwan SE:T$ IX P -15.56
Thailand Set Index -4.53
Tokyo 2nd Sct:Yen IX P N/A
Tokyo Se(Topix):Yen IX N/A
Toronto 300:C$ IX P -3.19
Toronto SE 35:C$ IX P -2.05
Value Line Cmp IX-Arth 5.82
Value Line Cmp IX-Geom -3.79
Value Line Industrl IX -7.27
Value Line Railroad IX -9.93
Value Line Utilties IX 7.61
Wilshire 4500 Index Tr 8.63
Wilshire 5000 (Cap Wt)Tr 23.43
Wilshire 5000 Index P 21.71
Wilshire Lg Cp Gro IX Tr N/A
Wilshire Lg Cp Val IX Tr N/A
Wilshire MD Cp Gro IX Tr N/A
Wilshire MD Cp Val IX Tr N/A
Wilshire Sm Cp Gro IX Tr -2.46
Wilshire Sm Cp Val IX Tr -4.87
THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUST:
Real Estate Investment Trust Index -7.60
SALOMON SMITH BARNEY:
10 Year U.S. Government (Sovereign) 10.00
10 Year United Kingdom (Sovereign) 19.55
10 Year France (Sovereign) 12.59
10 Year Germany (Sovereign) 10.94
10 Year Japan (Sovereign) 0.50
10 Year Canada (Sovereign) 9.41
</TABLE>
Each Russell Index listed above is a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
*in U.S. currency
35
<PAGE>
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Summary of Expenses
(b) Exhibits:
1. (a) Amendment No. 4 to the Agreement and Declaration
of Trust(a)
(b) Amendment No. 5 to the Agreement and Declaration
of Trust
2. Amended By-Laws (4/1/99)
3. Not Applicable
4. Form of Specimen of Share Certificate (b)
5.(a) Management Agreement
(b) Pricing and Bookkeeping Agreement
6.(a) Distribution Agreement with Liberty Funds
Distributor, Inc. - filed as Exhibit 6(a) in Part
C, Item 24 of Post-Effective Amendment No. 17
to the Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 and
811-6429), filed with the Commission on or about
May 24, 1999, and is hereby incorporated by
reference and made a part of this Registration
Statement
(b) 12b-1 Implementing Agreement between the
Registrant and Liberty Funds Distributor, Inc. -
filed as Exhibit 6(b) in Part C, Item 24
of Post-Effective Amendment No. 17
to the Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 and
811-6529), filed with the Commission on or about
May 24, 1999, and is hereby incorporated by
reference and made a part of this Registration
Statement
(c) Form of Selling Agreement - filed as Exhibit 6(b)
in Part C, Item 24(b) of Post-Effective Amendment
No. 49 to the Registration Statement on Form N-1A
of Colonial Trust I (File Nos. 2-41251 &
811-2214), filed with the Commission on or about
November 20, 1998, and is hereby incorporated by
reference and made a part of this Registration
Statement
<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. 4 to Appendix A of Global Custody
Agreement with The Chase Manhattan Bank
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) Amendment No. 12 to Schedule A of Amended and
Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit
(h)(2) in Part C, Item 23 of Post-Effective
Amendment No. 109 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 March 1, 1999, and is hereby
incorporated by reference and made a part of this
Registration Statement
<PAGE>
(c) Amendment No. 18 to Appendix I of Amended and
Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit
(h)(3) in Part C, Item 23 of Post-Effective
Amendment No. 109 to the Registration Statement
on Form N-1A of Colonial Trust II
(File Nos. 2-15184 and 811-881), filed with the
Commission on or about March 1, 1999, and is
hereby incorporated by reference and made a part
of this Registration Statement
(d) Administration Agreement
10. Opinion and Consent of Counsel(b)
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. Rule 12b-1 Distribution Plan -
filed as Exhibit 15 in Part
C, Item 24 of Post-Effective Amendment No. 17
to the Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 and
811-6529), filed with the Commission on or about
May 24, 1999, and is hereby incorporated by
reference and made a part of this Registration
Statement
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. 45 filed on March 21, 1997.
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
(1) (2)
---
<S> <C>
Title of Class Number of Record Holders as of 5/15/99
Shares of beneficial interest 0 Class Z record holders
</TABLE>
Item 27. Indemnification
See Article VIII of Amendment No. 4 to the Agreement and
Declaration of Trust filed as Exhibit 1 hereto.
The Registrant's adviser, Colonial Management Associates, Inc.
(Colonial), has an ICI Mutual Insurance Company Directors and
Officers/Errors and Omissions Liability insurance policy. The
policy provides indemnification to the Registrant's trustees and
officers.
17
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Liberty Asset Management Company ("LAMCO"), the fund manager of
the Colonial Counselor Select Portfolios, 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 Liberty Funds
Trust I, Liberty Funds Trust II, Liberty Funds Trust III, Liberty Funds
Trust IV, Liberty Funds Trust V, Liberty Funds Trust VI, Liberty Funds
Trust VII, Liberty Funds Trust IX, Liberty-Stein Roe Advisor Trust,
Stein Roe Income Trust, Stein Roe Municipal Trust, Stein Roe Investment
Trust, Stein Roe Floating Rate Income Fund, Stein Roe Institutional
Floating Rate Income Fund, SteinRoe Variable Investment Trust and
Stein Roe Trust.
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ------------------ ------------------- --------------
Anderson, Judith V.P. None
Anetsberger, Gary Sr. V.P. None
Babbitt, Debra V.P. and None
Comp. Officer
Ballou, Rick Sr. V.P. None
Bartlett, John Managing Director None
Blakeslee, James Sr. V.P. None
Blumenfeld, Alex V.P. None
Bozek, James Sr. V.P. None
Brown, Beth V.P. None
Burtman, Tracy V.P. None
Butch, Tom Sr. V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Clapp, Elizabeth A. Managing Director None
Conlin, Nancy L. Dir; Clerk Secretary
Davey, Cynthia Sr. V.P. None
Desilets, Marian V.P. Asst. Sec
Devaney, James Sr. V.P. None
Downey, Christopher V.P. None
Dupree, Robert V.P. None
Emerson, Kim P. Sr. V.P. None
Erickson, Cynthia G. Sr. V.P. None
Evans, C. Frazier Managing Director None
Feldman, David Managing Director None
Fifield, Robert V.P. None
Gariepy, Tom V.P. None
Gauger, Richard V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman President
of the Board
Goldberg, Matthew Sr. V.P. None
Gupta, Neeti V.P. None
Guenard, Brian V.P. None
Harrington, Tom Sr. V.P. None
Harris, Carla V.P. None
Hodgkins, Joseph Sr. V.P. None
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia V.P. None
Jones, Jonathan V.P. None
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Libutti, Chris V.P. None
Martin, John Sr. V.P. None
Martin, Peter V.P. None
McCombs, Gregory Sr. V.P. None
McKenzie, Mary V.P. None
Menchin, Catherine Sr. V.P. None
Miller, Anthony V.P. None
Moberly, Ann R. Sr. V.P. None
Morse, Jonathan V.P. None
Nickodemus, Paul V.P. None
O'Shea, Kevin Managing Director None
Piken, Keith V.P. None
Place, Jeffrey Managing Director None
Powell, Douglas V.P. None
Predmore, Tracy V.P. None
Quirk, Frank V.P. None
Raftery-Arpino, Linda Sr. V.P. None
Ratto, Gregory V.P. None
Reed, Christopher B. Sr. V.P. None
Riegel, Joyce V.P. None
Robb, Douglas V.P. None
Sandberg, Travis V.P. None
Santosuosso, Louise Sr. V.P. None
Schulman, David Sr. V.P. None
Shea, Terence V.P. None
Sideropoulos, Lou V.P. None
Sinatra, Peter V.P. None
Smith, Darren V.P. None
Soester, Trisha V.P. None
Studer, Eric V.P. None
Sweeney, Maureen V.P. None
Tambone, James CEO None
Tasiopoulos, Lou President None
VanEtten, Keith H. Sr. V.P. None
Walter, Heidi V.P. None
Wess, Valerie Sr. V.P. None
Young, Deborah V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
<PAGE>
Item 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 adviser, Liberty
Asset Management Company; Registrant's principal underwriter,
Liberty Funds Distributor, Inc.; Registrant's transfer and dividend
disbursing agent, Liberty Funds Services, Inc.; and the
Registrant's custodian, The Chase Manhattan Bank. The address for
each person except the Registrant's custodian is One Financial
Center, Boston, MA 02111. The address for The 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.
19
<PAGE>
************
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Liberty
Funds 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.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Liberty Funds Trust IV,
certifies that it meets all of the requirements for effectiveness of the
Registration Statement pursuant to Rule 485(b) and has duly caused this
Post-Effective Amendment No. 54 to its Registration Statement under the
Securities Act of 1933 and Amendment No. 52 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 24th day of May, 1999.
LIBERTY FUNDS TRUST IV
By: /s/ STEPHEN E. GIBSON
-------------------------------
Stephen E. Gibson, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in their
capacities and on the date indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
[S] [C] [C]
/s/ STEPHEN E. GIBSON President (chief May 24, 1999
- ----------------------- executive officer)
Stephen E. Gibson
/s/ TIMOTHY J. JACOBY Treasurer and Chief May 24, 1999
- ----------------------- Financial Officer
Timothy J. Jacoby
/s/ J. KEVIN CONNAUGHTON Controller and Chief May 24, 1999
- -------------------------- Accounting Officer
J. Kevin Connaughton
21
<PAGE>
ROBERT J. BIRNBAUM* Trustee
- --------------------------
Robert J. Birnbaum
TOM BLEASDALE* Trustee
- --------------------------
Tom Bleasdale
JOHN CARBERRY* Trustee
- --------------------------
John Carberry
LORA S. COLLINS* Trustee
- --------------------------
Lora S. Collins
JAMES E. GRINNELL* Trustee
- --------------------------
James E. Grinnell
RICHARD W. LOWRY* Trustee */s/ WILLIAM J. BALLOU
- -------------------------- ----------------------
Richard W. Lowry William J. Ballou
Attorney-in-fact
For each Trustee
SALVATORE MACERA* Trustee May 24, 1999
- --------------------------
Salvatore Macera
WILLIAM E. MAYER* Trustee
- --------------------------
William E. Mayer
JAMES L. MOODY, JR. * Trustee
- --------------------------
James L. Moody, Jr.
JOHN J. NEUHAUSER* Trustee
- --------------------------
John J. Neuhauser
THOMAS E. STITZEL* Trustee
- --------------------------
Thomas E. Stitzel
ROBERT L. SULLIVAN* Trustee
- --------------------------
Robert L. Sullivan
ANNE-LEE VERVILLE* Trustee
- --------------------------
Anne-Lee Verville
22
<PAGE>
EXHIBIT INDEX
1. (b) Amendment No. 5 to the Agreement and Declaration
of Trust
2. Amended By-Laws (4/1/99)
5. (a) Management Agreement
(b) Pricing and Bookkeeping Agreement
8. (b) Amendment No. 4 to Appendix A of Global Custody
Agreement with The Chase Manhattan Bank
9. (d) Administration Agreement
23
COLONIAL TRUST IV
COLONIAL COUNSELOR SELECTsm INCOME PORTFOLIO
COLONIAL COUNSELOR SELECTsm BALANCED PORTFOLIO
COLONIAL COUNSELOR SELECTsm GROWTH PORTFOLIO
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT ("Agreement"), made this 25th 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 Colonial Counselor Select Income Portfolio, Colonial Counselor Select
Balanced Portfolio, and Colonial Counselor Select Growth Portfolio
(collectively, the "Portfolios"), 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
Portfolios;
WHEREAS, each of the Portfolios invests all or substantially all of its
assets in one or more other open-end mutual funds ("Underlying Liberty Funds")
as described in the Portfolios' prospectus as amended from time to time (the
"Prospectus");
WHEREAS, the Trust desires that LAMCO allocate each of the Portfolio'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 Portfolios, 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 Portfolios, and LAMCO hereby agree as follows:
1. Services to be provided by LAMCO.
A. Asset Allocation Services.
LAMCO will manage the investment of the assets of the
Portfolios in accordance with each Portfolio's prospectus and statement of
additional information, including allocating and reallocating from time to time,
in its sole discretion, the assets of each Portfolio among one or more
Underlying Liberty Funds as it deems appropriate giving consideration to such
Portfolio'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 Portfolios 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 Portfolios 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 Portfolios 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 Portfolios), and that the Trust (or each of its funds (including
the Portfolios), 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
Portfolios) 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 Portfolios);
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
Portfolios);
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 Portfolios, 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 Portfolios 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 Portfolio, will pay LAMCO
monthly in arrears a fee at an annual rate equal to 0.01% of the net asset value
of such Portfolio. 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 Portfolio as determined in accordance
with the Prospectus as of the previous business day on which such Portfolio 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 July 1, 2000, 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 Portfolio 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 Portfolio) 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 Portfolios, the obligations thereunder shall be limited to the
respective assets of such Portfolios. LAMCO further agrees that it shall not
seek satisfaction of any such obligation from the shareholders of the
Portfolios, 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 Portfolios, 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.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
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
Colonial Counselor Select Income
Portfolio, Colonial Counselor Select
Balanced Portfolio, and Colonial
Counselor Select Growth Portfolio
By: Nancy L. Conlin
Title: Secretary
LIBERTY ASSET MANAGEMENT COMPANY
By: William R. Parmentier
Title:
PRICING AND BOOKKEEPING AGREEMENT
AGREEMENT dated as of January 25, 1999 between Colonial Trust IV, a
Massachusetts Business Trust (Trust), on behalf of each of Colonial Counselor
Selectsm Income Portfolio, Colonial Counselor Selectsm Balanced Portfolio and
Colonial Counselor Selectsm Growth Portfolio (collectively the "Portfolios"),
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 Portfolios 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 Portfolio'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 Portfolios, including all such accounting
records as the Portfolios 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 Portfolios for
reasonable audit, use and inspection by the Trust, its agents and any regulatory
agency having authority over the Portfolios.
4. Compensation. The Trust on behalf of each of the Portfolios will pay
Colonial a monthly fee of $300 per Portfolio, plus a monthly percentage fee on
the average daily net assets of the Portfolio 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 Portfolios 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 Portfolios, to any shareholder of the Trust or the
Portfolios 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 Portfolios. 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 COUNSELOR SELECT INCOME PORTFOLIO
COLONIAL COUNSELOR SELECT BALANCED PORTFOLIO
COLONIAL COUNSELOR SELECT GROWTH PORTFOLIO
BY: COLONIAL TRUST IV
By: J. Kevin Connaughton
Title: Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: Nancy L. Conlin
Title: 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 Portfolio.
ADMINISTRATION AGREEMENT
AGREEMENT dated as of January 25, 1999, between COLONIAL TRUST IV, a
Massachusetts business trust (the "Trust"), with respect to each of Colonial
Counselor Selectsm Income Portfolio, Colonial Counselor Selectsm Balanced
Portfolio, Colonial Counselor Selectsm Growth Portfolio (collectively the
"Portfolios"), 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
Portfolios 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 Portfolios 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 Portfolios; and (f) maintaining books and records of the
Portfolios (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 Portfolios,
by Liberty Asset Management Company ("LAMCO") under the Management
Agreement between LAMCO and the Trust on behalf of the Portfolios.
2. The Administrator shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
3. Each Portfolio shall pay the Administrator monthly a fee at the annual rate
of 0.0025% of the average daily net assets of such Portfolio.
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 Portfolios, to any shareholder of the Trust or
the Portfolios 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 Colonial Counselor Select Income
Portfolio, Colonial Counselor Select Balanced
Portfolio and Colonial Counselor Select Growth
Portfolio
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 Portfolio.
AMENDMENT NO. 5
TO THE
AGREEMENT AND DECLARATION OF TRUST
OF
COLONIAL TRUST IV
WHEREAS, Section 1 of Article I of the Agreement and Declaration of
Trust (Declaration of Trust) dated November 15, 1991, as amended, of Colonial
Trust IV (Trust), a copy of which is on file in the Office of the Secretary of
The Commonwealth of Massachusetts authorizes the Trustees of the Trust to amend
the Declaration of Trust to change the name of the Trust without authorization
by vote of Shareholders of the Trust.
WE, THE UNDERSIGNED, being a majority of the Trustees of Colonial Trust
IV, do hereby certify that the undersigned have determined to conduct the
business of the Trust under the name "Liberty Funds Trust IV" and have
authorized the following amendment to said Declaration of Trust:
Section 1 of Article I is hereby amended to read in its entirety as
follows:
Section 1. This Trust shall be known as "Liberty Funds Trust IV"
and the Trustees shall conduct the business of the Trust under that
name or any other name as they may from time to time determine.
The foregoing Amendment shall become effective as of April 1, 1999.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands in
the City of Boston, Massachusetts, for themselves and their assigns, as of this
April 1, 1999.
<TABLE>
<S> <C>
- ---------------------------------------------------------- -------------------------------------------------------
Robert J. Birnbaum William E. Mayer
- ---------------------------------------------------------- -------------------------------------------------------
Tom Bleasdale James L. Moody, Jr.
- ---------------------------------------------------------- -------------------------------------------------------
John V. Carberry John J. Neuhauser
- ---------------------------------------------------------- -------------------------------------------------------
Lora S. Collins Thomas E. Stitzel
- ---------------------------------------------------------- -------------------------------------------------------
James E. Grinnell Robert L. Sullivan
- ---------------------------------------------------------- -------------------------------------------------------
Richard W. Lowry Anne-Lee Verville
- ----------------------------------------------------------
Salvatore Macera
</TABLE>
Commonwealth of Massachusetts )
)ss.
County of Suffolk )
Then personally appeared the above-named Trustees and executed
Amendment No. 5 to the Agreement and Declaration of Trust of Colonial Trust IV
as their free act and deed, before me, this March 18, 1999.
Mary P. Mahoney
Notary Public
My Commission Expires: 2/22/2002
Amended 10/9/92 - Section 11
Amended 2/16/96 - Section 3.1, paragraph 2
Amended 4/1/99 - Name, Sec. 1.1
BY-LAWS
OF
LIBERTY FUNDS TRUST IV
Section 1. Agreement and Declaration of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to
the Agreement and Declaration of Trust, as from time to time in effect
(the "Declaration of Trust"), of Liberty Funds Trust IV, a
Massachusetts business trust established by the Declaration of Trust
(the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust shall
be located in Boston, Massachusetts.
-----------------------------
Section 2. Shareholders
2.1 Shareholder Meetings. A meeting of the shareholders of the Trust or of
any one or more series or classes of shares may be called at any time
by the Trustees, by the president or, if the Trustees and the president
shall fail to call any meeting of shareholders for a period of 30 days
after written application of one or more shareholders who hold at least
10% of all outstanding shares of the Trust, if shareholders of all
series are required under the Declaration of Trust to vote in the
aggregate and not by individual series at such meeting, or of any
series or class, if shareholders of such series or class are entitled
under the Declaration of Trust to vote by individual series or class at
such meeting, then such shareholders may call such meeting. If the
meeting is a meeting of the shareholders of one or more series or
classes of shares, but not a meeting of all shareholders of the Trust,
then only the shareholders of such one or more series or classes shall
be entitled to notice of and to vote at the meeting. Each call of a
meeting shall state the place, date, hour and purpose of the meeting.
2.2 Place of Meetings. All meetings of the shareholders shall be held at
the principal office of the Trust, or, to the extent permitted by the
Declaration of Trust, at such other place within the United States as
shall be designated by the Trustees or the president of the Trust.
2.3 Notice of Meetings. A written notice of each meeting of shareholders,
stating the place, date and hour and the purposes of the meeting, shall
be given at least seven days before the meeting to each shareholder
entitled to vote thereat by leaving such notice with him or her or at
his or her residence or usual place of business or by mailing it,
postage prepaid, and addressed to such shareholder at his or her
address as it appears in the records of the Trust. Such notice shall be
given by the secretary or an assistant secretary or by an officer
designated by the Trustees. No notice of any meeting of shareholders
need be given to a shareholder if a written waiver of notice, executed
before or after the meeting by such shareholder or his or her attorney
thereunto duly authorized, is filed with the records of the meeting.
2.4 Ballots. No ballot shall be required for any election unless requested
by a shareholder present or represented at the meeting and entitled to
vote in the election.
2.5 Proxies. Shareholders entitled to vote may vote either in person or by
proxy in writing dated not more than six months before the meeting
named therein, which proxies shall be filed with the secretary or other
person responsible to record the proceedings of the meeting before
being voted. Unless otherwise specifically limited by their terms, such
proxies shall entitle the holders thereof to vote at any adjournment of
such meeting but shall not be valid after the final adjournment of such
meeting. The placing of a shareholder's name on a proxy pursuant to
telephonic or electronically transmitted instructions obtained pursuant
to procedures reasonably designed to verify that such instructions have
been authorized by such shareholder shall constitute execution of such
proxy by or on behalf of such shareholder.
Section 3. Trustees
3.1 Committees and Advisory Board. The Trustees may appoint from their
number an executive committee and other committees. Except as the
Trustees may otherwise determine, any such committee may make rules for
conduct of its business. The Trustees may appoint an advisory board to
consist of not less than two nor more than five members. The members of
the advisory board shall be compensated in such manner as the Trustees
may determine and shall confer with and advise the Trustees regarding
the investments and other affairs of the Trust. Each member of the
advisory board shall hold office until the first meeting of the
Trustees following the next meeting of the shareholders and until his
or her successor is elected and qualified, or until he or she sooner
dies, resigns, is removed or becomes disqualified, or until the
advisory board is sooner abolished by the Trustees.
In addition, the Trustees may appoint a Dividend Committee of not less
than three persons, who may (but need not) be Trustees.
No special compensation shall be payable to members of the Dividend
Committee. Each member of the Dividend Committee will hold office until
the successors are elected and qualified or until the member dies,
resigns, is removed, becomes disqualified or until the Committee is
abolished by the Trustees.
3.2 Regular Meetings. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may
from time to time determine, provided that notice of the first regular
meeting following any such determination shall be given to absent
Trustees.
3.3 Special Meetings. Special meetings of the Trustees may be held at any
time and at any place designated in the call of the meeting, when
called by the president or the treasurer or by two or more Trustees,
sufficient notice thereof being given to each Trustee by the secretary
or an assistant secretary or by the officer or one of the Trustees
calling the meeting.
3.4 Notice. It shall be sufficient notice to a Trustee to send notice by
mail at least forty-eight hours or by telegram at least twenty-four
hours before the meeting addressed to the Trustee at his or her usual
or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before or after the
meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her. Neither notice of a
meeting nor a waiver of a notice need specify the purposes of the
meeting.
3.5 Quorum. At any meeting of the Trustees one-third of the Trustees then
in office shall constitute a quorum; provided, however, a quorum shall
not be less than two. Any meeting may be adjourned from time to time by
a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further
notice.
Section 4. Officers and Agents
4.1 Enumeration; Qualification. The officers of the Trust shall be a
president, a treasurer, a secretary and such other officers, if any, as
the Trustees from time to time may in their discretion elect or
appoint. The Trust may also have such agents, if any, as the Trustees
from time to time may in their discretion appoint. Any officer may be
but none need be a Trustee or shareholder. Any two or more offices may
be held by the same person.
4.2 Powers. Subject to the other provisions of these By-Laws, each officer
shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly
incident to his or her office as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as
the Trustees may from time to time designate, including without
limitation the power to make purchases and sales of portfolio
securities of the Trust pursuant to recommendations of the Trust's
investment adviser in accordance with the policies and objectives of
that series of shares set forth in its prospectus and with such general
or specific instructions as the Trustees may from time to time have
issued.
4.3 Election. The president, the treasurer and the secretary shall be
elected annually by the Trustees. Other elected officers are elected by
the Trustees. Assistant officers are appointed by the elected officers.
4.4 Tenure. The president, the treasurer and the secretary shall hold
office until their respective successors are chosen and qualified, or
in each case until he or she sooner dies, resigns, is removed or
becomes disqualified. Each other officer shall hold office at the
pleasure of the Trustees. Each agent shall retain his or her authority
at the pleasure of the Trustees.
4.5 President and Vice Presidents. The president shall be the chief
executive officer of the Trust. The president shall preside at all
meetings of the shareholders and of the Trustees at which he or she is
present, except as otherwise voted by the Trustees. Any vice president
shall have such duties and powers as shall be designated from time to
time by the Trustees.
4.6 Treasurer and Controller. The treasurer shall be the chief financial
officer of the Trust and subject to any arrangement made by the
Trustees with a bank or trust company or other organization as
custodian or transfer or shareholder services agent, shall be in charge
of its valuable papers and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the
president. Any assistant treasurer shall have such duties and powers as
shall be designated from time to time by the Trustees.
The controller shall be the chief accounting officer of the Trust and
shall be in charge of its books of account and accounting records. The
controller shall be responsible for preparation of financial statements
of the Trust and shall have such other duties and powers as may be
designated from time to time by the Trustees or the president.
4.7 Secretary and Assistant Secretaries. The secretary shall record all
proceedings of the shareholders and the Trustees in books to be kept
therefor, which books shall be kept at the principal office of the
Trust. In the absence of the secretary from any meeting of shareholders
or Trustees, an assistant secretary, or if there be none or he or she
is absent, a temporary clerk chosen at the meeting shall record the
proceedings thereof in the aforesaid books.
Section 5. Resignations and Removals
Any Trustee, officer or advisory board member may resign at any time by
delivering his or her resignation in writing to the president, the treasurer or
the secretary or to a meeting of the Trustees. The Trustees may remove any
officer elected by them with or without cause by the vote of a majority of the
Trustees then in office. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee, officer, or advisory board member
resigning, and no officer or advisory board member removed shall have any right
to any compensation for any period following his or her resignation or removal,
or any right to damages on account of such removal.
Section 6. Vacancies
A vacancy in any office may be filled at any time. Each successor shall hold
office for the unexpired term, and in the case of the presidents, the treasurer
and the secretary, until his or her successor is chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed or becomes
disqualified.
Section 7. Shares of Beneficial Interest
7.1 Share Certificates. No certificates certifying the ownership of shares
shall be issued except as the Trustees may otherwise authorize. In the
event that the Trustees authorize the issuance of share certificates,
subject to the provisions of Section 7.3, each shareholder shall be
entitled to a certificate stating the number of shares owned by him or
her, in such form as shall be prescribed from time to time by the
Trustees. Such certificate shall be signed by the president or a vice
president and by the treasurer or an assistant treasurer. Such
signatures may be facsimiles if the certificate is signed by a transfer
agent or by a registrar, other than a Trustee, officer or employee of
the Trust. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he or she were such officer at the
time of its issue.
In lieu of issuing certificates for shares, the Trustees or the
transfer agent may either issue receipts therefor or keep accounts upon
the books of the Trust for the record holders of such shares, who shall
in either case be deemed, for all purposes hereunder, to be the holders
of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to
the terms hereof.
7.2 Loss of Certificates. In the case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be
issued in place thereof, upon such terms as the Trustees may prescribe.
7.3 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written
notice to each shareholder, require the surrender of share certificates
to the Trust for cancellation. Such surrender and cancellation shall
not affect the ownership of shares in the Trust.
Section 8. Record Date and Closing Transfer Books
The Trustees may fix in advance a time, which shall not be more than 90 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or making of any other distribution to shareholders, as the record
date for determining the shareholders having the right to notice and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date; or without fixing such record date the
Trustees may for any of such purposes close the transfer books for all or any
part of such period.
Section 9. Seal
The seal of the Trust shall, subject to alteration by the Trustees, consist of a
flat-faced circular die with the word "Massachusetts" together with the name of
the Trust and the year of its organization, cut or engraved thereon; but, unless
otherwise required by the Trustees, the seal shall not be necessary to be placed
on, and its absence shall not impair the validity of, any document, instrument
or other paper executed and delivered by or on behalf of the Trust.
Section 10. Execution of Papers
Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be signed, and all transfers of securities standing in the name
of the Trust shall be executed, by the president or by one of the vice
presidents or by the treasurer or by whomsoever else shall be designated for
that purpose by the vote of the Trustees and need not bear the seal of the
Trust.
Section 11. Fiscal Year
Except as from time to time otherwise provided by the Trustees, President,
Secretary, Controller or Treasurer, the fiscal year of the Trust shall end on
November 30.
Section 12. Amendments
These By-Laws may be amended or repealed, in whole or in part, by a majority of
the Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such a majority.
AMENDMENT NO. 4 TO SCHEDULE A
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first-above written.
<TABLE>
<CAPTION>
CUSTOMER
Trust Series
<S> <C>
Liberty Funds Trust I Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Strategic Income Fund
Stein Roe Advisor Tax-Managed Growth Fund
Stein Roe Advisor Tax-Managed Value Fund
Liberty Funds Trust II Colonial Money Market Fund
Colonial Intermediate U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Newport Tiger Cub Fund
Newport Japan Opportunities Fund
Newport Greater China Fund
Liberty Funds Trust III Colonial Select Value Fund
The Colonial Fund
Colonial Federal Securities Fund
Colonial Global Equity Fund
Colonial International Horizons Fund
Colonial Global Utilities Fund
Colonial Strategic Balanced Fund
Liberty Funds Trust IV Colonial Tax-Exempt Fund
Colonial Tax-Exempt Insured Fund
Colonial Municipal Money Market Fund
Colonial High Yield Municipal Fund
Colonial Utilities Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Counselor Select Income Portfolio
Colonial Counselor Select Balanced Portfolio
Colonial Counselor Select Growth Portfolio
Liberty Funds Trust V Colonial Massachusetts Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial Ohio Tax-Exempt Fund
Colonial California Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
Liberty Funds Trust VI Colonial U.S. Growth & Income Fund
Colonial Small Cap Value Fund
Colonial Value Fund
Newport Asia Pacific Fund
Liberty Funds Trust VII Colonial Newport Tiger Fund
Colonial Intermediate High Income Fund
Colonial InterMarket Income Trust I
Colonial Municipal Income Trust
Colonial High Income Municipal Trust
Colonial Investment Grade Municipal Trust
<PAGE>
Liberty All-Star Growth Fund, Inc.
Liberty All-Star Equity Fund
Liberty Variable Investment
Trust Colonial Growth and Income Fund, Variable Series
Stein Roe Global Utilities Fund, Variable Series
Colonial International Fund for Growth, Variable Series
Colonial U.S. Stock Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Newport Tiger Fund, Variable Series
Liberty All-Star Equity Fund, Variable Series
Colonial High Yield Securities Fund, Variable Series
Colonial Small Cap Value Fund, Variable Series
</TABLE>
By: Nancy L. Conlin
June 1, 1999
THE CHASE MANHATTAN BANK
By:
Rosemary M. Stidmon
June 1, 1999
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