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. 58 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 56 [ X ]
LIBERTY FUNDS TRUST IV (F/K/A COLONIAL TRUST IV)
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Office)
(617) 426-3750
(Registrant's Telephone Number, Including Area Code)
Name and Address of Agent for Service: Copy to:
Nancy L. Conlin, Esquire John M. Loder, Esquire
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts 02110-2624
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b).
[ X ] on February 18, 2000 pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
LIBERTY FUNDS TRUST IV (F/K/A COLONIAL TRUST IV)
Cross Reference Sheet Pursuant to Rule 481(a)
Colonial Counselor Select Income Portfolio
Colonial Counselor Select Balanced Portfolio
Colonial Counselor Select Growth Portfolio
Classes A, B, C
<TABLE>
<CAPTION>
Item Number of Form N1A Prospectus Location or Caption
<S> <C>
PART A
1. Front Cover Page; Back Cover Page
2. The Portfolios; Underlying Liberty Funds, Other Investment
Strategies and Risks
3. The Portfolios
4. The Portfolios
5. Not Applicable
6. Front Cover Page; Managing the Portfolios; Your Account
7. Your Account
8. The Portfolios; Your Account
9. Financial Highlights
</TABLE>
<PAGE>
<PAGE>
COUNSELOR SELECT PORTFOLIOS
PROSPECTUS, FEBRUARY 18, 2000
- - COUNSELOR SELECT BALANCED PORTFOLIO
- - COUNSELOR SELECT GROWTH PORTFOLIO
- - COUNSELOR SELECT INCOME PORTFOLIO
CLASS A, B AND C SHARES
Advised by Liberty Asset Management Company
TABLE OF CONTENTS
THE PORTFOLIOS
Investment Goals.........................
Primary Investment Strategies............
Investment Highlights....................
Your Expenses............................
UNDERLYING LIBERTY FUNDS
Primary Investment Risks.................
Investment Goals and Primary Investment
Strategies...............................
YOUR ACCOUNT
How to Buy Shares........................
Sales Charges............................
How to Exchange Shares...................
How to Sell Shares.......................
Distribution and Service Fees............
Other Information About Your Account.....
MANAGING THE PORTFOLIOS
Investment Advisor.......................
Portfolio Managers.......................
Other Investment
Strategies and Risks.....................
FINANCIAL HIGHLIGHTS
Counselor Select Balanced Portfolio......
Counselor Select Growth Portfolio........
Counselor Select Income Portfolio........
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved any shares offered in
this prospectus or determined whether this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
Not FDIC May Lose Value
Insured No Bank Guarantee
<PAGE>
THE PORTFOLIOS
COUNSELOR SELECT PORTFOLIOS
2
<PAGE>
THE PORTFOLIOS
INVESTMENT GOALS
The Counselor Select Portfolios' investment goals are as follows:
Counselor Select Balanced Portfolio (Balanced Portfolio) seeks a balance of
long-term growth of capital and current income.
Counselor Select Growth Portfolio (Growth Portfolio) seeks long-term growth of
capital.
Counselor Select Income Portfolio (Income Portfolio) seeks current income.
The Counselor Select Portfolios include three mutual funds, each with its own
investment goal. The Counselor Select Portfolios include Counselor Select
Balanced Portfolio, Counselor Select Growth Portfolio and Counselor Select
Income Portfolio. The Counselor Select Portfolios do not invest directly in a
portfolio of securities; rather, in seeking to achieve their respective
investment goals, they invest in shares of underlying Liberty funds. Liberty
Asset Management Company (LAMCO) is the investment advisor to each of the
Counselor Select Portfolios.
PRIMARY INVESTMENT STRATEGIES
The pie charts below illustrate the asset allocation for each Portfolio
under normal market conditions:
[PIE CHARTS]
<TABLE>
<CAPTION>
BALANCED PORTFOLIO GROWTH PORTFOLIO INCOME PORTFOLIO
Allocation Ranges Allocation Ranges Allocation Ranges
<S> <C> <C> <C>
Stock Funds.......25% to 75% Stock Funds......60% to 100% Stock Funds........0% to 30%
Bond Funds........25% to 75% Bond Funds.........0% to 30% Bond Funds........60% to 100%
Money Market Funds...0 to 10% Money Market Funds...0 to 10% Money Market Funds...0 to 10%
</TABLE>
3
<PAGE>
THE PORTFOLIOS
LAMCO (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 and 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 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 underlying 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.
4
<PAGE>
THE PORTFOLIOS
INVESTMENT HIGHLIGHTS
The two principal 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 reward. 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 Balanced, Growth and Income 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 goals, time horizon, tolerance
for risk, and tax and financial circumstances.
<TABLE>
<CAPTION>
- ---------------- ---------------- -------------------- ---------------
<S> <C> <C> <C>
COUNSELOR SELECT POTENTIAL GROWTH OF RISK OF LOSS OF
PORTFOLIO POTENTIAL INCOME CAPITAL PRINCIPAL
- ---------------- ---------------- -------------------- ---------------
Balanced Medium Medium Medium
- ---------------- ---------------- -------------------- ---------------
Growth Low High High
- ---------------- ---------------- -------------------- ---------------
Income High Negligible Medium
- ---------------- ---------------- -------------------- ---------------
</TABLE>
There is no assurance that the Counselor Select Portfolios will achieve their
stated investment goals. 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
5
<PAGE>
THE PORTFOLIOS
funds, in turn, depends on the performance of the stock, bond and money markets
in the United States and in foreign countries 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.
6
<PAGE>
THE PORTFOLIOS
UNDERLYING LIBERTY FUNDS
Set forth below are the underlying Liberty funds in which the Counselor Select
Portfolios may invest and the investment advisors for each fund:
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------
UNDERLYING LIBERTY FUNDS INVESTMENT ADVISOR
STOCK FUNDS:
- ---------------------------------------- ----------------------------------
<S> <C>
Stein Roe Growth & Income Fund Stein Roe & Farnham Incorporated (Stein Roe)
- ---------------------------------------- ----------------------------------
Stein Roe Growth Stock Fund Stein Roe
- ---------------------------------------- ----------------------------------
Stein Roe Capital Opportunities Fund Stein Roe
- ---------------------------------------- ----------------------------------
Stein Roe Small Company Growth Fund Stein Roe
- ---------------------------------------- ----------------------------------
Colonial U.S. Growth & Income Fund Colonial Management Associates, Inc. (Colonial)
- ---------------------------------------- ----------------------------------
Colonial Small Cap Value Fund Colonial
- ---------------------------------------- ----------------------------------
Colonial International Horizons Fund Colonial
- ---------------------------------------- ----------------------------------
Colonial Value Fund Colonial
- ---------------------------------------- ----------------------------------
Colonial Select Value Fund Colonial
- ---------------------------------------- ----------------------------------
Colonial Utilities Fund Colonial
- ---------------------------------------- ----------------------------------
Crabbe Huson Real Estate Investment Fund Crabbe Huson Group, Inc. (Crabbe Huson)
- ---------------------------------------- ----------------------------------
Newport Asia Pacific Fund Newport Fund Management, Inc. (Newport)
- ---------------------------------------- ----------------------------------
Newport Europe Fund Newport
- ---------------------------------------- ----------------------------------
Newport Tiger Fund Newport
- ---------------------------------------- ----------------------------------
BOND FUNDS:
- ---------------------------------------- ----------------------------------
Colonial Strategic Income Fund Colonial
- ---------------------------------------- ----------------------------------
Colonial High Yield Securities Fund Colonial
- ---------------------------------------- ----------------------------------
Colonial Income Fund Colonial
- ---------------------------------------- ----------------------------------
Colonial Intermediate U.S. Government Fund Colonial
- ---------------------------------------- ----------------------------------
Crabbe Huson Contrarian Income Fund Crabbe Huson
- ---------------------------------------- ----------------------------------
Stein Roe Intermediate Bond Fund Stein Roe
- ---------------------------------------- ----------------------------------
MONEY MARKET FUND:
- ---------------------------------------- ----------------------------------
Colonial Money Market Fund Colonial
- ---------------------------------------- ----------------------------------
</TABLE>
The underlying Liberty funds' investment goals and primary investment strategies
are described in Appendix A.
7
<PAGE>
THE PORTFOLIOS
PRIMARY INVESTMENT RISKS OF UNDERLYING LIBERTY FUNDS
There are many circumstances (including additional risks that are not described
here) which could prevent the Counselor Select Portfolios from achieving their
goals. It is possible to lose money by investing in the Counselor Select
Portfolios. The risks of investing in the Portfolios generally are the same
risks that are associated with the underlying Liberty funds in which the
Portfolios invest. The primary risks of investing in the underlying Liberty
funds are described below:
Market risk (applicable to all underlying Liberty funds) is the risk that the
price of a security held by the underlying Liberty fund will fall due to
changing market, economic or political conditions.
Interest rate risk (applicable to Colonial Strategic Income Fund, Colonial High
Yield Securities Fund, Colonial Income Fund, Colonial Intermediate U.S.
Government Fund, Stein Roe Intermediate Bond Fund, Colonial Money Market Fund,
Crabbe Huson Contrarian Income Fund) is the risk of a change in the price of a
bond when interest rates increase or decline. In general, if interest rates
rise, bond prices fall; and if interest rates fall, bond prices rise. Changes in
the values of bonds usually will not affect the amount of income the underlying
Liberty fund receives from them but will affect the value of the underlying
Liberty fund's shares. Interest rate risk is generally greater for bonds with
longer maturities.
Value stocks are (applicable to Colonial U.S. Growth & Income
Fund, Colonial Small Cap Value Fund, Colonial Value Fund, Newport Asia Pacific
Fund, Colonial Select Value Fund) securities of companies that may have
experienced adverse business or industry developments or may be subject to
special risks that have caused the stocks to be out of favor. If the portfolio
manager's assessment of a company's prospects is wrong, the price of its stock
may not approach the value the advisor has placed on it.
Smaller companies (applicable to Colonial Small Cap Value Fund, Colonial Select
Value Fund, Newport Asia Pacific Fund, Stein Roe Capital Opportunities Fund,
8
<PAGE>
THE PORTFOLIOS
Stein Roe Small Company Growth Fund) are more likely than larger companies to
have limited product lines, operating histories, markets or financial resources.
They may depend heavily on a small management team. Stocks of small companies
may trade less frequently, in smaller volumes and fluctuate more sharply in
price than stocks of larger companies. In addition, they may not be widely
followed by the investment community, which can lower the demand for their
stock.
Foreign securities (applicable to Stein Roe Growth & Income Fund, Stein Roe
Growth Stock Fund, Stein Roe Capital Opportunities Fund, Colonial International
Horizons Fund, Colonial Utilities Fund, Newport Asia Pacific Fund, Newport
Europe Fund, Colonial Strategic Income Fund, Newport Tiger Fund, Colonial High
Yield Securities Fund, Colonial Income Fund, Colonial Money Market Fund)
are subject to special risks. Foreign stock
markets can be extremely volatile. Fluctuations in currency exchange rates may
impact the value of foreign securities. The liquidity of foreign securities may
be more limited than domestic securities, which means that the underlying
Liberty fund may, at times, be unable to sell foreign securities at desirable
prices. Brokerage commissions, custodial fees and other fees are generally
higher for foreign investments. In addition, foreign governments may impose
withholding taxes which would reduce the amount of income available to
distribute to shareholders. Other risks include the following: possible delays
in the settlement of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events; and possible
seizure, expropriation or nationalization of the company or its assets.
Emerging markets (applicable to Colonial International Horizons Fund, Newport
Asia Pacific Fund, Colonial Strategic Income Fund, Newport Tiger Fund, Newport
Europe Fund, Colonial High Yield Securities Fund, Colonial Income Fund) are also
subject to additional risk. The risks of foreign investments are typically
increased in less developed countries, which are sometimes referred to as
emerging markets. For example, political and economic structures in these
countries may be new and developing rapidly, which may cause instability. These
countries are also more likely to experience high levels of inflation, deflation
or currency devaluations, which could hurt their economies and securities
markets.
In cases where the underlying Liberty fund's (applicable to Newport Asia Pacific
Fund, Newport Tiger Fund, Newport Europe Fund) investments are concentrated
9
<PAGE>
THE PORTFOLIOS
in one particular region, the underlying Liberty fund is particularly
susceptible to regional risks. Events in any one country may impact the other
countries or the region as a whole. As a result, events in the region will
generally have a greater effect on the underlying Liberty fund than if the
underlying Liberty fund were more geographically diversified, which may result
in greater losses and volatility. Recently, the markets in each of the Asian
countries have suffered significant downturns and significant volatility.
Increased social or political unrest in some or all of these countries could
cause further economic and market uncertainty.
Utility company securities (applicable to Colonial Utilities Fund)are subject
to special risks. These securities are especially affected by changes in
interest rates as well as by general competitive and market forces in the
industry. As interest rates increase, the value of securities of utility
companies tends to decrease, and vice versa. In addition, utility companies are
affected by changes in government regulation. In particular, the profitability
of utilities may in the future be adversely affected by increased competition
resulting from deregulation.
Equity real estate investment trusts (REITs) (applicable to Crabbe Huson Real
Estate Investment Fund) are entities which
either own properties or make construction or mortgage loans. Equity REITs may
also include operating or finance companies. Investing in REITs involves certain
unique risks in addition to those risks associated with the real estate industry
in general. The prices of equity REITs are affected by changes in the value of
the underlying property owned by the REITs. REITs are subject to heavy cash flow
dependency and default by borrowers. In addition, although the underlying
Liberty fund does not invest directly in real estate, a REIT investment by an
underlying Liberty fund is subject to certain of the risks associated with the
ownership of real estate. These risks include possible declines in the value of
real estate, risks related to general and local economic conditions, possible
lack of availability of mortgage funds and changes in interest rates.
In cases where the underlying Liberty fund (applicable to Colonial Strategic
Income Fund, Colonial High Yield Securities Fund, Colonial Income Fund, Colonial
Money Market Fund, Crabbe Huson Contrarian Income Fund) may invest in debt
securities issued by private entities, including corporate bonds and privately
issued mortgage-backed and asset backed securities, the underlying Liberty fund
is subject to
10
<PAGE>
THE PORTFOLIOS
issuer risk. Issuer risk is the possibility that changes in the financial
condition of the issuer of a security, changes in general economic conditions,
or changes in economic conditions that affect the issuer may impact it's ability
to make timely payments of interest or principal. This could result in decrease
in the price of the security.
In cases where an underlying Liberty fund is a non-diversified mutual fund
(applicable to Newport Asia Pacific Fund, Colonial International Horizons Fund),
it is allowed to invest a greater percentage of its total assets in the
securities of a single issuer. This may concentrate risk and, therefore, the
underlying Liberty fund may have an increased risk of loss compared to a similar
diversified mutual fund.
Lower rated debt securities (applicable to Colonial Strategic Income Fund,
Colonial High Yield Securities Fund, Colonial Income Fund, Stein Roe
Intermediate Bond Fund) involve greater risk
of loss due to credit deterioration and are less liquid, especially during
periods of economic uncertainty or change, than higher quality debt securities.
Lower-rated debt securities have the added risk that the issuer of the security
may default and not make payment of interest or principal.
Structure risk (applicable to Stein Roe Intermediate Bond Fund, Colonial
Intermediate U.S. Government Fund, Crabbe Huson Contrarian
Income Fund) is the risk that an event will occur (such as a security being
prepaid or called) that alters the security's cash flows. Prepayment risk is a
particular type of structure risk that is present in an underlying Liberty fund
because of its investments in mortgage-backed securities. Prepayment risk is the
possibility that, as interest rates fall, homeowners are more likely to
refinance their home mortgages. When mortgages are refinanced, the principal on
mortgage-backed securities is paid earlier than expected. In an environment of
declining interest rates, mortgage-backed securities may offer less potential
for gain than other debt securities. During periods of rising interest rates,
mortgage-backed securities have a high risk of declining in price because the
declining prepayment rates effectively increase the maturity of the securities.
In addition, the potential impact of prepayment on the price of a
mortgage-backed security may be difficult to predict and result in greater
volatility.
Short sales (applicable to Stein Roe Small Company Growth Fund) are subject to
special risks. A short sale involves the sale by the underlying Liberty fund of
shares of a security that it does not
11
<PAGE>
THE PORTFOLIOS
own with the hope of purchasing the same shares at a later date at a lower
price. In order to deliver the security to the buyer, the underlying Liberty
fund borrows the security from a third party. The underlying Liberty fund is
then obligated to return the security to the third party, so the underlying
Liberty fund must purchase the security at the market price
at a later point in time. If the price of the security has increased during this
time, then the underlying Liberty fund will incur a loss equal to the increase
in price of the security from the time that the short sale was entered into plus
any premiums and interest paid to the third party. Therefore, short sales
involve the risk that losses may be exaggerated, potentially losing more
money than the actual cost of the security. Also, there is the risk that the
third party to the short sale may fail to honor its contract terms,
causing a loss to the underlying Liberty fund.
An investment in the Colonial Money Market Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Additionally, the Colonial Money Market Fund's yield will vary as the short-term
securities in its portfolio mature and the proceeds are reinvested in securities
with different interest rates. Because of the policy of investing at least 25%
of assets in securities of issuers in the financial service industry, the
Colonial Money Market Fund may be affected more adversely than competing funds
by changes affecting the industry.
One or more of the underlying Liberty funds may participate in an interfund
lending program, which allows them to lend money to and borrow money from other
funds advised by the advisor. They will do so when the advisor believes such
lending or borrowing is necessary and appropriate. Borrowing costs will be the
same as or lower than the costs of a bank loan.
PERFORMANCE
- --------------------------------------------------------------------------------
Because the Counselor Select Portfolios commenced investment operations on
January 29, 1999, and have not completed one full year of investment
performance, information related to each Portfolio's performance has not been
included in this prospectus.
12
<PAGE>
THE PORTFOLIOS COUNSELOR SELECT BALANCED PORTFOLIO
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Balanced Portfolio's distributor.
ANNUAL PORTFOLIO OPERATING EXPENSES are deducted from the Balanced Portfolio.
They include management fees, 12b-1 fees, brokerage costs, and administrative
costs including pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Balanced
Portfolio to the cost of investing in other mutual funds. The table does not
take into account any expense reduction arrangements discussed in the footnotes
to the Annual Portfolio Operating Expenses table. It uses the following
hypothetical conditions:
- - $10,000 initial investment
- - 5% total return for each year
- - Portfolio operating expenses remain
the same
- - Assumes reinvestment of all dividends and distributions
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Balanced Portfolio.
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
- ------------------------------------------------- ----------- --------- ----------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
lesser of purchase price or redemption price) 1.00(2) 5.00 1.00
- ------------------------------------------------- ----------- --------- ----------
Redemption fee (%) (as a percentage of amount
redeemed, if applicable) (3) (3) (3)
</TABLE>
ANNUAL PORTFOLIO(4) OPERATING EXPENSES (DEDUCTED DIRECTLY FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee(5) (%) 0.01 0.01 0.01
- ------------------------------------------------- ----------- --------- ----------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
- ------------------------------------------------- ----------- --------- ----------
Other expenses(5) (%) 0.67 0.67 0.67
- ------------------------------------------------- ----------- --------- ----------
Total annual portfolio operating expenses(5) (%) 0.93 1.68 1.68
- ------------------------------------------------- ----------- --------- ----------
</TABLE>
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
<TABLE>
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $665 $855 $1,061 $1,665
-------------------------------------- -------- --------- --------- ----------
Class B: did not sell your shares $171 $530 $ 914 $1,790
sold all your shares at
the end of the period $671 $830 $1,114 $1,790
-------------------------------------- --------- --------- --------- ----------
Class C: did not sell your shares $171 $530 $ 914 $1,990
sold all your shares at
the end of the period $271 $530 $ 914 $1,990
</TABLE>
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
(4) The Balanced Portfolio bears its own pro rata share of the fees and
expenses incurred by the underlying Liberty funds. The investment return
will be net of the Balanced Portfolio's pro rata share of the expenses of
the underlying Liberty funds in which it invests. Based on the expense
ratio of each underlying Liberty fund, adjusted to reflect current fees
and fee waivers in effect, as of its most recent fiscal year end, the
ranges for the average weighted expense ratio per annum borne by the
Balanced Portfolio, including its pro rata share of expenses of the
underlying Liberty funds, is expected to be between 0.904% to 1.165%.
(5) The Balanced Portfolio's advisor has voluntarily agreed to waive advisory
fees and reimburse the Balanced Portfolio for certain expenses so that
the total annual portfolio operating expenses (exclusive of distribution
and service fees, brokerage commissions, interest, taxes and extraordinary
expenses, if any) will not exceed 0.05%. As a result, the actual
management fees for each share class would be 0.00%, other expenses for
each share class would be 0.05% and total annual portfolio operating
expenses for Class A, B and C shares would be 0.30%, 1.05% and 1.05%,
respectively.
13
<PAGE>
THE PORTFOLIOS CONSELOR SELECT GROWTH PORTFOLIO
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Growth Portfolio's distributor.
ANNUAL PORTFOLIO OPERATING EXPENSES are deducted from the Growth Portfolio.
They include management fees, 12b-1 fees, brokerage costs, and administrative
costs including pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Growth Portfolio
to the cost of investing in other mutual funds. The table does not take into
account any expense reduction arrangements discussed in the footnotes to the
Annual Portfolio Operating Expenses table. It uses the following hypothetical
conditions:
- - $10,000 initial investment
- - 5% total return for each year
- - Portfolio operating expenses remain the same
- - Assumes reinvestment of all dividends and distributions
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Growth Portfolio.
SHAREHOLDER FEES (6) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
- ------------------------------------------------- ----------- ---------- ----------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
lesser of purchase price or redemption price) 1.00(7) 5.00 1.00
- ------------------------------------------------- ----------- ---------- ----------
Redemption fee (%) (as a percentage of amount
redeemed, if applicable) (8) (8) (8)
ANNUAL PORTFOLIO(9) OPERATING EXPENSES (DEDUCTED DIRECTLY FROM PORTFOLIO ASSETS)
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee(10) (%) 0.01 0.01 0.01
- ------------------------------------------------- ----------- ---------- ----------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
- ------------------------------------------------- ----------- ---------- ----------
Other expenses(10) (%) 0.77 0.77 0.77
- ------------------------------------------------- ----------- ---------- ----------
Total annual portfolio operating expenses(10) (%) 1.03 1.78 1.78
- ------------------------------------------------- ----------- ---------- ----------
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
</TABLE>
<TABLE>
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $674 $885 $ 112 $1,765
- --------------------------------------- ------- ---------- ---------- ----------
Class B: did not sell your shares $181 $562 $ 967 $1,903
sold all your shares at
the end of the period $681 $862 $1,167 $1,903
--------------------------------------- ------- --------- ---------- ----------
Class C: did not sell your shares $181 $562 $ 967 $2,100
sold all your shares at
the end of the period $281 $562 $ 967 $2,100
</TABLE>
(6) A $10 annual fee is deducted from accounts of less than $1,000 and paid
to the transfer agent.
(7) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(8) There is a $7.50 charge for wiring sale proceeds to your bank.
(9) The Growth Portfolio bears its own pro rata share of the fees and
expenses incurred by the underlying Liberty funds. The investment
return will be net of the Growth Portfolio's pro rata share of the
expenses of the underlying Liberty funds in which it invests. Based on
the expense ratio of each underlying Liberty fund, adjusted to reflect
current fees and fee waivers in effect, as of its most recent fiscal
year end, the ranges for the average weighted expense ratio per annum
borne by the Growth Portfolio, including its pro rata share of expenses
of the underlying Liberty funds, is expected to be between
1.068% to 1.256%.
(10) The Growth Portfolio's advisor has voluntarily agreed to waive advisory
fees and reimburse the Growth Portfolio for certain expenses so that
the total annual portfolio operating expenses (exclusive of
distribution and service fees, brokerage commissions, interest, taxes
and extraordinary expenses, if any) will not exceed 0.05%. As a result,
the actual management fees for each share class would be 0.00%, other
expenses for each share class would be 0.05% and total annual portfolio
operating expenses for Class A, B and C shares would be 0.30%, 1.05%
and 1.05%, respectively.
14
<PAGE>
THE PORTFOLIOS CONSELOR SELECT INCOME PORTFOLIO
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Income Portfolio's distributor.
ANNUAL PORTFOLIO OPERATING EXPENSES are deducted from the Income Portfolio.
They include management fees, 12b-1 fees, brokerage costs, and administrative
costs including pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Income Portfolio
to the cost of investing in other mutual funds. The table does not take into
account any expense reduction arrangements discussed in the footnotes to the
Annual Portfolio Operating Expenses table. It uses the following hypothetical
conditions:
- - $10,000 initial investment
- - 5% total return for each year
- - Portfolio operating expenses remain
the same
- - Assumes reinvestment of all dividends and distributions
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Income Portfolio.
SHAREHOLDER FEES (11) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
- ------------------------------------------------- -------- -------- ---------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
lesser purchase price or redemption price) 1.00(12) 5.00 1.00
- ------------------------------------------------- -------- -------- ---------
Redemption fee (%) (as a percentage of amount
redeemed, if applicable) (13) (13) (13)
</TABLE>
ANNUAL PORTFOLIO (14) OPERATING EXPENSES (DEDUCTED DIRECTLY FROM PORTFOLIO
ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee(15) (%) 0.01 0.01 0.01
- ------------------------------------------------- -------- -------- ---------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
- ------------------------------------------------- -------- -------- ---------
Other expenses(15) (%) 1.52 1.52 1.52
- ------------------------------------------------- -------- -------- ---------
Total annual portfolio operating expenses(15) (%) 1.78 2.53 2.53
- ------------------------------------------------- -------- -------- ---------
</TABLE>
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
<TABLE>
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $647 $1,009 $1,394 $2,472
- ---------------------------------- ---- ------- ------- -------
Class B: did not sell your shares $257 $789 $1,347 2,686
sold all your shares at ---- ------- ------- -------
the end of the period $757 $1,089 $1,547 2,686
- ---------------------------------- ---- ------- ------- -------
Class C: did not sell your shares $257 $789 $1,347 $2,869
sold all your shares at ---- ------- ------- -------
the end of the period $357 $789 $1,347 $2,869
---- ------- ------- -------
</TABLE>
11) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(12) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(13) There is a $7.50 charge for wiring sale proceeds to your bank.
(14) The Income Portfolio bears its own pro rata share of the fees and
expenses incurred by the underlying Liberty funds. The investment
return will be net of the Income Portfolio's pro rata share of the
expenses of the underlying Liberty funds in which it invests. Based on
the expense ratio of each underlying Liberty fund, adjusted to reflect
current fees and fee waivers in effect, as of its most recent fiscal
year end, the ranges for the average weighted expense ratio per annum
borne by the Income Portfolio, including its pro rata share of expenses
of the underlying Liberty funds, is expected to be between 0.892% to
0.959%.
(15) The Income Portfolio's advisor has voluntarily agreed to waive advisory
fees and reimburse the Income Portfolio for certain expenses so that
the total annual portfolio operating expenses (exclusive of
distribution and service fees, brokerage commissions, interest, taxes
and extraordinary expenses, if any) will not exceed 0.05%. As a result,
the actual management fees for each share class would be 0.00%, other
expenses for each share class would be 0.05% and total annual
portfolio operating expenses for Class A, B and C shares would be
0.30%, 1.05% and 1.05%, respectively.
15
<PAGE>
YOUR ACCOUNT
INVESTMENT MINIMUMS(16)
Initial Investment.............$1,000
Subsequent Investments............$50
Automatic Investment Plan.........$50
Retirement Plans..................$25
HOW TO BUY SHARES
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When a Portfolio receives
your purchase request in "good form," your shares will be bought at the next
calculated public offering price. "Good form" means that you placed your order
with your brokerage firm or your payment has been received and your application
is complete, including all necessary signatures.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your Your financial advisor can help you establish your
financial advisor account and buy Portfolio shares on your behalf.
- --------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Portfolio to the transfer agent,
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
- --------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or
send a letter of instruction including your Portfolio name
and account number with a check made payable to the
Portfolio to Liberty Funds Services, Inc., P.O. Box 1722,
Boston, MA 02105-1722.
- --------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares by
exchanging shares you own in one fund for shares of the
same class of the Portfolio at no additional cost. There
may be an additional charge if exchanging from a money
market fund. To exchange by telephone, call
1-800-422-3737.
- --------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank
account to your fund account. To wire funds to your fund
account, call 1-800-422-3737 to obtain a control number
and the wiring instructions.
- --------------------------------------------------------------------------------
By electronic You may purchase shares by electronically transferring
funds transfer money from your bank account to your fund account by
calling 1-800-422-3737. Electronic funds transfers may
take up to two business days to settle and be considered
in "good form." You must set up this feature prior to your
telephone request. Be sure to complete the appropriate
section of the application.
- --------------------------------------------------------------------------------
Automatic You can make monthly or quarterly investments
investment plan automatically from your bank account to your fund account.
You can select a pre-authorized amount to be sent via
electronic funds transfer. Be sure to complete the
appropriate section of the application for this feature.
- --------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by one
diversification fund into the same class of shares of the Portfolio at no
additional sales charge. To invest your dividends in
another fund, call 1-800-345-6611.
</TABLE>
(16) Each Portfolio reserves the right to change the investment minimums. Each
Portfolio also reserves the right to refuse a purchase order for any
reason, including if it believes that doing so would be in the best
interest of the Portfolio and its shareholders.
16
<PAGE>
YOUR ACCOUNT
CHOOSING A SHARE CLASS
The Portfolios offer three classes of shares in this prospectus -- CLASS A, B
and C. Each share class has its own sales charge and expense structure.
Determining which share class is best for you depends on the dollar amount you
are investing and the number of years for which you are willing to invest.
Purchases of $250,000 or more but less than $1 million can be made only in Class
A or Class C shares. Purchases of $1 million or more are automatically invested
in Class A shares. Based on your personal situation, your investment advisor can
help you decide which class of shares makes the most sense for you.
The Portfolios also offer an additional class of shares, Class
Z shares, exclusively to certain institutional and other investors. Class Z
shares are made available through a separate prospectus provided to eligible
institutional and other investors.
SALES CHARGES
You may be subject to an initial sales charge when you purchase, or a contingent
deferred sales charge (CDSC) when you sell, shares of a Portfolio. These sales
charges are described below. In certain circumstances, these sales charges are
waived, as described below and in the Statement of Additional Information.
CLASS A SHARES Your purchases of Class A shares generally are at the public
offering price. This price includes a sales charge that is based on the amount
of your initial investment when you open your account. A portion of the sales
charge is the commission paid to the financial advisor firm on the sale of Class
A shares. The sales charge is the commission paid to the financial advisor firm
on the sale of Class A shares. The sales charge you pay on additional
investments is based on the total amount of your purchase and the current value
of your account. The amount of the sales charge differs depending on the amount
you invest as shown in the tables below.
BALANCED AND GROWTH PORTFOLIOS
<TABLE>
<CAPTION>
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTMENT ADVISOR FIRM
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00
- --------------------------------- ------- ------- ------
$ 50,000 to less than $100,000 4.50 4.71 3.75
- --------------------------------- ------- ------- ------
$100,000 to less than $250,000 3.50 3.63 2.75
- --------------------------------- ------- ------- ------
$250,000 to less than $500,000 2.50 2.56 2.00
- --------------------------------- ------- ------- ------
$500,000 to less than $1,000,000 2.00 2.04 1.75
- --------------------------------- ------- ------- ------
$1,000,000 or more(17) 0.00 0.00 0.00
- --------------------------------- ------- ------- ------
</TABLE>
INCOME PORTFOLIO
<TABLE>
<CAPTION>
% OF
OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTMENT ADVISOR FIRM
<S> <C> <C> <C>
Less than $50,000 4.75 4.99 4.25
- --------------------------------- ------- ------- ------
$ 50,000 to less than $100,000 4.50 4.71 4.00
- --------------------------------- ------- ------- ------
$100,000 to less than $250,000 3.50 3.63 3.00
- --------------------------------- ------- ------- ------
$250,000 to less than $500,000 2.50 2.56 2.00
- --------------------------------- ------- ------- ------
$500,000 to less than $1,000,000 2.00 2.04 1.75
- --------------------------------- ------- ------- ------
$1,000,000 or more(17) 0.00 0.00 0.00
- --------------------------------- ------- ------- ------
</TABLE>
(17) Class A shares bought without an initial sales charge in accounts
aggregating $1 million to $5 million at the time of purchase are subject
to a 1% CDSC if the shares are sold within 18 months of the time of
purchase. Subsequent Class A share purchases that bring your account value
above $1 million are subject to a 1% CDSC if redeemed within 18 months of
their purchase date. The 18-month period begins on the first day of the
month following each purchase.
17
<PAGE>
YOUR ACCOUNT
For Class A share purchases of $1 million or more, financial advisors receive a
commission from the distributor as follows:
Purchases Over $1 Million
<TABLE>
<CAPTION>
AMOUNT PURCHASED COMMISSION %
<S> <C>
First $3 million 1.00
- ---------------- ---------
Next $2 million 0.50
- ---------------- ---------
Over $5 million 0.25(18)
- ---------------- ---------
</TABLE>
REDUCED SALES CHARGES FOR LARGER INVESTMENTS There are two ways for you to pay
a lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Portfolio accounts maintained by
you, your spouse or your minor children reaches a discount level (according to
the chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge on the amount you had invested to that
date. In addition, certain investors may purchase shares at a reduced sales
charge or net asset value (NAV), which is the value of a fund share excluding
any sales charges. See the Statement of Additional Information for a description
of these situations.
CLASS B SHARES Your purchases of Class B shares are at the Portfolios' NAV.
Class B shares have no front-end sales charge, but they do carry a CDSC that is
imposed only on shares sold prior to the completion of the periods shown in the
chart below. The CDSC generally declines each year and eventually disappears
over time. Class B shares automatically convert to Class A shares after eight
years. The distributor pays the financial advisor firm an up-front commission of
5.00% for the Balanced and Growth Portfolios and 3.00% for the Income Portfolio
on sales of Class B shares.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES (CDSC)
Certain investments in Class A, B and C shares are subject to a CDSC, a sales
charge applied at the time you sell your shares. You will pay the CDSC only on
shares you sell within a certain amount of time after purchase. The CDSC
generally declines each year until there is no charge for selling shares. The
CDSC is applied to the net asset value at the time of purchase or sale,
whichever is lower. For purposes of calculating the CDSC, the start of the
holding period is the month-end of the month in which the purchase is made.
Shares you purchase with reinvested dividends or capital gains are not subject
to a CDSC. When you place an order to sell shares, the Portfolio will
automatically sell first those shares not subject to a CDSC and then those you
have held the longest. This policy helps reduce and possibly eliminate the
potential impact of the CDSC.
(18) Paid over 12 months but only to the extent the shares remain outstanding.
18
<PAGE>
YOUR ACCOUNT
The Portfolios
<TABLE>
<CAPTION>
HOLDING PERIOD AFTER PURCHASE % DEDUCTED WHEN
SHARES ARE SOLD
<S> <C>
Through first year 5.00
- -------------------------- ------------
Through second year 4.00
- -------------------------- ------------
Through third year 3.00
- -------------------------- ------------
Through fourth year 3.00
- -------------------------- ------------
Through fifth year 2.00
- -------------------------- ------------
Through sixth year 1.00
- -------------------------- ------------
Longer than six years 0.00
- -------------------------- ------------
</TABLE>
19
<PAGE>
YOUR ACCOUNT
CLASS C SHARES Similar to Class B shares, your purchases of Class C shares are
at the Portfolios' NAV. Although Class C shares have no front-end sales charge,
they carry a CDSC of 1.00% that is applied to shares sold within the first year
after they are purchased. After holding shares for one year, you may sell them
at any time without paying a CDSC. The distributor pays the financial advisor
firm an up-front commission of 1.00% on sales of Class C shares.
THE PORTFOLIOS
<TABLE>
<CAPTION>
YEARS AFTER PURCHASE % DEDUCTED WHEN SHARES ARE SOLD
<S> <C>
Through first year 1.00
- --------------------------------------------------------------------------------
Longer than one year 0.00
</TABLE>
20
<PAGE>
YOUR ACCOUNT
HOW TO EXCHANGE SHARES
You may exchange your shares for shares of the same share class of another
Counselor Select Portfolio distributed by Liberty Funds Distributor, Inc. at
net asset value. If your shares are subject to a CDSC, you will not be charged
a CDSC upon the exchange. However, when you sell the shares acquired through
the exchange, the shares sold may be subject to a CDSC, depending upon when you
originally purchased the shares you exchanged. For purposes of computing the
CDSC, the length of time you have owned your shares will be computed from the
date of your original purchase and the applicable CDSC will be the CDSC of the
original fund. Unless your account is part of a tax-deferred retirement plan,
an exchange is a taxable event. Therefore, you may realize a gain or a loss for
tax purposes. A Portfolio may terminate your exchange privilege if the advisor
determines that your exchange activity is likely to adversely impact its ability
to manage the Portfolio. To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of a Portfolio on any regular business day that the
New York Stock Exchange (NYSE) is open.
When a Portfolio receives your sales request in "good form," shares will be sold
at the next calculated price. In "good form" means that money used to purchase
your shares is fully collected. When selling shares by letter of instruction,
"good form" also means (i) your letter has complete instructions, the proper
signatures and signature guarantees, (ii) you have included any certificates for
shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement plan accounts
have special requirements; please call 1-800-799-7526 for more information.
The Portfolios will generally send proceeds from the sale to you within seven
days (usually on the next business day after your request is received in "good
form"). However, if you purchased your shares by check, a Portfolio may delay
sending the proceeds from the sale of your shares for up to 15 days after your
purchase to protect against checks that are returned. No interest will be paid
on uncashed redemption checks.
21
<PAGE>
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your You may call your financial advisor to place your sell
financial advisor To receive the current trading day's price, your financial
advisor firm must receive your request prior to the close
of the NYSE, usually 4:00 p.m. Eastern time.
- --------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by
exchanging from a Portfolio into the same share class of
another fund at no additional cost. To exchange by
telephone, call 1-800-422-3737.
- --------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone
and request that a check be sent to your address of record
by calling 1-800-422-3737, unless you have notified the
Portfolio of an address change within the previous 30
days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-345-6611.
- --------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power
form along with any certificates to be sold to the address
below. In your letter of instruction, note the Portfolio's
name, share class, account number, and the dollar value or
number of shares you wish to sell. All account owners must
sign the letter, and signatures must be guaranteed by
either a bank, a member firm of a national stock exchange
or another eligible guarantor institution. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Liberty Funds Services,
Inc., P.O. Box 1722, Boston, MA 02105-1722.
- --------------------------------------------------------------------------------
By wire You may sell shares and request that the proceeds be wired
to your bank. You must set up this feature prior to your
telephone request. Be sure to complete the appropriate
section of the account application for this feature.
- --------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may take
up to two business days to be received by your bank. You
must set up this feature prior to your request. Be sure to
complete the appropriate section of the account
application for this feature.
</TABLE>
DISTRIBUTION AND SERVICE FEES
Each Portfolio has adopted a plan under Rule 12b-1 that permits it to pay
marketing and other fees to support the sale and distribution of Class A, B and
C shares and the services provided to you by your financial advisor. The annual
distribution fee and service fee may equal up to 0.00% and 0.25%, respectively,
for Class A shares and 0.75% and 0.25%, respectively, for each of Class B and
Class C shares and are paid out of the assets of these classes. Over time, these
fees will increase the cost of your shares and may cost you more than paying
other types of sales charges.(19)
(19) Class B shares automatically convert to Class A shares after eight
years, eliminating the distribution fee upon conversion.
22
<PAGE>
YOUR ACCOUNT
OTHER INFORMATION ABOUT YOUR ACCOUNT
HOW A PORTFOLIO'S SHARE PRICE IS DETERMINED The price of each class of a
Portfolio's shares is based on its net asset value (NAV). The NAV is determined
at the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time, on
each business day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the NAV (plus any
applicable sales charges) next determined after your request is received in
"good form" by the distributor. In most cases, in order to receive that day's
price, the distributor must receive your order before that day's transactions
are processed. If you request a transaction through your financial advisor's
firm, the firm must receive your order by the close of trading on the NYSE to
receive that day's price.
Each Portfolio determines its NAV for each share class by dividing each class'
total net assets by the number of that class' shares outstanding. In determining
the NAV, each Portfolio must determine the price of each security in its
portfolio at the close of each trading day. Because the Portfolios hold
securities that are traded on foreign exchanges, the value of the Portfolios'
securities may change on days when shareholders will not be able to buy or sell
Portfolio shares. This will affect the Portfolios' NAV on the day it is next
determined. Securities for which market quotations are available are valued each
day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Portfolios may use other data to determine the fair value of the
securities.
You can find the daily prices of some share classes for each Portfolio in most
major daily newspapers under the caption "Liberty." You can find daily prices
for all share classes by visiting the Portfolios' web site at
www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Portfolios' transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
SHARE CERTIFICATES Share certificates are not available for Class B and C
shares. Certificates will be issued for Class A shares only if requested. If you
decide to hold share certificates, you will not be able to sell your shares
until you have endorsed your certificates and returned them to the distributor.
23
<PAGE>
YOUR ACCOUNT
UNDERSTANDING PORTFOLIO DISTRIBUTIONS
Each Portfolio earns income from the securities it holds. Each Portfolio also
may realize capital gains and losses on sales of its securities. Each Portfolio
distributes substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of a Portfolio's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
Dividends, Distributions, and Taxes The Portfolios have the potential to make
the following distributions:
TYPES OF DISTRIBUTIONS
<TABLE>
<S> <C>
Dividend Represents interest and dividends earned from securities
held by the Portfolios.
- --------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains which are gains on sales of securities held
for a 12-month period or less.
</TABLE>
DISTRIBUTION OPTIONS The Balanced Portfolio distributes dividends quarterly and
any capital gains (including short-term capital gains) at least annually. You
can choose one of the options listed in the table below for these distributions
when you open your account.(20) To change your distribution option call
1-800-345-6611.
DISTRIBUTION OPTIONS The Growth Portfolio distributes dividends annually and any
capital gains (including short-term capital gains) at least annually. You can
choose one of the options listed in the table below for these distributions when
you open your account.(20) To change your distribution option call
1-800-345-6611.
DISTRIBUTION OPTIONS The Income Portfolio distributes dividends monthly and any
capital gains (including short-term capital gains) at least annually. You can
choose one of the options listed in the table below for these distributions when
you open your account.(20) To change your distribution option call
1-800-345-6611.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current portfolio
- --------------------------------------------------------------------------------
Reinvest all distributions in shares of another portfolio
- --------------------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest capital gains(21)
- --------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options)(21) :
- - send the check to your address of record
- - send the check to a third party address
- - transfer the money to your bank via electronic funds transfer
(20) If you do not indicate on your application your preference for handling
distributions, a Portfolio will automatically reinvest all
distributions in additional shares of the Portfolio.
(21) Distributions of $10 or less will automatically be reinvested in
additional Portfolio shares. If you elect to receive distributions by
check and the check is returned as undeliverable, or if you do not cash
a distribution check within six months of the check date, the
distribution will be reinvested in additional shares of the Portfolio.
24
<PAGE>
YOUR ACCOUNT
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Portfolio shares, all Portfolio distributions are
subject to federal income tax. Depending on the state where you live,
distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital
gains are taxable as ordinary income. Distributions of long-term capital gains
are generally taxable as such, regardless of how long you have held your
Portfolio shares. You will be provided with information each year regarding the
amount of ordinary income and capital gains distributed to you for the previous
year and any portion of your distribution which is exempt from state and local
taxes. Your investment in a Portfolio may have additional personal tax
implications. Please consult your tax advisor on foreign, federal, state, local
or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each
Portfolio, you may realize a capital gain or loss when selling and exchanging
shares of a Portfolio. Such transactions may be subject to federal, state and
local income tax.
25
<PAGE>
MANAGING THE PORTFOLIOS
INVESTMENT ADVISOR
Liberty Asset Management Company (LAMCO), located at 600 Atlantic Avenue,
Boston, Massachusetts 02210-2214, is the Portfolios' investment advisor. In its
duties as investment advisor, LAMCO runs the Portfolios' day-to-day business,
including placing all orders for the purchase and sale of each Portfolio's
portfolio securities. LAMCO has been an investment advisor since 1985. As of
January 31, 2000, LAMCO managed over $1.7 billion in assets.
For the 1999 fiscal year, aggregate advisory fees paid to LAMCO by the Balanced,
Growth and the Income Portfolios amounted to 0.00% of average daily net assets
of each Portfolio.
PORTFOLIO MANAGERS
WILLIAM R. PARMENTIER, president, senior vice president and chief investment
officer of LAMCO, is a co-manager of the Counselor Select Portfolios and has
co-managed the Counselor Select Portfolios since they commenced operations in
January, 1999. Prior to joining LAMCO in April, 1995, Mr. Parmentier was chief
investment officer of Grumman Corporation from December, 1974 to July, 1993
and president of GQ Asset Management from July, 1993, to October, 1994.
CHRISTOPHER S. CARABELL, a senior vice president-investments of LAMCO, is a
co-manager of the Counselor Select Portfolios and has co-managed the Counselor
Select Portfolios since they commenced operations in January, 1999. Prior to
joining LAMCO in March, 1996, Mr. Carabell 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.
26
<PAGE>
UNDERSTANDING THE PORTFOLIOS'
OTHER INVESTMENTS AND RISKS
The Portfolios' primary investments and risks are described under "The
Portfolios - Primary Investment Strategies" and "The Portfolios - Primary
Investment Risks." In seeking to meet their investment goals, the underlying
Liberty funds may also invest in other securities and use certain investment
techniques. These securities and investment techniques offer opportunities and
carry various risks.
Each underlying Liberty fund may elect not to buy any of these securities or use
any of these techniques unless they believe that doing so will help the
underlying Liberty fund achieve its investment goal(s). The underlying Liberty
funds may not always achieve their investment goals.
Additional information about the underlying Liberty funds' securities and
investment techniques, as well as the underlying Liberty funds' fundamental and
non-fundamental investment policies, is contained in the Statement of Additional
Information.
OTHER INVESTMENT STRATEGIES AND RISKS
Each of the underlying Liberty fund's primary investment strategies and their
associated risks are described above. This section describes other investments
an underlying Liberty fund may make and the risks associated with them. In
seeking to achieve its goal(s), an underlying Liberty fund may invest in various
types of securities and engage in various investment techniques which are not
the principal focus of the underlying Liberty funds and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Counselor Select Portfolios' Statement of
Additional Information, which you may obtain free of charge (see back cover).
DERIVATIVE STRATEGIES (COLONIAL HIGH YIELD SECURITIES FUND, COLONIAL STRATEGIC
INCOME FUND, COLONIAL INCOME FUND, COLONIAL INTERMEDIATE U.S. GOVERNMENT FUND,
STEIN ROE INTERMEDIATE BOND FUND)
An underlying Liberty fund may enter into a number of hedging strategies,
including those that employ futures and options, to gain or reduce exposure to
particular securities or markets. These strategies, commonly referred to as
derivatives, involve the use of financial instruments whose value depend on, or
are derived from, the value of an underlying security, index or currency. An
underlying Liberty fund may use these strategies to adjust the underlying
Liberty fund's sensitivity to changes in interest rates or for other hedging
purposes (i.e., attempting to offset a potential loss in one position by
establishing an interest in an opposite position). Derivative strategies involve
the risk that they may exaggerate a loss, potentially losing more money than the
actual cost of the derivative, or limit a potential gain. Also, with some
derivative strategies there is the risk that the other party to the transaction
may fail to honor its contract terms, causing a loss to the underlying Liberty
fund.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLLS (COLONIAL STRATEGIC
INCOME FUND, COLONIAL INTERMEDIATE U.S. GOVERNMENT FUND, STEIN ROE INTERMEDIATE
BOND FUND)
When-issued securities and forward commitments are securities that are purchased
prior to the date they are actually issued or delivered. These securities
involve the risk that they may fall in value by the time they are actually
issued or that the other party may fail to honor the contract terms. In a dollar
roll, an underlying Liberty fund sells a security and simultaneously enters into
a commitment to purchase a similar security at a later date. Dollar rolls also
involve the risk that the other party may not honor the contract terms.
27
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
ZERO COUPON BONDS (COLONIAL HIGH YIELD SECURITIES FUND, COLONIAL STRATEGIC
INCOME FUND, COLONIAL INCOME FUND, STEIN ROE INTERMEDIATE BOND FUND)
Zero coupon bonds do not pay interest in cash on a current basis, but instead
accrue interest over the life of the bond. As a result, these securities are
issued at a deep discount. The value of these securities may fluctuate more than
similar securities that pay interest periodically. Although these securities pay
no interest to holders prior to maturity, interest on these securities is
reported as income to an underlying Liberty fund and distributed to its
shareholders.
ASSET-BACKED SECURITIES (STEIN ROE INTERMEDIATE BOND FUND)
Asset-backed securities are interests in pools of debt securities backed by
various types of loans such as credit card, auto and home equity loans. These
securities involve prepayment risk, which is the possibility that the underlying
debt may be refinanced or prepaid prior to maturity during periods of declining
interest rates. During periods of rising interest rates, asset-backed securities
have a high risk of declining in price because the declining prepayment rates
effectively increase the maturity of the securities. A decline in interest rates
may lead to a faster rate of repayment on asset-backed securities and therefore,
cause an underlying Liberty fund to earn a lower interest rate on reinvestment.
In addition, the potential impact of prepayment on the price of an asset-backed
security may be difficult to predict and result in greater volatility.
MORTGAGE-BACKED SECURITIES (STEIN ROE INTERMEDIATE BOND FUND)
Mortgage-backed securities are securities that represent ownership interests in
large, diversified pools of mortgage loans. Sponsors pool together mortgages of
similar rates and terms and offer them as a security to investors.
Most mortgage securities are pooled together and structured as pass-throughs.
Monthly payments of principal and interest from the underlying mortgage loans
backing the pool are collected by a service and "passed through" regularly to
the investor. Pass-through can have a fixed or an adjustable rate. The majority
of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae,
and Freddie Mac.
TEMPORARY DEFENSIVE STRATEGIES (COLONIAL HIGH YIELD SECURITIES FUND, COLONIAL
STRATEGIC INCOME FUND, COLONIAL INCOME FUND, COLONIAL INTERMEDIATE U.S.
GOVERNMENT FUND, STEIN ROE INTERMEDIATE BOND FUND, STEIN ROE GROWTH & INCOME
FUND, STEIN ROE GROWTH STOCK FUND, STEIN ROE CAPITAL OPPORTUNITIES FUND, STEIN
ROE SMALL COMPANY GROWTH FUND)
At times, the advisor may determine that adverse market conditions make it
desirable to temporarily suspend an underlying Liberty fund's normal investment
activities. During such times, the underlying Liberty fund may, but is not
required to, invest in cash or high quality, short-term debt securities, without
limit. Taking a temporary defensive position may prevent an underlying Liberty
fund from achieving its investment goals.
28
<PAGE>
OTHER INVESTMENTS STRATEGIES AND RISKS
29
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolios' financial performance. Information is shown for the period January
29, 1999 (inception date) to November 30, 1999. Certain information reflects
financial results for a single Portfolio share. The total returns in the table
represent the rate that you would have earned (or lost) on an investment in the
Portfolios (assuming reinvestment of all dividends and distributions). This
information is included in the Portfolios' financial statements which have been
audited by Ernst & Young LLP, independent auditors, whose report, along with the
Portfolios' financial statements, is included in the Portfolios' annual report.
You can request a free annual report by calling 1-800-426-3750.
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Period ended November 30, (b)
1999
Class A Class B Class C
<S> <C> <C> <C>
Net asset value -- Beginning of period ($) 10.000 10.000 10.000
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment income (a)(c) 0.256 0.192 0.191
- -----------------------------------------------------------------------------------
Net realized and unrealized gain 0.232 0.251 0.262
- -----------------------------------------------------------------------------------
Total from Investment Operations 0.488 0.443 0.453
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($):
From net investment income (0.158) (0.113) (0.113)
- -----------------------------------------------------------------------------------
Net asset value -- End of period ($) 10.330 10.330 10.340
- -----------------------------------------------------------------------------------
Total return (%) (d)(e)(f) 4.93 4.47 4.56
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses (g)(h) 0.30 1.05 1.05
- -----------------------------------------------------------------------------------
Net investment income (g)(h) 2.98 2.23 2.23
- -----------------------------------------------------------------------------------
Fees and expenses waived or borne by the
Advisor/Administrator (g)(h) 0.63 0.63 0.63
- -----------------------------------------------------------------------------------
Portfolio turnover (%) (f) 20 20 20
- -----------------------------------------------------------------------------------
Net assets at end of period (000) ($) 8,789 12,892 6,626
- -----------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the Advisor/Administrator which amounted
to: 0.055 0.055 0.055
</TABLE>
(b) The Fund commenced investment operations on January 29, 1999.
(c) Per share data calculated using average shares outstanding during the
period.
(d) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(e) Had the Advisor and Administrator (Colonial Management Associates,
Inc.) not waived or reimbursed a portion of expenses, total return
would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits had no impact.
(h) Annualized.
30
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Period ended November 30,(b)
1999
Class A Class B Class C
<S> <C> <C> <C>
Net asset value -- Beginning of period ($) 10.000 10.000 10.000
- --------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment income (a)(c) 0.132 0.067 0.067
- --------------------------------------------------------------------------------------
Net realized and unrealized gain 0.798 0.803 0.793
- --------------------------------------------------------------------------------------
Total from Investment Operations 0.930 0.870 0.860
- --------------------------------------------------------------------------------------
Net asset value -- End of period ($) 10.930 10.870 10.860
- --------------------------------------------------------------------------------------
Total return (%) (d)(e)(f) 9.30 8.70 8.60
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses (g)(h) 0.30 1.05 1.05
- --------------------------------------------------------------------------------------
Net investment income (g)(h) 1.49 0.74 0.74
- --------------------------------------------------------------------------------------
Fees and expenses waived or borne by the
Advisor/Administrator (g)(h) 0.73 0.73 0.73
- --------------------------------------------------------------------------------------
Portfolio turnover (%) (f) 7 7 7
- --------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 9,209 8,706 5,859
- --------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne by
the Advisor/Administrator which amounted to:
0.065 0.065 0.065
</TABLE>
(b) The Fund commenced investment operations on January 29, 1999.
(c) Per share data calculated using average shares outstanding during the
period.
(d) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(e) Had the Advisor and Administrator(Colonial Management Associates, Inc.)
not waived or reimbursed a portion of expenses, total return would
have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits had no impact.
(h) Annualized.
31
<PAGE>
FINANCIAL HIGHLIGHTS
INCOME PORTFOLIO
<TABLE>
<CAPTION>
Period ended November 30, (b)
1999
Class A Class B Class C
<S> <C> <C> <C>
Net asset value -- Beginning of period ($) 10.000 10.000 10.000
- --------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment income (a)(c) 0.441 0.380 0.380
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (0.516) (0.526) (0.496)
- --------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.075) (0.146) (0.116)
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($):
From net investment income (0.415) (0.354) (0.354)
- --------------------------------------------------------------------------------------------------------
Net asset value -- End of period ($) 9.510 9.500 9.530
- --------------------------------------------------------------------------------------------------------
Total return (%) (d)(e)(f) (0.74) (1.46) (1.16)
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses (g)(h) 0.30 1.05 1.05
- --------------------------------------------------------------------------------------------------------
Net investment income (g)(h) 5.44 4.69 4.69
- --------------------------------------------------------------------------------------------------------
Fees and expenses waived or borne by the
Advisor/Administrator (g)(h) 1.48 1.48 1.48
- --------------------------------------------------------------------------------------------------------
Portfolio turnover (%) (f) 34 34 34
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 4,799 3,144 2,453
- --------------------------------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne by
the Advisor/Administrator which amounted to:
0.120 0.120 0.120
</TABLE>
(b) The Fund commenced investment operations on January 29, 1999.
(c) Per share data calculated using average shares outstanding during the
period.
(d) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(e) Had the Adviso and Administrator (Colonial Management Associates, Inc.)
not waived or reimbursed a portion of expenses, total return would
have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits had no impact.
(h) Annualized.
32
<PAGE>
APPENDIX A
INVESTMENT GOALS AND PRIMARY INVESTMENT STRATEGIES
OF UNDERLYING LIBERTY FUNDS
The underlying Liberty funds' investment goals and primary investment strategies
are as follows:
Stein Roe Growth & Income Fund seeks to provide both growth of capital and
current income. The Fund invests all of its assets in SR&F Growth & Income
Portfolio as part of a master fund/feeder fund structure. SR&F Growth & Income
Portfolio invests primarily in common stocks of well-established companies
having large - market capitalizations. The SR&F Growth & Income Portfolio may
also invest in companies having midsized market capitalizations. The SR&F Growth
& Income Portfolio may invest up to 25% of its assets in foreign stocks. To
select investments for the SR&F Growth & Income Portfolio, the portfolio manager
looks for common stocks that have the potential to appreciate in value and to
pay dividends. The portfolio manager focuses on the stocks of companies that
have experienced management; broad, highly diversified product lines; deep
financial resources; easy access to credit; and a history of paying dividends.
Stein Roe Growth Stock Fund seeks long-term growth. The fund invests all of its
assets in SR&F Growth Stock Portfolio as part of a master fund/feeder fund
structure. SR&F Growth Stock Portfolio invest primarily in the common stocks of
companies with large market capitalizations. The SR&F Growth Stock Portfolio
emphasizes the technology, financial services, health care and global consumer
franchise sectors. The SR&F Growth Stock Portfolio may invest up to 25% of its
assets in foreign stocks. To select investments for the SR&F Growth Stock
Portfolio, the portfolio manager considers companies that he believes will
generate earnings growth over the long term regardless of the economic
environment.
Stein Roe Capital Opportunities Fund seeks long-term growth. The Fund invests
primarily in the common stocks of aggressive growth companies. An aggressive
growth company has the ability to increase its earnings at an above-average
rate. To select stocks for the Fund, the portfolio manager concentrates on
stocks of small and midcapitalization companies which he believes have
opportunities for growth. The Fund may invest up to 25% of its assets in foreign
stocks.
Stein Roe Small Company Fund seeks long-term growth. Under normal market
conditions, the Fund invests at least 65% of its assets in common stocks of
small-cap companies. The Fund may invest in new issuers during periods when new
issues are being brought to market. The Fund may also invest in midcap
companies. The Fund invests in companies that compete within large growing
markets and that have the ability to grow their market share. To find companies
with these growth characteristics, the portfolio manager seeks out companies
that are or, in the portfolio manager's judgment, have the potential to be a
market share leader within their respective industry. He also loos for companies
with strong management teams that participate in the ownership of the companies.
Colonial U.S. Growth & Income Fund seeks long-term growth and income. Under
normal market conditions, the Fund invests at least 65% of its total assets in
common
33
<PAGE>
APPENDIX A
stocks of U.S. companies with equity market capitalizations at the time
of purchase in excess of $3 billion. Up to 35% of the Fund's total assets may be
invested in common stocks of U.S. companies with equity market capitalizations
at the time of purchase between $1 billion and $3 billion. Also, up to 10% of
the Fund's total assets may be invested in a combination of (i) convertible
bonds, (ii) corporate bonds that are rated investment grade and (iii) U.S.
Government securities. When purchasing securities for the Fund, the advisor may
choose securities of companies it believes are undervalued.
34
<PAGE>
APPENDIX A
Colonial Small Cap Value Fund seeks long-term growth by investing primarily in
smaller capitalization equities. Under normal market conditions, the Fund
invests at least 65% of its total assets in small capitalization stocks. Small
capitalization stocks are stocks which have market values at the time of
investment of between $20 million and the largest market capitalization in the
Russell 2000 Index. In addition, any stock that is a member of the S&P Small Cap
600 Index is considered a small capitalization stock. When purchasing securities
for the Fund, the advisor may choose securities of companies it believes are
undervalued. In managing the Fund, the advisor follows a value investing
approach in selecting stocks for its portfolio. When purchasing securities for
the Fund, the advisor may choose securities of companies it believes are
undervalued.
Colonial International Horizons Fund seeks preservation of capital purchasing
power and long-term growth. Under normal market conditions, the Fund invests at
least 65% of its total assets in the equity securities of inflation sensitive
companies located outside the United States. The Fund's foreign investments may
include securities of companies located in emerging market countries. 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.
Colonial Value Fund seeks long-term growth and current income. Under normal
market conditions, the Fund seeks to achieve its investment goals by investing
primarily in income-producing equity securities. The Fund invests at least 65%
of its total assets in equity securities. The Fund may also invest up to 35% of
its total assets in debt securities. In managing the Fund, the advisor follows a
value investing approach in selecting stocks for its portfolio. When purchasing
securities for the Fund, the advisor may choose securities of companies it
believes are undervalued.
Colonial Select Value Fund seeks long-term growth. The Fund invests, under
normal market conditions, primarily in middle capitalization stocks. Middle
capitalization stocks are stocks with market capitalizations between $400
million and the largest stock in the Russell Mid Cap Index at the time of
purchase. In addition, any stock that is a member of the S&P Mid Cap 400 Index
is considered a middle capitalization stock. In managing the Fund, the advisor
follows a value investing approach in selecting stocks for its portfolio. When
purchasing securities for the Fund, the advisor may choose securities of
companies it believes are undervalued.
Colonial Utilities Fund seeks current income and long-term growth The Fund
invests primarily in securities of U.S. utility companies. The Fund invests in
both equity and preferred securities of utility companies. In addition, the
advisor may invest up to 20% of the Fund's assets in foreign utility company
securities. In selecting investments for the Fund, the advisor looks primarily
for stocks of larger utility companies with established records.
Crabbe Huson Real Estate Investment Fund seeks to provide growth of capital and
current income. Under normal market conditions, the Fund invests at least 75% of
its total assets in equity securities of real estate investment trusts (REITs)
and other real estate industry companies. In managing the Fund, the advisor
follows a basic value, contrarian approach in selecting securities for its
portfolio.
35
<PAGE>
APPENDIX A
REITs are pooled investment vehicles that invest primarily in income producing
real estate or real estate loans or interest. The Fund's REIT investments will
consist primarily of equity REITs which invest the majority of their assets
directly in real estate and derive income primarily from rents.
Other real estate industry companies in which the Fund may invest are companies
that derive at least 50% of their revenues or profits from either (a) the
ownership, development, construction, 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.
Newport Asia Pacific Fund seeks long-term growth. Under normal market
conditions, the Fund invests at least 80% of its total assets in stocks of
companies whose principal activities are in Asia or the Pacific Basin. These
countries may include Australia, Hong Kong, India, Indonesia, Japan, Malaysia,
New Zealand, the People's Republic of China, the Philippines, Singapore, South
Korea, Taiwan and Thailand. Under normal market conditions, the Fund intends to
invest a significant portion of its assets in companies whose principal
activities are in Japan and Hong Kong (including Chinese issuers whose
securities trade principally in Hong Kong markets). The advisor will determine
where a company's principal activities are located by considering its country of
organization, the principal trading market for its stocks and the source of its
revenues and location of its assets. The Fund may invest in stocks of companies
of any size, whose earnings, the advisor believes, are in a strong growth trend
or are undervalued.
Newport Europe Fund seeks long-term growth. Under normal market conditions, the
Fund invests at least 65% of its total assets in equity securities of European
issuers. The Fund invests primarily in medium and large-sized companies.
Medium-sized companies are companies with market capitalizations between $400
million and the largest stock in the Russell Mid Cap Index at the time of
purchase. In addition, any stock that is a member of the S&P Mid Cap 400 Index
is considered a middle capitalization stock. Large-sized companies are companies
with market capitalizations of $1 billion or more at the time of purchase. The
Fund will focus on investments in the developed countries of Europe, however, it
may also invest in companies located in emerging market countries. When
selecting stocks for the Fund's portfolio, the advisor utilizes a growth
investment strategy. The advisor looks for companies which it believes have
long-term earnings growth potential.
Newport Tiger Fund seeks capital appreciation. Under normal market conditions,
the Fund invests primarily in stocks of companies located in the nine Tiger
countries of Asia. The Tigers of Asia are Hong Kong, Singapore, South Korea,
Taiwan, Malaysia, Thailand, Indonesia, China and the Philippines. In selecting
investments for the Fund, the advisor typically purchases stocks of larger,
well-established companies.
36
<PAGE>
APPENDIX A
Colonial Strategic Income Fund seeks current income consistent with prudent
risk. The Fund also seeks maximum total return. The Fund invests in:
- - debt securities issued by the U.S. government;
- - debt securities issued by foreign governments; and
- - lower rated corporate debt securities.
The advisor allocates the Fund's investments among these types of securities at
any given time based on its estimate of the expected performance and risk of
each type of investment.
The Fund pursues its investment goals by investing a portion of its assets in
lower rated corporate debt securities. These securities have the following
ratings:
- - BBB through C by Standard & Poor's Corporation;
- - Baa through D by Moody's Investors Service, Inc.;
- - a comparable rating by another nationally recognized rating service; or
- - the security is unrated and the advisor believes it to be comparable in
quality to securities having such ratings as noted above.
The Fund may invest in securities issued or guaranteed by foreign governments or
foreign companies, including securities issued in emerging market countries.
Colonial High Yield Securities Fund seeks high current income and total return.
The Fund invests primarily in lower rated corporate debt securities. These
securities have the following ratings:
- - BBB through C by Standard & Poor's Corporation;
- - Baa through D by Moody's Investors Service, Inc.;
- - a comparable rating by another nationally recognized rating service; or
- - the security is unrated and the advisor believes it to be comparable in
quality to securities having such ratings as noted above.
Although the Fund will invest primarily in debt securities, the Fund may invest
in equity securities to seek capital appreciation. Equity securities include
common stocks, preferred stocks, warrants and debt securities convertible into
common stocks. Additionally, the Fund may invest in securities issued or
guaranteed by foreign governments or foreign companies, including securities
issued in emerging market countries.
Colonial Income Fund seeks as high a level of current income and total return as
is consistent with prudent risk. The Fund invests in:
- - debt securities issued by the U.S. government or U.S. corporations;
- - debt securities issued by foreign governments or corporations; and
- - preferred stocks.
37
<PAGE>
APPENDIX A
The allocation of investments among debt securities at any given time is based
on the investment advisor's estimate of the expected performance and risk of
each type of investment.
The Fund also invests in preferred stocks to pursue its goal of total return.
Some preferred stocks may be accompanied by a warrant, which is a right to
acquire the issuer's common stock. The Fund intends to dispose of any common
stock acquired through these warrants.
The Fund invests a portion of its assets in lower rated corporate debt
securities. These securities have the following ratings:
- - BBB through C by Standard & Poor's Corporation;
- - Baa through D by Moody's Investors Service, Inc.;
- - a comparable rating by another nationally recognized rating service; or
- - the security is unrated and the advisor believes it to be comparable in
quality to a lower-rated debt security.
The Fund will limit its investments in lower rated corporate debt securities to
25% of its assets.
Additionally, the Fund may invest up to 25% of its assets in securities issued
or guaranteed by foreign governments or foreign companies, including securities
issued in emerging market countries.
Colonial Intermediate U.S. Government Fund seeks as high a level of current
income and total return as is consistent with prudent risk. Under normal market
conditions, the Fund invests primarily in U.S. government securities, including
U.S. Treasuries and securities of various U.S. government agencies. Agency
securities include mortgage-backed securities, which represent interests in
pools of mortgages. The Fund has wide flexibility to vary its allocation among
different types of U.S. government securities based on the advisor's judgment of
which types of securities will outperform the others. In selecting investments
for the Fund, the advisor considers a security's expected income together with
its potential to rise or fall in price.
The Fund generally maintains a duration of less than seven years. As a result,
the Fund's portfolio has market risks and an expected average life comparable to
intermediate-term bonds. The advisor will vary the Fund's duration depending on
its forecast of interest rates and market conditions.
Crabbe Huson Contrarian Income Fund seeks the highest level of current income
that is consistent with preservation of capital. Under normal market conditions,
the Fund invests at least 65% of its total assets in a combination of (i) U.S.
government debt securities (such as U.S. Treasury bonds and mortgage-backed
securities), (ii) "investment grade" corporate bonds ranked in the four highest
grades by Moody's or Standard and Poor's, and (iii) cash and cash equivalents.
38
<PAGE>
APPENDIX A
In managing the Fund, the advisor follows a basic value, contrarian approach in
selecting securities for its portfolio. The advisor is not subject to any
limitations on the average maturity of the Fund's holdings. The advisor may
adjust the maturity from time to time in response to changes in interest rates.
Stein Roe Intermediate Bond Fund seeks total return by pursuing current income
and opportunities for capital appreciation. The Fund invests all of its assets
in SR&F Intermediate Bond Portfolio as part of a master fund/feeder fund
structure. The SR&F Intermediate Bond Portfolio invests at least 65% of its
total assets in:
- - debt securities issued by the U.S. government--these include U.S.
Treasury securities and agency securities; agency securities include
certain mortgage- backed securities, which represent interests in pools
of mortgages;
- - debt securities of U.S. corporations; and
- - mortgage-backed securities and asset-backed securities issued by
private (non-governmental) entities.
The SR&F Intermediate Bond Portfolio will invest at least 60% of its total
assets in securities that are higher-quality debt securities rated at the time
of purchase:
- - at least A by Standard & Poor's, or at least A2 by Moody's Investors
Service, Inc., or
- - with a comparable rating by another nationally recognized rating
agency.
The SR&F Intermediate Bond Portfolio may invest up to 40% of its total assets in
securities rated at the time of purchase:
- - BBB and below by Standard & Poor's Corporation;
- - Baa and below by Moody's Investor Services, Inc.; or
- - with a comparable rating by another nationally recognized rating
agency.
The SR&F Intermediate Bond Portfolio may invest up to 20% of its total assets in
lower-rated debt securities. These securities are sometimes referred to as "junk
bonds" and are rated at the time of purchase:
- - below BBB by Standard & Poor's;
- - Baa and below by Moody's Investor Services, Inc.; or - with a
comparable rating by another nationally recognized rating agency.
Normally, the SR&F Intermediate Bond Portfolio expects to maintain a
dollar-weighted average effective maturity of three to ten years.
The Intermediate Bond Portfolio seeks to achieve capital appreciation through
purchasing bonds that increase in market value. In addition, to a limited
extent, the Intermediate Bond Portfolio may seek capital appreciation by using
hedging techniques such as futures and options.
To a limited extent, the SR&F Intermediate Bond Portfolio may invest in foreign
securities.
39
<PAGE>
APPENDIX A
Colonial Money Market Fund seeks maximum current income, consistent with capital
preservation and the maintenance of liquidity. The Fund invests all of its
assets in SR&F Cash Reserves Portfolio as part of a master fund feeder fund
structure. The SR&F Cash Reserves Portfolio invests in high-quality money market
securities. Money market funds are subject to strict rules that require them to
buy individual securities that have remaining maturities of 13 months or less,
maintain an average dollar-weighted portfolio maturity of 90 days or less, and
buy only high-quality, dollar-denominated obligations.
Under normal market conditions the SR&F Cash Reserves Portfolio invests at least
25% of its total assets in securities of issuers in the financial services
industry.
Additional strategies of the underlying Liberty funds that are not primary
investment strategies and the risks associated with them are described under
"Other Investment Strategies and Risks."
40
<PAGE>
APPENDIX A
NOTES
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41
<PAGE>
FOR MORE INFORMATION
You can get more information about the Portfolios' investments in the
Portfolios' semi-annual and annual reports to shareholders. The annual report
contains a discussion of the market conditions and investment strategies that
significantly affected each Portfolio's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Portfolios and the securities in which they invest. The
Statement of Additional Information is incorporated into this prospectus by
reference, which means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Portfolios by
writing or calling the Portfolios' distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Portfolio documents can be viewed online or downloaded
from the Securities and Exchange Commission at www.sec.gov.
You can review and copy information about the Portfolios by visiting the
following location, and you can obtain copies, upon payment of a duplicating
fee, by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty Funds Trust IV (formerly Colonial Trust ): 811-2865
- - Counselor Select Balanced Portfolio
- - Counselor Select Growth Portfolio
- - Counselor Select Income Portfolio
[liberty logo]
<PAGE>
LIBERTY FUNDS TRUST IV (F/K/A COLONIAL TRUST IV)
Cross Reference Sheet Pursuant to Rule 481(a)
Colonial Counselor Select Income Portfolio
Colonial Counselor Select Balanced Portfolio
Colonial Counselor Select Growth Portfolio
Class Z
<TABLE>
<CAPTION>
Item Number of Form N1A Prospectus Location or Caption
<S> <C>
PART A
1. Front Cover Page; Back Cover Page
2. The Portfolios; Underlying Liberty Funds, Other Investment
Strategies and Risks
3. The Portfolios
4. The Portfolios, Underlying Liberty Funds
5. Not Applicable
6. Front Cover Page; Managing the Portfolios; Your Account
7. Your Account
8. The Portfolios; Your Account
9. Financial Highlights
</TABLE>
<PAGE>
COUNSELOR SELECT PORTFOLIOS PROSPECTUS, FEBRUARY 18, 2000
- - COUNSELOR SELECT BALANCED PORTFOLIO
- - COUNSELOR SELECT GROWTH PORTFOLIO
- - COUNSELOR SELECT INCOME PORTFOLIO
CLASS Z SHARES
Advised by Liberty Asset Management Company
TABLE OF CONTENTS
THE PORTFOLIOS
Investment Goals.........................
Primary Investment Strategies............
Investment Highlights....................
Your Expenses............................
UNDERLYING LIBERTY FUNDS
Primary Investment Risks.................
Investment Goals and Primary Investment
Strategies...............................
YOUR ACCOUNT
How to Buy Shares........................
Sales Charges............................
How to Exchange Shares...................
How to Sell Shares.......................
Other Information About Your Account.....
MANAGING THE PORTFOLIOS
Investment Advisor.......................
Portfolio Managers.......................
Other Investment
Strategies and Risks...................26
FINANCIAL HIGHLIGHTS
Counselor Select Balanced Portfolio......
Counselor Select Growth Portfolio........
Counselor Select Income Portfolio........
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 Liberty
Funds Distributor, Inc., the Funds' distributor, or through a third party
broker-dealer, (ii) any insurance company, trust company or bank purchasing
shares for its own account; and (iii) any endowment, investment company or
foundation. In addition, Class Z shares may be purchased directly or by exchange
by any clients of investment advisory affiliates of the distributor provided
that the clients meet certain criteria established by the distributor and its
affiliates.
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved any shares offered in
this prospectus or determined whether this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
[GRAPHIC]
<PAGE>
THE PORTFOLIOS COUNSELOR SELECT PORTFOLIOS
2
<PAGE>
THE PORTFOLIOS
INVESTMENT GOALS
The Counselor Select Portfolios' investment goals are as follows:
Counselor Select Balanced Portfolio (Balanced Portfolio) seeks a balance of
long-term growth of capital and current income.
Counselor Select Growth Portfolio (Growth Portfolio) seeks long-term growth of
capital.
Counselor Select Income Portfolio (Income Portfolio) seeks current income.
The Counselor Select Portfolios include three mutual funds, each with its own
investment goal. The Counselor Select Portfolios include Counselor Select
Balanced Portfolio, Counselor Select Growth Portfolio and Counselor Select
Income Portfolio. The Counselor Select Portfolios do not invest directly in a
portfolio of securities; rather, in seeking to achieve their respective
investment goals, they invest in shares of underlying Liberty funds. Liberty
Asset Management Company (LAMCO) is the investment advisor to each of the
Counselor Select Portfolios.
PRIMARY INVESTMENT STRATEGIES
The pie charts below illustrate the asset allocation for each Portfolio
under normal market conditions:
[GRAPHIC] [GRAPHIC]
[GRAPHIC]
BALANCED PORTFOLIO
Allocation Ranges
<TABLE>
<S> <C>
Stock Funds................................................. 25% to 75%
Bond Funds.................................................. 25% to 75%
Money Market Funds.......................................... 0 to 10%
</TABLE>
GROWTH PORTFOLIO
Allocation Ranges
<TABLE>
<S> <C>
Stock Funds................................................. 60% to 100%
Bond Funds.................................................. 0% to 30%
Money Market Funds.......................................... 0 to 10%
</TABLE>
INCOME PORTFOLIO
Allocation Ranges
<TABLE>
<S> <C>
Stock Funds................................................. 0% to 30%
Bond Funds.................................................. 60% to 100%
Money Market Funds.......................................... 0 to 10%
</TABLE>
3
<PAGE>
THE PORTFOLIOS
LAMCO (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 and 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 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 underlying 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.
4
<PAGE>
THE PORTFOLIOS
5
<PAGE>
THE PORTFOLIOS
INVESTMENT HIGHLIGHTS
The two principal 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 reward. 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 Balanced, Growth and Income 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 goals, time horizon, tolerance
for risk, and tax and financial circumstances.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNSELOR SELECT POTENTIAL GROWTH OF RISK OF LOSS OF
PORTFOLIO POTENTIAL INCOME CAPITAL PRINCIPAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Medium Medium Medium
- --------------------------------------------------------------------------------
Growth Low High High
- --------------------------------------------------------------------------------
Income High Negligible Medium
- --------------------------------------------------------------------------------
</TABLE>
There is no assurance that the Counselor Select Portfolios will achieve their
stated investment goals. 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
6
<PAGE>
THE PORTFOLIOS
United States and in foreign countries 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.
UNDERLYING LIBERTY FUNDS
Set forth below are the underlying Liberty funds in which the Counselor Select
Portfolios may invest and the investment advisors for each fund:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
UNDERLYING LIBERTY FUNDS INVESTMENT ADVISOR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
STOCK FUNDS:
- ------------------------------------------------------------------------------------------------------------------------------------
Stein Roe Growth & Income Fund Stein Roe & Farnham Incorporated (Stein Roe)
- ------------------------------------------------------------------------------------------------------------------------------------
Stein Roe Growth Stock Fund Stein Roe
- ------------------------------------------------------------------------------------------------------------------------------------
Stein Roe Capital Opportunities Fund Stein Roe
- ------------------------------------------------------------------------------------------------------------------------------------
Stein Roe Small Company Growth Fund Stein Roe
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial U.S. Growth & Income Fund Colonial Management Associates, Inc. (Colonial)
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial Small Cap Value Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial International Horizons Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial Value Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial Select Value Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial Utilities Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
Crabbe Huson Real Estate Investment Fund Crabbe Huson Group, Inc. (Crabbe Huson)
- ------------------------------------------------------------------------------------------------------------------------------------
Newport Asia Pacific Fund Newport Fund Management, Inc. (Newport)
- ------------------------------------------------------------------------------------------------------------------------------------
Newport Tiger Fund Newport
- ------------------------------------------------------------------------------------------------------------------------------------
Newport Europe Fund Newport
- ------------------------------------------------------------------------------------------------------------------------------------
BOND FUNDS:
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial Strategic Income Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial High Yield Securities Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial Income Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial Intermediate U.S. Government Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
Crabbe Huson Contrarian Income Fund Crabbe Huson
- ------------------------------------------------------------------------------------------------------------------------------------
Stein Roe Intermediate Bond Fund Stein Roe
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND:
- ------------------------------------------------------------------------------------------------------------------------------------
Colonial Money Market Fund Colonial
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The underlying Liberty funds' investment goals and primary investment strategies
are described in Appendix A.
PRIMARY INVESTMENT RISKS OF UNDERLYING LIBERTY FUNDS
7
<PAGE>
THE PORTFOLIOS
There are many circumstances (including additional risks that are not described
here) which could prevent the Counselor Select Portfolios from achieving their
goals. It is possible to lose money by investing in the Counselor Select
Portfolios. The risks of investing in the Portfolios generally are the same
risks that are associated with the underlying Liberty funds in which the
Portfolios invest. The primary risks of investing in the underlying Liberty
funds are described below.
Market risk (applicable to all underlying Liberty funds) is the risk that the
price of a security held by the underlying Liberty fund will fall due to
changing market, economic or political conditions.
Interest rate risk (applicable to Colonial Strategic Income Fund, Colonial High
Yield Securities Fund, Colonial Income Fund, Colonial Intermediate U.S.
Government Fund, Stein Roe Intermediate Bond Fund, Colonial Money Market Fund,
Crabbe Huson Contrarian Income Fund) is the risk of a change in the price of a
bond when interest rates increase or decline. In general, if interest rates
rise, bond prices fall; and if interest rates fall, bond prices rise. Changes in
the values of bonds usually will not affect the amount of income the underlying
Liberty fund receives from them but will affect the value of the underlying
Liberty fund's shares. Interest rate risk is generally greater for bonds with
longer maturities
Value stocks (applicable to Colonial U.S. Growth & Income Fund, Colonial Small
Cap Value Fund, Colonial Value Fund, Newport Asia Pacific Fund, Crabbe Huson
Contrarian Income Fund, Colonial Select Value Fund, Stein Roe Growth & Income
Fund, Stein Roe Growth Stock Fund, Stein Roe Capital Opportunities Fund) are
securities of companies that may have experienced adverse business or industry
developments or may be subject to special risks that have caused the stocks to
be out of favor. If the portfolio manager's assessment of a company's prospects
is wrong, the price of its stock may not approach the value the advisor has
placed on it
Smaller companies (applicable to Colonial Small Cap Value Fund, Colonial Select
Value Fund, Newport Asia Pacific Fund, Crabbe Huson Contrarian Income Fund,
Stein Roe Capital Opportunities Fund) are more likely than larger companies to
have limited product lines, operating histories, markets or financial resources.
They may depend
8
<PAGE>
THE PORTFOLIOS
heavily on a small management team. Stocks of small companies may trade less
frequently, in smaller volumes and fluctuate more sharply in price than stocks
of larger companies. In addition, they may not be widely followed by the
investment community, which can lower the demand for their stock
Foreign securities (applicable to Stein Roe Growth & Income Fund, Stein Roe
Growth Stock Fund, Stein Roe Capital Opportunities Fund, Colonial International
Horizons Fund, Colonial Utilities Fund, Newport Asia Pacific Fund, Newport
Europe Fund, Colonial Strategic Income Fund, Newport Tiger Fund, Colonial High
Yield Securities Fund, Colonial Income Fund, Crabbe Huson Contrarian Income
Fund, Colonial Money Market Fund) are subject to special risks. Foreign stock
markets can be extremely volatile. Fluctuations in currency exchange rates may
impact the value of foreign securities. The liquidity of foreign securities may
be more limited than domestic securities, which means that the underlying
Liberty fund may, at times, be unable to sell foreign securities at desirable
prices. Brokerage commissions, custodial fees and other fees are generally
higher for foreign investments. In addition, foreign governments may impose
withholding taxes which would reduce the amount of income available to
distribute to shareholders. Other risks include the following: possible delays
in the settlement of transactions; less publicly available information about
companies; the impact of political, social or diplomatic events; and possible
seizure, expropriation or nationalization of the company or its assets).
Emerging markets (applicable to Colonial International Horizons Fund, Newport
Asia Pacific Fund, Colonial Strategic Income Fund, Newport Tiger Fund, Colonial
High Yield Securities Fund, Colonial Income Fund)are also subject to additional
risk. The risks of foreign investments are typically increased in less developed
countries, which are sometimes referred to as emerging markets. For example,
political and economic structures in these countries may be new and developing
rapidly, which may cause instability. These countries are also more likely to
experience high levels of inflation, deflation or currency devaluations, which
could hurt their economies and securities markets.
In cases where the underlying Liberty fund's (applicable to Newport Asia Pacific
Fund, Newport Europe Fund, Newport Tiger Fund) investments are concentrated in
one particular region, the underlying Liberty fund is particularly susceptible
to regional risks. Events in any one country may impact the other countries or
the region as a whole. As a result, events in the region will generally have a
greater
9
<PAGE>
THE PORTFOLIOS
effect on the underlying Liberty fund than if the underlying Liberty fund were
more geographically diversified, which may result in greater losses and
volatility. Recently, the markets in each of the Asian countries have suffered
significant downturns and significant volatility. Increased social or political
unrest in some or all of these countries could cause further economic and market
uncertainty.
Utility company securities (applicable to Colonial Utilities Fund) are subject
to special risks. These securities are especially affected by changes in
interest rates as well as by general competitive and market forces in the
industry. As interest rates increase, the value of securities of utility
companies tends to decrease, and vice versa. In addition, utility companies are
affected by changes in government regulation. In particular, the profitability
of utilities may in the future be adversely affected by increased competition
resulting from deregulation.
Equity real estate investment trusts (REITs) (applicable to Crabbe Huson Real
Estate Investment Fund, Crabbe Huson Contrarian Income Fund) are entities which
either own properties or make construction or mortgage loans. Equity REITs may
also include operating or finance companies. Investing in REITs involves certain
unique risks in addition to those risks associated with the real estate industry
in general. The prices of equity REITs are affected by changes in the value of
the underlying property owned by the REITs. REITs are subject to heavy cash flow
dependency and default by borrowers. In addition, although the underlying
Liberty fund does not invest directly in real estate, a REIT investment by an
underlying Liberty fund is subject to certain of the risks associated with the
ownership of real estate. These risks include possible declines in the value of
real estate, risks related to general and local economic conditions, possible
lack of availability of mortgage funds and changes in interest rates.
In cases where the underlying Liberty fund (applicable to Colonial Strategic
Income Fund, Colonial High Yield Securities Fund, Colonial Income Fund, Colonial
Money Market Fund, Crabbe Huson Contrarian Income Fund) may invest in debt
securities issued by private entities, including corporate bonds and privately
issued mortgage-backed and asset backed securities, the underlying Liberty fund
is subject to issuer risk. Issuer risk is the possibility that changes in the
financial condition of the issuer of a security, changes in general economic
conditions, or changes in economic conditions that affect the issuer may impact
it's ability to make timely payments of
10
<PAGE>
THE PORTFOLIOS
interest or principal. This could result in decrease in the price of the
security.
In cases where an underlying Liberty fund is a non-diversified mutual fund
(applicable to Newport Asia Pacific Fund, Colonial International Horizons Fund),
it is allowed to invest a greater percentage of its total assets in the
securities of a single issuer. This may concentrate risk and, therefore, the
underlying Liberty fund may have an increased risk of loss compared to a similar
diversified mutual fund.
Lower rated debt securities (applicable to Colonial Strategic Income Fund,
Colonial High Yield Securities Fund and Colonial Income Fund)involve greater
risk of loss due to credit deterioration and are less liquid, especially during
periods of economic uncertainty or change, than higher quality debt securities.
Lower-rated debt securities have the added risk that the issuer of the security
may default and not make payment of interest or principal .
Structure risk (applicable to Stein Roe Intermediate Bond Fund, Colonial
Intermediate U.S. Government Fund, Colonial Income Fund, Crabbe Huson Contrarian
Income Fund)is the risk that an event will occur (such as a security being
prepaid or called) that alters the security's cash flows. Prepayment risk is a
particular type of structure risk that is present in an underlying Liberty fund
because of its investments in mortgage-backed securities. Prepayment risk is the
possibility that, as interest rates fall, homeowners are more likely to
refinance their home mortgages. When mortgages are refinanced, the principal on
mortgage-backed securities is paid earlier than expected. In an environment of
declining interest rates, mortgage-backed securities may offer less potential
for gain than other debt securities. During periods of rising interest rates,
mortgage-backed securities have a high risk of declining in price because the
declining prepayment rates effectively increase the maturity of the securities.
In addition, the potential impact of prepayment on the price of a
mortgage-backed security may be difficult to predict and result in greater
volatility.
An investment in the Colonial Money Market is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Additionally, the Colonial Money Market Fund's
11
<PAGE>
THE PORTFOLIOS
yield will vary as the short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates. Because of
the policy of investing at least 25% of assets in securities of issuers in the
financial service industry, the Colonial Money Market Fund may be affected more
adversely than competing funds by changes affecting the industry.
Short sales (applicable to Stein Roe Small Company Growth Fund) are subject to
special risks. A short sale involves the sale by the underlying Liberty fund of
shares of a security that it does not own with the hope of purchasing the same
shares at a later date at a lower price. In order to deliver the security to
the buyer, the underlying Liberty fund borrows the security from a third party.
The underlying Liberty fund is then obligated to return the security to the
third party, so the underlying Liberty fund must purchase the security at the
market price at a later point in time. If the price of the security has
increased during this time, then the underlying Liberty fund will incur a loss
equal to the increase in price of the security from the time that the short sal
was entered into plus any premiums and interest paid to the third party.
Therefore, short sales involve the risk that losses may be exaggerated,
potentially losing more money than the actual cost of the security. Also, there
is the risk that the third party to the short sale may fail to honor its
contract terms, causing a loss to the underlying Liberty fund.
One or more of the underlying Liberty funds may participate in an interfund
lending program, which allows them to lend money to and borrow money from other
funds advised by the advisor. They will do so when the advisor believes such
lending or borrowing is necessary and appropriate. Borrowing costs will be the
same as or lower than the costs of a bank loan.
PERFORMANCE
Because the Counselor Select Portfolios commenced investment operations on
January 29, 1999, and have not completed one full year of investment
performance, information related to each Portfolio's performance has not been
included in this prospectus.
12
<PAGE>
THE PORTFOLIOS COUNSELOR SELECT BALANCED PORTFOLIO
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Balanced Portfolio.
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Balanced Portfolio's distributor.
ANNUAL PORTFOLIO OPERATING EXPENSES are deducted from the Balanced Portfolio.
They includemanagement fees, 12b-1 fees, brokerage costs, and administrative
costs including pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Balanced
Portfolio to the cost of investing in other mutual funds. The table does not
take into account any expense reduction arrangements discussed in the footnotes
to the Annual Portfolio Operating Expenses table. It uses the following
hypothetical conditions:
- - $10,000 initial investment
- - 5% total return for each year
- - Portfolio operating expenses remain the same
- - Assumes reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
- -------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the offering price) 0.00
- -------------------------------------------------------------------------------
Redemption fee(2) (as a percentage of amount
redeemed, if applicable) (2)
</TABLE>
ANNUAL PORTFOLIO(3) OPERATING EXPENSES (DEDUCTED DIRECTLY FROM PORTFOLIO
ASSETS)
<TABLE>
<S> <C>
Management fee(4) (%) 0.01
- -------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00
- -------------------------------------------------------------------------------
Other expenses(4) (%) 0.68
- -------------------------------------------------------------------------------
Total annual portfolio operating expenses(4) (%) 0.69
- -------------------------------------------------------------------------------
</TABLE>
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$70 $221 $384 $859
</TABLE>
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) The Balanced Portfolio bears its own pro rata share of the fees and
expenses incurred by the underlying Liberty funds. The investment
return will be net of the Balanced Portfolio's pro rata share of the
expenses of the underlying Liberty funds in which it invests.
Based on the expense ratio of each underlying Liberty fund, adjusted to
reflect current fees and fee waivers in effect, as of its most recent
fiscal year end, the ranges for the average weighted expense ratio per
annum borne by the Balanced Portfolio, including its pro rata share of
expenses of the underlying Liberty funds, is expected to be 0.904% to
1.165%.
(5) The Balanced Portfolio's advisor has voluntarily agreed to waive
advisory fees and reimburse the Balanced Portfolio for certain expenses
so that the total annual portfolio operating expenses (exclusive of
distribution and service fees, brokerage commissions, interest, taxes
and extraordinary expenses, if any) will not exceed 0.05%. As a result,
the actual management fees would be 0.00%, other expenses for each
share would be 0.05% and total annual portfolio operating expenses for
Class Z shares would be 0.05%.
13
<PAGE>
THE PORTFOLIOS COUNSELOR SELECT GROWTH PORTFOLIO
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Growth Portfolio.
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Growth Portfolio's distributor.
ANNUAL PORTFOLIO OPERATING EXPENSES are deducted from the Growth Portfolio.
They include management fees, 12b-1 fees, brokerage costs, and administrative
costs including pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Growth Portfolio
to the cost of investing in other mutual funds. The table does not take into
account any expense reduction arrangements discussed in the footnotes to the
Annual Portfolio Operating Expenses table. It uses the following hypothetical
conditions:
- - $10,000 initial investment
- - 5% total return for each year
- - Portfolio operating expenses remain the same
- - Assumes reinvestment of all dividends and distributions
SHAREHOLDER FEES(5) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
- --------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the offering price) 0.00
- --------------------------------------------------------------------------------
Redemption fee(6) (as a percentage of amount redeemed, if applicable) (6)
</TABLE>
ANNUAL PORTFOLIO(7) OPERATING EXPENSES (DEDUCTED DIRECTLY FROM PORTFOLIO
ASSETS)
<TABLE>
<S> <C>
Management fee(8) (%) 0.01
- ------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00
- ------------------------------------------------------------------------------
Other expenses(8) (%) 0.77
- ------------------------------------------------------------------------------
Total annual portfolio operating expenses(8) (%) 0.78
- ------------------------------------------------------------------------------
</TABLE>
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$80 $251 $436 $972
</TABLE>
(5) A $10 annual fee is deducted from accounts of less than $1,000 and paid
to the transfer agent.
(6) There is a $7.50 charge for wiring sale proceeds to your bank.
(7) The Growth Portfolio bears its own pro rata share of the fees and
expenses incurred by the underlying Liberty funds. The investment
return will be net of the Growth Portfolio's pro rata share of the
expenses of the underlying Liberty funds in which it invests. Based on
the expense ratio of each underlying Liberty fund, adjusted to reflect
current fees and fee waivers in effect, as of its most recent fiscal
year end, the ranges for the average weighted expense ratio per annum
borne by the Growth Portfolio, including its pro rata share of expenses
of the underlying Liberty funds, is expected to be 1.068% to 1.256%.
(8) The Growth Portfolio's advisor has voluntarily agreed to waive advisory
fees and reimburse the Growth Portfolio for certain expenses so that
the total annual portfolio operating expenses (exclusive of
distribution and service fees, brokerage commissions, interest, taxes
and extraordinary expenses, if any) will not exceed 0.05%. As a result,
the actual management fees would be 0.00%, other expenses would be
0.05% and total annual portfolio operating expenses for Class Z shares
would be 0.05%.
14
<PAGE>
THE PORTFOLIOS COUNSELOR SELECT INCOME PORTFOLIO
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Income Portfolio.
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Income Portfolio's distributor.
ANNUAL PORTFOLIO OPERATING EXPENSES are deducted from the Portfolio. They
include management fees, 12b-1 fees, brokerage costs, and administrative costs
including pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Income Portfolio
to the cost of investing in other mutual funds. The table does not take into
account any expense reduction arrangements discussed in the footnotes to the
Annual Portfolio Operating Expenses table. It uses the following hypothetical
conditions:
- - $10,000 initial investment
- - 5% total return for each year
- - Portfolio operating expenses remain the same
- - Assumes reinvestment of all dividends and distributions
SHAREHOLDER FEES(9) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<S> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
- --------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the offering price) 0.00
- --------------------------------------------------------------------------------
Redemption fee(10) (as a percentage of amount redeemed, if applicable) (10)
</TABLE>
ANNUAL PORTFOLIO(11) OPERATING EXPENSES (DEDUCTED DIRECTLY FROM PORTFOLIO
ASSETS)
<TABLE>
<S> <C>
Management fee(12) (%) 0.01
- -------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00
- -------------------------------------------------------------------------------
Other expenses(12) (%) 1.52
- -------------------------------------------------------------------------------
Total annual portfolio operating expenses(12) (%) 1.53
- -------------------------------------------------------------------------------
</TABLE>
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$156 $485 $836 $1,828
</TABLE>
(9) A $10 annual fee is deducted from accounts of less than $1,000 and paid
to the transfer agent.
(10) There is a $7.50 charge for wiring sale proceeds to your bank.
(11) The Income Portfolio bears its own pro rata share of the fees and
expenses incurred by the underlying Liberty funds. The investment
return will be net of the Income Portfolio's pro rata share of the
expenses of the underlying Liberty funds in which it invests. Based on
the expense ratio of each underlying Liberty fund, adjusted to reflect
current fees and fee waivers in effect, as of its most recent fiscal
year end, the ranges for the average weighted expense ratio per annum
borne by the Income Portfolio, including its pro rata share of expenses
of the underlying Liberty funds, is expected to be 0.892% to 0.959%.
(12) The Income Portfolio's advisor has voluntarily agreed to waive advisory
fees and reimburse the Income Portfolio for certain expenses so that
the total annual portfolio operating expenses (exclusive of
distribution and service fees, brokerage commissions, interest, taxes
and extraordinary expenses, if any) will not exceed 0.05%. As a result,
the actual management fees would be 0.00%, other expenses would be
0.05% and total annual portfolio operating expenses for Class Z
shares would be 0.05%.
15
<PAGE>
YOUR ACCOUNT
HOW TO BUY SHARES
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When a Portfolio receives
your purchase request in "good form," your shares will be bought at the next
calculated public offering price. "Good form" means that you placed your order
with your brokerage firm or your payment has been received and your application
is complete, including all necessary signatures.
WHO IS ELIGIBLE TO BUY CLASS Z SHARES?
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.(13)
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your Your financial advisor can help you establish your
financial advisor account and buy Portfolio shares on your behalf.
- --------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Portfolio to the transfer agent,
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
- --------------------------------------------------------------------------------
By check For existing accounts, fill out and return the
(existing account) additional investment stub included in your quarterly
statement, or send a letter of instruction including
your Portfolio name and account number with a check made
payable to the Portfolio to Liberty Funds Services,
Inc., P.O. Box 1722, Boston, MA 02105-1722.
- --------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares by
exchanging shares you own in one fund for shares of the
same class of the Portfolio at no additional cost. There
may be an additional charge if exchanging from a money
market fund. To exchange by telephone, call
1-800-422-3737.
- --------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank
account to your fund account. To wire funds to your fund
account, call 1-800-422-3737 to obtain a control number
and the wiring instructions.
- --------------------------------------------------------------------------------
By electronic You may purchase shares by electronically transferring
funds transfer money from your bank account to your fund account by
calling 1-800-422-3737. Electronic funds transfers may
take up to two business days to settle and be considered
in "good form." You must set up this feature prior to
your telephone request. Be sure to complete the
appropriate section of the application.
- --------------------------------------------------------------------------------
Automatic You can make monthly or quarterly investments
investment plan automatically from your bank account to your fund
account. You can select a pre-authorized amount to be
sent via electronic funds transfer. Be sure to complete
the appropriate section of the application for this
feature.
- --------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification one fund into the same class of shares of the Portfolio
at no additional sales charge. To invest your dividends
in another fund, call 1-800-345-6611.
</TABLE>
(13) The Portfolios reserve the right to change the criteria for eligible
investors. The Portfolios also reserve the right to refuse a purchase
order for any reason, including if it believes that doing so would be
in the best interest of the Portfolios and their shareholders.
16
<PAGE>
YOUR ACCOUNT
SALES CHARGES
Your purchases of Class Z shares generally are at net asset value, which is the
value of a Portfolio share excluding any sales charge. Class Z shares are not
subject to an initial sales charge when purchased, or a contingent deferred
sales charge when sold.
CHOOSING A SHARE CLASS
The Portfolios offer one class of shares in this prospectus -- CLASS Z.
The Portfolios also offer three additional classes of shares -- Class A, B and C
shares are available through a separate prospectus. Each share class has its own
sales charge and expense structure. Determining which share class is best for
you depends on the dollar amount you are investing and the number of years for
which you are willing to invest. Based on your personal situation, your
investment advisor can help you decide which class of shares makes the most
sense for you.
HOW TO EXCHANGE SHARES
You may exchange your shares for shares of the same share class of another
Counselor Select Portfolio or Class A shares of another fund distributed by
Liberty Funds Distributor, Inc.at net asset value. Unless your account is
part of a tax-deferred retirement plan, an exchange is a taxable event.
Therefore, you may realize a gain or a loss for tax purposes. A Portfolio may
terminate your exchange privilege if the advisor determines that your exchange
activity is likely to adversely impact its ability to manage the Portfolio.
To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of a Portfolio on any regular business day that the
New York Stock Exchange (NYSE) is open.
When a Portfolio receives your sales request in "good form," shares will be sold
at the next calculated price. In "good form" means that money used to purchase
your shares is fully collected. When selling shares by letter of instruction,
"good form" also means (i) your letter has complete instructions, the proper
signatures and signature guarantees, and (ii) any other required documents are
attached. For additional documents required for sales by corporations, agents,
fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement
plan accounts have special requirements; please call 1-800-799-7526 for more
information.
The Portfolios will generally send proceeds from the sale to you within seven
days (usually on the next business day after your request is received in "good
form"). However, if you purchased your shares by check, a Portfolio may delay
sending the proceeds from the sale of your shares for up to 15 days after your
purchase to protect against checks that are returned. No interest will be paid
on uncashed redemption checks.
17
<PAGE>
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor firm must receive your request prior to
the close of the NYSE, usually 4:00 p.m. Eastern time.
- --------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by exchanging
from a Portfolio into Class Z shares or Class A shares of
another fund at no additional cost. To exchange by
telephone, call 1-800-422-3737.
- --------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone
and request that a check be sent to your address of record
by calling 1-800-422-3737, unless you have notified the
Portfolio of an address change within the previous 30 days.
The dollar limit for telephone sales is $100,000 in a 30-day
period. You do not need to set up this feature in advance of
your call. Certain restrictions apply to retirement
accounts. For details, call 1-800-345-6611.
- --------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power
form to the address below. In your letter of instruction,
note the Portfolio's name, share class, account number, and
the dollar value or number of shares you wish to sell. All
account owners must sign the letter, and signatures must be
guaranteed by either a bank, a member firm of a national
stock exchange or another eligible guarantor institution.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Liberty Funds Services,
Inc., P.O. Box 1722, Boston, MA 02105-1722.
- --------------------------------------------------------------------------------
By wire You may sell shares and request that the proceeds be wired
to your bank. You must set up this feature prior to your
telephone request. Be sure to complete the appropriate
section of the account application for this feature.
- --------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may take
up to two business days to be received by your bank. You
must set up this feature prior to your request. Be sure to
complete the appropriate section of the account application
for this feature.
</TABLE>
18
<PAGE>
YOUR ACCOUNT
OTHER INFORMATION ABOUT YOUR ACCOUNT
HOW A PORTFOLIO'S SHARE PRICE IS DETERMINED The price of a Portfolio's Class Z
shares is based on its net asset value (NAV). The NAV is determined at the close
of the NYSE, usually 4:00 p.m. Eastern time, on each business day that the NYSE
is open (typically Monday through Friday).
When you request a transaction, it will be processed at the NAV next determined
after your request is received in "good form" by the distributor. In most cases,
in order to receive that day's price, the distributor must receive your order
before that day's transactions are processed. If you request a transaction
through your financial advisor's firm, the firm must receive your order by the
close of trading on the NYSE to receive that day's price.
Each Portfolio determines its NAV for its Class Z shares by dividing total net
assets attributable to Class Z shares by the number of Class Z shares
outstanding. In determining the NAV, each Portfolio must determine the price of
each security in its portfolio at the close of each trading day. Because the
Portfolios hold securities that are traded on foreign exchanges, the value of
the Portfolios' securities may change on days when shareholders will not be able
to buy or sell Portfolio shares. This will affect the Funds' NAV on the day it
is next determined. Securities for which market quotations are available are
valued each day at the current market value. However, where market quotations
are unavailable, or when the advisor believes that subsequent events have made
them unreliable, the Portfolios may use other data to determine the fair value
of the securities.
You can find the daily prices of some share classes for each Portfolio in most
major daily newspapers under the caption "Liberty." You can find daily prices
for all share classes by visiting the Portfolios' web site at
www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Portfolios' transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
19
<PAGE>
YOUR ACCOUNT
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Portfolios have the potential to make
the following distributions:
TYPES OF DISTRIBUTIONS
<TABLE>
<S> <C>
Dividend Represents interest and dividends earned from securities
held by the Portfolios.
- --------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains which are gains on sales of securities held
for a 12-month period or less.
</TABLE>
UNDERSTANDING PORTFOLIO DISTRIBUTIONS
Each Portfolio earns income from the securities it holds. Each Portfolio also
may realize capital gains and losses on sales of its securities. Each Portfolio
distributes substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of a Portfolio's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
DISTRIBUTION OPTIONS The Balanced Portfolio distributes dividends quarterly and
any capital gains (including short-term capital gains) at least annually. You
can choose one of the options listed in the table below for these distributions
when you open your account(14). To change your distribution option call
1-800-345-6611.
DISTRIBUTION OPTIONS The Growth Portfolio distributes dividends annually and any
capital gains (including short-term capital gains) at least annually. You can
choose one of the options listed in the table below for these distributions when
you open your account(14). To change your distribution option call
1-800-345-6611.
DISTRIBUTION OPTIONS The Income Portfolio distributes dividends monthly and any
capital gains (including short-term capital gains) at least annually. You can
choose one of the options listed in the table below for these distributions when
you open your account(14). To change your distribution option call
1-800-345-6611.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current portfolio
Reinvest all distributions in shares of another portfolio
Receive dividends in cash (see options below) and reinvest capital gains(15)
Receive all distributions in cash (with one of the following options)(15):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
(14) If you do not indicate on your application your preference for
handling distributions, a Portfolio will automatically reinvest all
distributions in additional shares of the Portfolio.
(15) Distributions of $10 or less will automatically be reinvested in
additional Portfolio shares. If you elect to receive distributions by
check and the check is returned as undeliverable, or if you do not
cash a distribution check within six months of the check date, the
distribution will be reinvested in additional shares of the Portfolio.
20
<PAGE>
YOUR ACCOUNT
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Portfolio shares, all Portfolio distributions are
subject to federal income tax. Depending on the state where you live,
distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital
gains are taxable as ordinary income. Distributions of long-term capital gains
are generally taxable as such, regardless of how long you have held your
Portfolio shares. You will be provided with information each year regarding the
amount of ordinary income and capital gains distributed to you for the previous
year and any portion of your distribution which is exempt from state and local
taxes. Your investment in a Portfolio may have additional personal tax
implications. Please consult your tax advisor on foreign, federal, state, local
or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each
Portfolio, you may realize a capital gain or loss when selling and exchanging
shares of a Portfolio. Such transactions may be subject to federal, state and
local income tax.
21
<PAGE>
MANAGING THE PORTFOLIOS
INVESTMENT ADVISOR
Liberty Asset Management Company (LAMCO), located at 600 Atlantic Avenue,
Boston, Massachusetts 02210-2214, is the Portfolios' investment advisor. In its
duties as investment advisor, LAMCO runs the Portfolios' day-to-day business,
including placing all orders for the purchase and sale of each Portfolio's
portfolio securities. LAMCO has been an investment advisor since 1985. As of
January 31, 2000, LAMCO managed over $1.7 billion in assets.
For the 1999 fiscal year, aggregate advisory fees paid to LAMCO by the Balanced,
Growth and Income Portfolios amounted to 0.00% of average daily net assets of
each Portfolio.
PORTFOLIO MANAGERS
WILLIAM R. PARMENTIER, president, senior vice president and chief investment
officer of LAMCO, is a co-manager of the Counselor Select Portfolios and has
co-managed the Counselor Select Portfolios since they commenced operations in
January, 1999. Prior to joining LAMCO in April, 1995, Mr. Parmentier was chief
investment officer of Grumman Corporation from December, 1974 to July, 1993
and president of GQ Asset Management from July, 1993, to October, 1994.
CHRISTOPHER S. CARABELL, a senior vice president-investments of LAMCO, is a
co-manager of the Counselor Select Portfolios and has co-managed the Counselor
Select Portfolios since they commenced operations in January, 1999. Prior to
joining LAMCO in March, 1996, Mr. Carabell 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.
22
<PAGE>
UNDERSTANDING THE PORTFOLIOS' OTHER INVESTMENTS AND RISKS
The Portfolios' primary investments and risks are described under "The
Portfolios Primary Investment Strategies" and "The Portfolios - Primary
Investment Risks." In seeking to meet their investment goals, the underlying
Liberty funds may also invest in other securities and use certain investment
techniques. These securities and investment techniques offer opportunities and
carry various risks.
OTHER INVESTMENT STRATEGIES AND RISKS
Each of the underlying Liberty fund's primary investment strategies and their
associated risks are described above. This section describes other investments
an underlying Liberty fund may make and the risks associated with them. In
seeking to achieve its goal(s), an underlying Liberty fund may invest in various
types of securities and engage in various investment techniques which are not
the principal focus of an underlying Liberty fund and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Counselor Select Portfolios' Statement of
Additional Information, which you may obtain free of charge (see back cover).
Each underlying Liberty fund may elect not to buy any of these securities or use
any of these techniques unless they believe that doing so will help the
underlying Liberty fund achieve its investment goal(s). The underlying Liberty
funds may not always achieve their investment goals.
Additional information about the underlying Liberty funds' securities and
investment techniques, as well as the underlying Liberty funds' fundamental and
non-fundamental investment policies, is contained in the Statement of Additional
Information.
DERIVATIVE STRATEGIES (COLONIAL HIGH YIELD SECURITIES FUND, COLONIAL STRATEGIC
INCOME FUND, COLONIAL INCOME FUND, COLONIAL INTERMEDIATE U.S. GOVERNMENT FUND,
STEIN ROE INTERMEDIATE BOND FUND)
An underlying Liberty fund may enter into a number of hedging strategies,
including those that employ futures and options, to gain or reduce exposure to
particular securities or markets. These strategies, commonly referred to as
derivatives, involve the use of financial instruments whose value depend on, or
are derived from, the value of an underlying security, index or currency. An
underlying Liberty fund may use these strategies to adjust the underlying
Liberty fund's sensitivity to changes in interest rates or for other hedging
purposes (i.e., attempting to offset a potential loss in one position by
establishing an interest in an opposite position). Derivative strategies involve
the risk that they may exaggerate a loss, potentially losing more money than the
actual cost of the derivative, or limit a potential gain. Also, with some
derivative strategies there is the risk that the other party to the transaction
may fail to honor its contract terms, causing a loss to the underlying Liberty
fund.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLLS (COLONIAL STRATEGIC
INCOME FUND, COLONIAL INTERMEDIATE U.S. GOVERNMENT FUND, STEIN ROE INTERMEDIATE
BOND FUND)
When-issued securities and forward commitments are securities that are purchased
prior to the date they are actually issued or delivered. These securities
involve the risk that they may fall in value by the time they are actually
issued or that the other party may fail to honor the contract terms. In a dollar
roll, an underlying Liberty fund sells a security and simultaneously enters into
a commitment to purchase a similar security at a later date. Dollar rolls also
involve the risk that the other party may not honor the contract terms.
23
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
ZERO COUPON BONDS (COLONIAL HIGH YIELD SECURITIES FUND, COLONIAL STRATEGIC
INCOME FUND, COLONIAL INCOME FUND, STEIN ROE INTERMEDIATE BOND FUND)
Zero coupon bonds do not pay interest in cash on a current basis, but instead
accrue interest over the life of the bond. As a result, these securities are
issued at a deep discount. The value of these securities may fluctuate more than
similar securities that pay interest periodically. Although these securities pay
no interest to holders prior to maturity, interest on these securities is
reported as income to a underlying Liberty fund and distributed to its
shareholders.
ASSET-BACKED SECURITIES (STEIN ROE INTERMEDIATE BOND FUND)
Asset-backed securities are interests in pools of debt securities backed by
various types of loans such as credit card, auto and home equity loans. These
securities involve prepayment risk, which is the possibility that the underlying
debt may be refinanced or prepaid prior to maturity during periods of declining
interest rates. During periods of rising interest rates, asset-backed securities
have a high risk of declining in price because the declining prepayment rates
effectively increase the maturity of the securities. A decline in interest rates
may lead to a faster rate of repayment on asset-backed securities and therefore,
cause a underlying Liberty fund to earn a lower interest rate on reinvestment.
In addition, the potential impact of prepayment on the price of an asset-backed
security may be difficult to predict and result in greater volatility.
MORTGAGE-BACKED SECURITIES (STEIN ROE INTERMEDIATE BOND FUND)
Mortgage-backed securities are securities that represent ownership interests in
large, diversified pools of mortgage loans. Sponsors pool together mortgages of
similar rates and terms and offer them as a security to investors.
Most mortgage securities are pooled together and structured as pass-throughs.
Monthly payments of principal and interest from the underlying mortgage loans
backing the pool are collected by a service and "passed through" regularly to
the investor. Pass-through can have a fixed or an adjustable rate. The majority
of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae,
and Freddie Mac.
TEMPORARY DEFENSIVE STRATEGIES (COLONIAL HIGH YIELD SECURITIES FUND, COLONIAL
STRATEGIC INCOME FUND, COLONIAL INCOME FUND, COLONIAL INTERMEDIATE U.S.
GOVERNMENT FUND, STEIN ROE INTERMEDIATE BOND FUND, STEIN ROE GROWTH & INCOME
FUND, STEIN ROE GROWTH STOCK FUND, STEIN ROE CAPITAL OPPORTUNITIES FUND, STEIN
ROE SMALL COMPANY GROWTH FUND)
At times, the advisor may determine that adverse market conditions make it
desirable to temporarily suspend an underlying Liberty fund's normal investment
activities. During such times, the underlying Liberty fund may, but is not
required to, invest in cash or high quality, short-term debt securities, without
limit. Taking a temporary defensive position may prevent an underlying Liberty
fund from achieving its investment goals.
24
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
25
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolios' financial performance. Information is shown for the Portfolios' last
five fiscal years, which run from December 1 to November 30. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that you would have earned (or lost) on an
investment in the Portfolios (assuming reinvestment of all dividends and
distributions). This information has been derived from the Portfolios' financial
statements which have been audited by Ernst & Young LLP, independent auditors,
whose report, along with the Portfolios' financial statements, is included in
the Portfolios' annual report. You can request a free annual report by calling
1-800-426-3750. As of the date of this Prospectus, no Class Z shares were issued
for the Income Portfolio.
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Period ended November 30,
(b)
1999
- --------------------------------------------------------------------------------
Class Z (c)
- --------------------------------------------------------------------------------
<S> <C>
Net asset value -- Beginning of period ($) 9.980
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment (a)(d) 0.053
- --------------------------------------------------------------------------------
Net realized and unrealized gain 0.377
- --------------------------------------------------------------------------------
Total from Investment Operations 0.430
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($):
From net investment income --
- --------------------------------------------------------------------------------
Net asset value -- End of period ($) 10.410
- --------------------------------------------------------------------------------
Total return (%) (e)(f)(g) 4.31
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses (h)(i) 0.05
- --------------------------------------------------------------------------------
Net investment income (h)(i) 2.94
- --------------------------------------------------------------------------------
Fees and expenses waived or borne
by the Advisor/Administrator (h)(i) 1.10
- --------------------------------------------------------------------------------
Portfolio turnover (%) (g) 20
- --------------------------------------------------------------------------------
Net assets at end of period (000)($) 485
- --------------------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the Advisor/Administrator which amounted to: 0.020
- --------------------------------------------------------------------------------
</TABLE>
(b) The Fund commenced investment operations on January 29, 1999.
(c) The Z shares commenced operations on September 29, 1999. Per share
amounts reflect activity from that date.
(d) Per share data calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(f) Had the Advisor and Administrator (Colonial Management Associates, Inc.)
not waived or reimbursed a portion of expenses, total return would
have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits had no impact.
(i) Annualized.
26
<PAGE>
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Period ended
November 30, (b)
1999
-----------------------------------------------------------------------
Class Z (c)
-----------------------------------------------------------------------
<S> <C>
Net asset value -- Beginning of period ($) 9.98
-----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment (a)(d) 0.029
-----------------------------------------------------------------------
Net realized and unrealized gain 0.931
-----------------------------------------------------------------------
Total from Investment Operations 0.960
-----------------------------------------------------------------------
Net asset value -- End of period
($) 10.940
-----------------------------------------------------------------------
Total return (%) (e)(f)(g) 6.52
-----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses (h)(i) 0.05
-----------------------------------------------------------------------
Net investment income (h)(i) 1.55
-----------------------------------------------------------------------
Fees and expenses waived or borne
by the Advisor/Administrator (h)(i) 1.33
-----------------------------------------------------------------------
Portfolio turnover (%) (g) 7
-----------------------------------------------------------------------
Net assets at end of period (000)($) 607
-----------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the Advisor/Administrator
which amounted to: 0.024
</TABLE>
(b) The Fund commenced investment operations on January 29, 1999.
(c) The Z shares commenced operations on September 29, 1999. Per share amounts
reflect activity from that date.
(d) Per share data calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Had the Advisor and Administrator (Colonial Management Associates, Inc.) not
waived or reimbursed a portion of expenses, total return would have been
reduced.
(g) Not annualized.
(h) The benefits derived from custody credits had no impact.
(i) Annualized.
27
<PAGE>
INCOME PORTFOLIO
<TABLE>
<CAPTION>
Period ended
November 30,
1999(b)(c)
-----------------------------------------------------------------------
Class A
-----------------------------------------------------------------------
<S> <C>
Net asset value -- Beginning of period ($) 10.000
-----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment (a)(d) 0.441
-----------------------------------------------------------------------
Net realized and unrealized gain (0.516)
-----------------------------------------------------------------------
Total from Investment Operations (0.075)
-----------------------------------------------------------------------
Less Distributions Declared to Shareholders ($)
From net investment income (0.415)
-----------------------------------------------------------------------
Net asset value -- End of period ($) 9.510
-----------------------------------------------------------------------
Total return (%) (e)(f)(g) (0.74)
-----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses (h)(i) 0.30
-----------------------------------------------------------------------
Net investment income (h)(i) 5.44
-----------------------------------------------------------------------
Fees and expenses waived or borne
by the Advisor/Administrator (j)(k) 1.46
-----------------------------------------------------------------------
Portfolio turnover (%) (g) 34
-----------------------------------------------------------------------
Net assets at end of period (000)($) 4,799
-----------------------------------------------------------------------
(a) Net of fees and expenses waived or borne
by the Advisor/Administrator
which amounted to: 0.120
</TABLE>
(b) The Fund commenced investment operations on January 29, 1999.
(c) No Class Z shares had been issued or were outstanding as of the date of
this Prospectus.
(d) Per share data calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Had the Advisor and Administrator (Colonial Management Associates, Inc.) not
waived or reimbursed a portion of expenses, total return would have been
reduced.
(g) Not annualized.
(h) The benefits derived from custody credits had no impact.
(i) Annualized.
<PAGE>
APPENDIX A
INVESTMENT GOALS AND PRIMARY INVESTMENT STRATEGIES OF UNDERLYING LIBERTY FUNDS
The underlying Liberty funds' investment goals and primary investment strategies
are as follows:
Stein Roe Growth & Income Fund seeks to provide both growth of capital and
current income. The Fund invests all of its assets in SR&F Growth & Income
Portfolio as part of a master fund/feeder fund structure. SR&F Growth & Income
Portfolio invests primarily in common stocks of well-established companies
having large - market capitalizations. The SR&F Growth & Income Portfolio may
also invest in companies having midsized market capitalizations. The SR&F Growth
& Income Portfolio may invest up to 25% of its assets in foreign stocks. To
select investments for the SR&F Growth & Income Portfolio, the portfolio manager
looks for common stocks that have the potential to appreciate in value and to
pay dividends. The portfolio manager focuses on the stocks of companies that
have experienced management; broad, highly diversified product lines; deep
financial resources; easy access to credit; and a history of paying dividends.
Stein Roe Growth Stock Fund seeks long-term growth. The fund invests all of its
assets in SR&F Growth Stock Portfolio as part of a master fund/feeder fund
structure. SR&F Growth Stock Portfolio invest primarily in the common stocks of
companies with large - market capitalizations. The SR&F Growth Stock Portfolio
emphasizes the technology, financial services, health care and global consumer
franchise sectors. The SR&F Growth Stock Portfolio may invest up to 25% of its
assets in foreign stocks. To select investments for the SR&F Growth Stock
Portfolio, the portfolio manager considers companies that he believes will
generate earnings growth over the long term regardless of the economic
environment.
Stein Roe Capital Opportunities Fund seeks long-term growth. The Fund invests
primarily in the common stocks of aggressive growth companies. An aggressive
growth company has the ability to increase its earnings at an above-average
rate. To select stocks for the Fund, the portfolio manager concentrates on
stocks of small and midcapitalization companies which he believes have
opportunities for growth. The Fund may invest up to 25% of its assets in foreign
stocks.
Stein Roe Small Company Fund seeks long-term growth. Under normal market
conditions, the Fund invests at least 65% of its assets in common stocks of
small-cap companies. The Fund may invest in new issuers during periods when new
issues are being brought to market. The Fund may also invest in midcap
companies. The Fund invests in companies that compete within large growing
markets and that have the ability to grow their market share. To find companies
with these growth characteristics, the portfolio manager seeks out companies
that are or, in the portfolio manager's judgment, have the potential to be a
market share leader within their respective industry. He also loos for companies
with strong management teams that participate in the ownership of the companies.
Colonial U.S. Growth & Income Fund seeks long-term growth and income. Under
normal market conditions, the Fund invests at least 65% of its total assets in
common
28
<PAGE>
stocks of U.S. companies with equity market capitalizations at the time
of purchase in excess of $3 billion. Up to 35% of the Fund's total assets may be
invested in common stocks of U.S. companies with equity market capitalizations
at the time of purchase between $1 billion and $3 billion. Also, up to 10% of
the Fund's total assets may be invested in a combination of (i) convertible
bonds, (ii) corporate bonds that are rated investment grade and (iii) U.S.
Government securities. When purchasing securities for the Fund, the advisor may
choose securities of companies it believes are undervalued.
29
<PAGE>
Colonial Small Cap Value Fund seeks long-term growth by investing primarily in
smaller capitalization equities. Under normal market conditions, the Fund
invests at least 65% of its total assets in small capitalization stocks. Small
capitalization stocks are stocks which have market values at the time of
investment of between $20 million and the largest market capitalization in the
Russell 2000 Index. In addition, any stock that is a member of the S&P Small Cap
600 Index is considered a small capitalization stock. When purchasing securities
for the Fund, the advisor may choose securities of companies it believes are
undervalued. . In managing the Fund, the advisor follows a value investing
approach in selecting stocks for its portfolio. When purchasing securities for
the Fund, the advisor may choose securities of companies it believes are
undervalued.
Colonial International Horizons Fund seeks preservation of capital purchasing
power and long-term growth. Under normal market conditions, the Fund invests at
least 65% of its total assets in the equity securities of inflation sensitive
companies located outside the United States. The Fund's foreign investments may
include securities of companies located in emerging market countries. 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.
Colonial Value Fund seeks long-term growth and current income. Under normal
market conditions, the Fund seeks to achieve its investment goals by investing
primarily in income-producing equity securities. The Fund invests at least 65%
of its total assets in equity securities. The Fund may also invest up to 35% of
its total assets in debt securities. In managing the Fund, the advisor follows a
value investing approach in selecting stocks for its portfolio. When purchasing
securities for the Fund, the advisor may choose securities of companies it
believes are undervalued.
Colonial Select Value Fund seeks long-term growth. The Fund invests, under
normal market conditions, primarily in middle capitalization stocks. Middle
capitalization stocks are stocks with market capitalizations between $400
million and the largest stock in the Russell Mid Cap Index at the time of
purchase. In addition, any stock that is a member of the S&P Mid Cap 400 Index
is considered a middle capitalization stock. . In managing the Fund, the advisor
follows a value investing approach in selecting stocks for its portfolio. When
purchasing securities for the Fund, the advisor may choose securities of
companies it believes are undervalued.
Colonial Utilities Fund seeks current income and long-term growth The Fund
invests primarily in securities of U.S. utility companies. The Fund invests in
both equity and preferred securities of utility companies. In addition, the
advisor may invest up to 20% of the Fund's assets in foreign utility company
securities. In selecting investments for the Fund, the advisor looks primarily
for stocks of larger utility companies with established records.
Crabbe Huson Real Estate Investment Fund seeks to provide growth of capital and
current income. Under normal market conditions, the Fund invests at least 75% of
its total assets in equity securities of real estate investment trusts (REITs)
and other real
30
<PAGE>
estate industry companies. In managing the Fund, the advisor follows a basic
value, contrarian approach in selecting securities for its portfolio.
31
<PAGE>
REITs are pooled investment vehicles that invest primarily in income producing
real estate or real estate loans or interest. The Fund's REIT investments will
consist primarily of equity REITs which invest the majority of their assets
directly in real estate and derive income primarily from rents.
Other real estate industry companies in which the Fund may invest are companies
that derive at least 50% of their revenues or profits from either (a) the
ownership, development, construction, 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.
Newport Asia Pacific Fund seeks long-term growth. Under normal market
conditions, the Fund invests at least 80% of its total assets in stocks of
companies whose principal activities are in Asia or the Pacific Basin. These
countries may include Australia, Hong Kong, India, Indonesia, Japan, Malaysia,
New Zealand, the People's Republic of China, the Philippines, Singapore, South
Korea, Taiwan and Thailand. Under normal market conditions, the Fund intends to
invest a significant portion of its assets in companies whose principal
activities are in Japan and Hong Kong (including Chinese issuers whose
securities trade principally in Hong Kong markets). The advisor will determine
where a company's principal activities are located by considering its country of
organization, the principal trading market for its stocks and the source of its
revenues and location of its assets. The Fund may invest in stocks of companies
of any size, whose earnings, the advisor believes, are in a strong growth trend
or are undervalued.
Newport Europe Fund seeks long-term growth. Under normal market conditions, the
Fund invests at least 65% of its total assets in equity securities of European
issuers. The Fund invests primarily in medium and large-sized companies.
Medium-sized companies are companies with market capitalizations between $400
million and the largest stock in the Russell Mid Cap Index at the time of
purchase. In addition, any stock that is a member of the S&P Mid Cap 400 Index
is considered a middle capitalization stock. Large-sized companies are companies
with market capitalizations of $1 billion or more at the time of purchase. The
Fund will focus on investments in the developed countries of Europe, however, it
may also invest in companies located in emerging market countries. When
selecting stocks for the Fund's portfolio, the advisor utilizes a growth
investment strategy. The advisor looks for companies which it believes have
long-term earnings growth potential.
Newport Tiger Fund seeks capital appreciation. Under normal market conditions,
the Fund invests primarily in stocks of companies located in the nine Tiger
countries of Asia. The Tigers of Asia are Hong Kong, Singapore, South Korea,
Taiwan, Malaysia, Thailand, Indonesia, China and the Philippines. In selecting
investments for the Fund, the advisor typically purchases stocks of larger,
well-established companies.
32
<PAGE>
Colonial Strategic Income Fund seeks current income consistent with prudent
risk. The Fund also seeks maximum total return. The Fund invests in:
- - debt securities issued by the U.S. government;
- - debt securities issued by foreign governments; and
- - lower rated corporate debt securities.
The advisor allocates the Fund's investments among these types of securities at
any given time based on its estimate of the expected performance and risk of
each type of investment.
The Fund invests a portion of its assets in lower rated corporate debt
securities. These securities have the following ratings:
- - BBB through C by Standard & Poor's Corporation;
- - Baa through D by Moody's Investors Service, Inc.;
- - a comparable rating by another nationally recognized rating service; or
- - the security is unrated and the advisor believes it to be comparable in
quality to securities having such ratings as noted above.
The Fund may invest in securities issued or guaranteed by foreign governments or
foreign companies, including securities issued in emerging market countries.
Colonial High Yield Securities Fund seeks high current income and total return.
The Fund invests primarily in lower rated corporate debt securities. These
securities have the following ratings:
- - BBB through C by Standard & Poor's Corporation;
- - Baa through D by Moody's Investors Service, Inc.;
- - a comparable rating by another nationally recognized rating service; or
- - the security is unrated and the advisor believes it to be comparable in
quality to securities having such ratings as noted above.
Although the Fund will invest primarily in debt securities, the Fund may invest
in equity securities to seek capital appreciation. Equity securities include
common stocks, preferred stocks, warrants and debt securities convertible into
common stocks. Additionally, the Fund may invest in securities issued or
guaranteed by foreign governments or foreign companies, including securities
issued in emerging market countries.
Colonial Income Fund seeks as high a level of current income and total return as
is consistent with prudent risk. The Fund invests in:
- - debt securities issued by the U.S. government or U.S. corporations;
- - debt securities issued by foreign governments or corporations; and
- - preferred stocks.
33
<PAGE>
The allocation of investments among debt securities at any given time is based
on the investment advisor's estimate of the expected performance and risk of
each type of investment.
The Fund also invests in preferred stocks to pursue its goal of total return.
Some preferred stocks may be accompanied by a warrant, which is a right to
acquire the issuer's common stock. The Fund intends to dispose of any common
stock acquired through these warrants.
The Fund invests a portion of its assets in lower rated corporate debt
securities. These securities have the following ratings:
- - BBB through C by Standard & Poor's Corporation;
- - Baa through D by Moody's Investors Service, Inc.;
- - a comparable rating by another nationally recognized rating service; or
- - the security is unrated and the advisor believes it to be comparable in
quality to a lower-rated debt security.
The Fund will limit its investments in lower rated corporate debt securities to
25% of its assets.
Additionally, the Fund may invest up to 25% of its assets in securities issued
or guaranteed by foreign governments or foreign companies, including securities
issued in emerging market countries.
Colonial Intermediate U.S. Government Fund seeks as high a level of current
income and total return as is consistent with prudent risk. Under normal market
conditions, the Fund invests primarily in U.S. government securities, including
U.S. Treasuries and securities of various U.S. government agencies. Agency
securities include mortgage-backed securities, which represent interests in
pools of mortgages. The Fund has wide flexibility to vary its allocation among
different types of U.S. government securities based on the advisor's judgment of
which types of securities will outperform the others. In selecting investments
for the Fund, the advisor considers a security's expected income together with
its potential to rise or fall in price.
The Fund generally maintains a duration of less than seven years. As a result,
the Fund's portfolio has market risks and an expected average life comparable to
intermediate-term bonds. The advisor will vary the Fund's duration depending on
its forecast of interest rates and market conditions.
Crabbe Huson Contrarian Income Fund seeks the highest level of current income
that is consistent with preservation of capital. Under normal market conditions,
the Fund invests at least 65% of its total assets in a combination of (i) U.S.
government debt securities (such as U.S. Treasury bonds and mortgage-backed
securities), (ii) "investment grade" corporate bonds ranked in the four highest
grades by Moody's or Standard and Poor's, and (iii) cash and cash equivalents.
34
<PAGE>
APPENDIX A
In managing the Fund, the advisor follows a basic value, contrarian approach in
selecting securities for its portfolio. The advisor is not subject to any
limitations on the average maturity of the Fund's holdings. The advisor may
adjust the maturity from time to time in response to changes in interest rates.
Stein Roe Intermediate Bond Fund seeks total return by pursuing current income
and opportunities for capital appreciation. The Fund invests all of its assets
in SR&F Intermediate Bond Portfolio as part of a master fund/feeder fund
structure. The SR&F Intermediate Bond Portfolio invests at least 65% of its
total assets in:
- - debt securities issued by the U.S. government--these include U.S. Treasury
securities and agency securities; agency securities include certain
mortgage- backed securities, which represent interests in pools of
mortgages;
- - debt securities of U.S. corporations; and
- - mortgage-backed securities and asset-backed securities issued by private
(non-governmental) entities.
The SR&F Intermediate Bond Portfolio will invest at least 60% of its total
assets in securities that are higher-quality debt securities rated at the time
of purchase:
- - at least A by Standard & Poor's, or at least A2 by Moody's Investors
Service, Inc., or
- - with a comparable rating by another nationally recognized rating agency.
The SR&F Intermediate Bond Portfolio may invest up to 40% of its total assets in
securities rated at the time of purchase:
- - BBB and below by Standard & Poor's Corporation;
- - Baa and below by Moody's Investor Services, Inc.; or
- - with a comparable rating by another nationally recognized rating agency.
The SR&F Intermediate Bond Portfolio may invest up to 20% of its total assets in
lower-rated debt securities. These securities are sometimes referred to as "junk
bonds" and are rated at the time of purchase:
- - below BBB by Standard & Poor's;
- - Baa and below by Moody's Investor Services, Inc.; or
- - with a comparable rating by another nationally recognized rating agency.
Normally, the SR&F Intermediate Bond Portfolio expects to maintain a
dollar-weighted average effective maturity of three to ten years.
The SR&F Intermediate Bond Portfolio seeks to achieve capital appreciation
through purchasing bonds that increase in market value. In addition, to a
limited extent, the Intermediate Bond Portfolio may seek capital appreciation by
using hedging techniques such as futures and options.
To a limited extent, the SR&F Intermediate Bond Portfolio may invest in foreign
securities.
35
<PAGE>
APPENDIX A
Colonial Money Market Fund seeks maximum current income, consistent with capital
preservation and the maintenance of liquidity. The Fund invests all of its
assets in SR&F Cash Reserves Portfolio as part of a master fund/feeder fund
structure. The SR&F Cash Reserves Portfolio invests in high-quality money market
securities. Money market funds are subject to strict rules that require them to
buy individual securities that have remaining maturities of 13 months or less,
maintain an average dollar-weighted portfolio maturity of 90 days or less, and
buy only high-quality, dollar-denominated obligations.
Under normal market conditions the SR&F Cash Reserves Portfolio invests at least
25% of its total assets in securities of issuers in the financial services
industry.
Additional strategies of the underlying Liberty funds that are not primary
investment strategies and the risks associated with them are described under
"Other Investment Strategies and Risks."
36
<PAGE>
NOTES
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37
<PAGE>
FOR MORE INFORMATION
You can get more information about the Portfolios' investments in the
Portfolios' semi-annual and annual reports to shareholders. The annual report
contains a discussion of the market conditions and investment strategies that
significantly affected each Portfolio's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Portfolios and the securities in which they invest. The
Statement of Additional Information is incorporated into this prospectus by
reference, which means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Portfolios by
writing or calling the Portfolios' distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Portfolio documents can be viewed online or downloaded
from the Securities and Exchange Commission at www.sec.gov.
You can review and copy information about the Portfolios by visiting the
following location, and you can obtain copies, upon payment of a duplicating
fee, by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty Funds Trust IV (formerly Colonial Trust):
811-2865
- - Counselor Select Balanced Portfolio
- - Counselor Select Growth Portfolio
- - Counselor Select Income Portfolio
[LIBERTY FUNDS LOGO]
<PAGE>
LIBERTY FUNDS TRUST IV (F/K/A COLONIAL TRUST IV)
Cross Reference Sheet Pursuant to Rule 481(a)
Colonial Counselor Select Income Portfolio
Colonial Counselor Select Balanced Portfolio
Colonial Counselor Select Growth Portfolio
<TABLE>
<CAPTION>
Statement of Additional Information
Item Number of Form N-1A Location or Caption
<S> <C>
PART B
10. Cover Page; Table of Contents
11. Organization and History
12. Investment Objective and Policies; Fundamental Investment
Policies; Other Investment Policies; Miscellaneous
Investment Practices of Underlying Liberty Funds; Portfolio
Turnover
13. Fund Charges and Expenses
14. Fund Charges and Expenses
15. Fund Charges and Expenses
16. Fund Charges and Expenses; Management of the Funds
17. Organization and History; Fund Charges and Expenses;
Shareholder Meetings; Shareholder Liability
18. How to Buy Shares; Determination of Net Asset Value;
Suspension of Redemptions; Special Purchase
Programs/Investor Services; Programs for Reducing or
Eliminating Sales Charge; How to Sell Shares; How to
Exchange Shares
19. Taxes
20. Fund Charges and Expenses; Management of the Funds
21. Fund Charges and Expenses; Investment Performance;
Performance Measures
22. Independent Auditors
COUNSELOR SELECT(SM) INCOME PORTFOLIO
COUNSELOR SELECT(SM) BALANCED PORTFOLIO
COUNSELOR SELECT(SM) GROWTH PORTFOLIO
(EACH A PORTFOLIO AND COLLECTIVELY, THE PORTFOLIOS)
SERIES OF LIBERTY FUNDS TRUST IV
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 18, 2000
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectuses of the
Portfolios. This SAI is not a prospectus and is authorized for distribution only
when accompanied or preceded by a Prospectus of the Portfolios dated
February 18, 2000. This SAI should be read together with a Prospectus and
the most recent Annual Report dated November 30, 1999. Investors may obtain a
free copy of a Prospectus from Liberty Funds Distributor, Inc. (LFD), One
Financial Center, Boston, MA 02111-2621. The Financial Statements and Report of
Independent Auditors appearing in the November 30, 1999 Annual Report of the
Portfolios are incorporated in this SAI by reference.
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 Portfolios invest and additional information about certain
securities and investment techniques in which the Underlying Liberty Funds
invest and engage.
TABLE OF CONTENTS
PART 1
Definitions
Investment Objectives and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Charges and Expenses
Custodian
Independent Auditors
PART 2
Miscellaneous Investment Practices of Underlying Liberty Funds
Taxes
Management of the Portfolios
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Liability
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
</TABLE>
FF-
a
<PAGE>
PART 1
COUNSELOR SELECT INCOME PORTFOLIO
COUNSELOR SELECT BALANCED PORTFOLIO
COUNSELOR SELECT GROWTH PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 18, 2000
<TABLE>
<S> <C>
DEFINITIONS
"Trust" Liberty Funds Trust IV
"Advisor" Liberty Asset Management Company, the Portfolios' investment advisor
"Administrator" Colonial Management Associates, Inc., the Portfolios' administrator
"LFD" Liberty Funds Distributor, Inc., the Portfolios' distributor
"LFS" Liberty Funds Services, Inc., the Portfolios' shareholder services and transfer
agent
"Portfolios" Counselor Select Income Portfolio, Counselor Select Balanced Portfolio, and
Counselor Select Growth Portfolio
"Underlying The open-end mutual funds
Liberty Funds" listed in the Prospectus in which the
Portfolios may invest.
</TABLE>
ORGANIZATION AND HISTORY
Liberty Funds Trust IV is a Massachusetts business trust organized in 1978. Each
Portfolio, a diversified series of the Trust, represents the entire interest in
a separate series of the Trust. Each Portfolio commenced investment operations
on January 29, 1999.
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 each Portfolio and of any other series of the
Trust that may be in existence from time to time generally vote together except
when required by law to vote separately by fund or by class. Shareholders owning
in the aggregate ten percent of the Trust's shares may call meetings to consider
removal of Trustees. Under certain circumstances, the Trust will provide
information to assist shareholders in calling such a meeting. See Part 2 of this
Statement of Additional Information for more information.
INVESTMENT OBJECTIVES AND POLICIES
The Portfolios' Prospectuses describe 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 LFD and managed
by investment advisory affiliates of LFD (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 Portfolios' 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
b
<PAGE>
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. Not issue senior securities except as provided in paragraph 1 above
and to the extent permitted by the 1940 Act;
5. Underwrite securities issued by others only when disposing of
portfolio securities;
6. Make loans (a) through lending of securities, (b) through the purchase
of debt instruments or similar evidences of indebtedness typically
sold privately to financial institutions, (c) through an interfund
lending program with other affiliated funds provided that no such loan
may be made if, as a result, the aggregate of such loans would exceed
33 1/3% of the value of its total assets (taken at market value at the
time of such loans), and (d) through repurchase agreements; and
7. 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 Portfolio plus the following percentages of each Portfolio'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
LFS 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 LFS 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 The Crabbe Huson Group, Inc.),
administrative and pricing and bookkeeping fees to the Administrator, and
transfer agency and shareholder servicing fees to LFS.
c
<PAGE>
RECENT FEES PAID TO THE ADVISOR, ADMINISTRATOR, LFD AND LFS (DOLLARS IN
THOUSANDS)
<TABLE>
BALANCED PORTFOLIO
Period ended November 30
1999(a)
<S> <C>
Management fee $1
Bookkeeping 3
Shareholder service and transfer agent fee 3
12b-1 fees:
Service fee (Classes A, B and C) 36
Distribution fee (Class B) 38
Distribution fee (Class C) 27
Fees and expenses waived or borne by the Advisor/Administrator (90)
</TABLE>
<TABLE>
GROWTH PORTFOLIO
Period ended November 30
1999(a)
<S> <C>
Management fee $1
Bookkeeping 3
Shareholder service and transfer agent fee 4
12b-1 fees:
Service fee (Classes A, B and C) 33
Distribution fee (Class B) 24
Distribution fee (Class C) 21
Fees and expenses waived or borne by the Advisor/Administrator (94)
</TABLE>
<TABLE>
INCOME PORTFOLIO
Period ended November 30
1999(a)
<S> <C>
Management fee $1
Bookkeeping 3
Shareholder service and transfer agent fee 1
12b-1 fees:
Service fee (Classes A, B and C) 15
Distribution fee (Class B) 11
Distribution fee (Class C) 10
Fees and expenses waived or borne by the Advisor/Administrator (87)
</TABLE>
(a) Portfolios commenced investment operations on January 29, 1999
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 The
Crabbe-Huson Group, Inc. are series, and do not receive fees from the
Portfolios.
d
<PAGE>
The table below shows the total compensation paid to the Trustees of the Trust
for the year ended December 31, 1999 by the Liberty Funds Complex and nine funds
of Liberty Variable Investment Trust (b):
<TABLE>
<CAPTION>
Total Compensation Liberty
Funds Complex Paid To The Trustees
For The Calendar Year Ended
Trustee December 31, 1999(c)
- ------- -----------------------------------
<S> <C>
Robert J. Birnbaum(d) 97,000
Tom Bleasdale 103,000(e)
John V. Carberry(f) N/A
Lora S. Collins 96,000
James E. Grinnell 100,000
Richard W. Lowry 97,000
Salvatore Macera 95,000
William E. Mayer 101,000
James L. Moody, Jr. 91,000(g)
John J. Neuhauser 101,252
Thomas E. Stitzel 95,000
Robert L. Sullivan 104,100
Anne-Lee Verville 96,000(h)
</TABLE>
(b) The Trust does not currently provide pension or retirement plan
benefits to the Trustees.
(c) At December 31, 1999, the complex consisted of 51 open-end and 8
closed-end management investment portfolios in the Liberty Funds Group
- Boston (Liberty Funds) and 12 open-end management investment
portfolios in the Liberty Variable Investment Trust (LVIT) (together,
the Fund Complex).
(d) Retired as Trustee of the Trust on December 31, 1999.
(e) Includes $52,000 payable in later years as deferred compensation.
(f) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial Companies, Inc. (Liberty Financial).
(g) Total compensation of $91,000 for the calendar year ended December 31,
1999, will be payable in later years as deferred compensation.
(h) Total compensation of $96,000 for the calendar year ended December 31,
1999, will be payable in later years as deferred compensation.
For the fiscal year ended December 31, 1999, some of the Trustees received the
following compensation in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund, the Liberty All-Star Growth Fund, Inc.
and Liberty Funds Trust IX (together, Liberty All-Star Funds):
<TABLE>
<CAPTION>
Total Compensation From
Liberty All-Star Funds For The Calendar
Trustee Year Ended December 31, 1999(i)
- ------- ----------------------------------------
<S> <C>
Robert J. Birnbaum(j) $25,000
John V. Carberry(j)(k) N/A
James E. Grinnell(j) 25,000
Richard W. Lowry(j) 25,000
William E. Mayer(j) 25,000
John J. Neuhauser(j) 25,000
</TABLE>
(i) The Liberty All - Star Funds are advised by Liberty Asset Management
Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial (an intermediate parent of the Advisor).
e
<PAGE>
(j) Elected by the sole Trustee of Liberty Funds Trust IX on December 17,
1998.
(k) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
OWNERSHIP OF THE PORTFOLIOS
As of the date hereof, the officers and Trustees of the Trust as a group owned
less than 1% of the shares of the Portfolios.
As of record on February 4, 2000, the following shareholders owned of record 5%
or more of the Portfolios' outstanding shares:
BALANCED PORTFOLIO: Class A Shares: Daughters of Mary of the Immaculate
Conception Manor Convent, 50 Pulaski Street, New Britain, CT 06053 (63,194
shares, 7.50%); Newtown Square Fire Company, 8 N. Newtown Street, Newtown
Square, PA 19073 (52,584 shares, 6.24%); Colorado District Attorneys Council -
General Fund, 1580 Logan Street, #420, Denver, CO 80203 (48,025 shares, 5.70%).
Class C Shares: Bruno A. Schiavo & Michelina Schiavo TTEES,79 Walker Road,
Westwood, MA02090 (31,025 shares, 5.18%); Claughton Johnson & E.C. Schneider Jr.
TTEES, 300 Mildred, Port Lavaca, TX 77979 (71,248 shares, 11.89%); McAllen
Bolt & Screw Inc., P.O. 1090, McAllen, TX 78505 (72,777 shares, 12.14%).
GROWTH PORTFOLIO: Class A Shares: International Bancshares Corp., 1200 San
Bernardo Avenue, Laredo, TX 78042 (97,875, 10.65%); International Bank of
Commerce TTEE 1200 San Bernardo Avenue, Laredo, TX 78042 (90,252 shares, 9.85%).
Class C shares: William A. Schuchmann, 56 North Prospect Street, Ansonia, CT
06401 (26,837 shares, 5.09%); Lazaro Geideshman, 302 Convent, Laredo, TX 78040
(93,476 shares, 17.74%); Judco Inc., 3001 West Expressway 83, McAllen, TX 78501
(43,436 shares, 8.24%); Tommy L. Davis & Joan A. Davis JTWROS, 1012 Petra Drive,
Napa, CA 94558 (28,614 shares, 5.43%); Roberto & Soila Gracia Family Limited
Partnership, 304 Sunflower Street, McAllen, TX 78504 (26,683 shares, 5.06%).
INCOME PORTFOLIO: Class A shares: Luis Pous Rosas & Dinorah Miner De Pous &
Richard Pous Miner JTWROS, 20100 Agascalientes, AGS, Mexico (53,570 shares,
11.13%); Margaret Bagdigian, 19 Batterson Park Road, Farmington, CT 06032
(24,958 shares, 5.18%); Bernard Dathe & Margaret Dathe JTWROS 265 Oak Park Lane,
Pleasant Hill, CA 94523 (41,392 shares, 8.60%); Margaret H. Pull, 2451 S.
Ivanhoe Place, Denver, CO 80222 (25,919 shares, 5.38%).
Class B shares: Investors Bank & Trust Company, Custodian, Donald L. Noblit
Rollover IRA, 563 Pochassic Road, Westfield, MA 01085 (27,615 shares, 12.14%).
Class C shares: Stephen H. Tontini & Ana I Salloso Blanco JTWROS, 4 Schooner
Ridge Road Unit 5, Bath, ME 04530 (16,382 shares, 7.31%); John Fertig & Janice
Nardona-Clews TTEES, 24 Gilbert Street, Waterbury, CT 06702 (11,473 shares,
5.12%); Mary Louise Johnican & Rhonda Rochelle Herndon JTWROS, 3221 8th Street,
Bay City, TX 77414 (21,075 shares, 9.41%); Investors Bank & Trust Company,
Custodian, David Eden IRA, 2802 Erwin Avenue, Victoria, TX 77901 (12,296 shares,
5.49%); Jess Sanford, 27 Oak Circle, Bay City, TX 77414 (17,781 shares, 7.94%);
Estelle Mosko TTEE, 390 Forest Street, Denver, CO 80220-5753 (13,164 shares,
5.88%); Laredo Childrens Museum, West End Washington Street, Laredo, TX 78040
(11,497 shares, 5.13%); International Bank of Commerce TTEE, Belia R. Munoz
Guerra Trust, 1200 San Bernardo Avenue, Laredo, TX 78042 (12,840, 5.73%).
At January 31, 2000, there were the following number of record holders of each
Portfolio:
<TABLE>
<CAPTION>
Portfolio Class A Class B Class C Class Z
- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Balanced Portfolio 124 487 126 2
Growth Portfolio 195 717 108 2
Income Portfolio 56 91 58 0
</TABLE>
SALES CHARGES (dollars in thousands)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
Class A Shares
Period ended November 30
1999
-------------------------
<S> <C>
Aggregate initial sales charges on Portfolio share sales $493
Initial sales charge retained by LFD (l)
Aggregate contingent deferred sales charge (CDSC) 0
</TABLE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
Class B Shares
Period ended November 30
1999
-------------------------
<S> <C>
Aggregate CDSC
on Portfolio redemptions retained by LFD (l)
</TABLE>
f
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
Class C Shares
Period ended November 30
1999
-------------------------
<S> <C>
Aggregate CDSC
on Portfolio redemptions retained by LFD (l)
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
Class A Shares
Period ended November 30
1999
-------------------------
<S> <C>
Aggregate initial sales charges on Portfolio share sales $121
Initial sales charge retained by LFD (l)
Aggregate CDSC 0
</TABLE>
g
<PAGE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
Class B Shares
Period ended November 30
1999
-------------------------
<S> <C>
Aggregate CDSC
on Portfolio redemptions retained by LFD (l)
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
Class C Shares
Period ended November 30
1999
-------------------------
<S> <C>
Aggregate CDSC
on Portfolio redemptions retained by LFD (l)
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
Class A Shares
Period ended November 30
1999
-------------------------
<S> <C>
Aggregate initial sales charges on Portfolio share sales $278
Initial sales charge retained by LFD 23
Aggregate CDSC 0
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
Class B Shares
Period ended November 30
1999
-------------------------
<S> <C>
Aggregate CDSC
on Portfolio redemptions retained by LFD (l)
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
Class C Shares
Period ended November 30
1999
-------------------------
<S> <C>
Aggregate CDSC
on Portfolio redemptions retained by LFD $3
</TABLE>
(l) Rounds to less than one.
h
<PAGE>
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 LFD monthly a service fee at an annual rate of
0.25% of net assets attributed to the Class A, Class B and Class C shares and a
distribution fee at an annual rate of 0.75% of average daily net assets
attributed to Class B and Class C shares. LFD may use the entire amount of such
fees to defray the cost of commissions and service fees paid to financial
service firms (FSFs) and for certain other purposes. Since the distribution and
service fees are payable regardless of LFD's expenses, LFD may realize a profit
from the fees.
The Plans authorize any other payments by a Portfolio to LFD 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.
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.SALES-RELATED
EXPENSES (dollars in thousands) of LFD relating to the Portfolios were:
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
Period ended November 30, 1999
------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
Fees to FSFs $14 $494 $17
Cost of sales material relating to the Portfolio
(including printing and mailing expenses) 25 36 23
Allocated travel, entertainment and other promotional
Expenses (including advertising) 23 29 20
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
Period ended November 30, 1999
------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
Fees to FSFs $25 $368 $22
Cost of sales material relating to the Portfolio
(including printing and mailing expenses) 28 29 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
Allocated travel, entertainment and other promotional
expenses (including advertising) 25 24 20
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
Period ended November 30, 1999
------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
Fees to FSFs $8 $111 $13
Cost of sales material relating to the Portfolio
(including printing and mailing expenses) 15 10 13
Allocated travel, entertainment and other promotional
expenses (including advertising) 14 7 13
</TABLE>
INVESTMENT PERFORMANCE
The Portfolios' Class A, Class B and Class C yields and adjusted yields for the
month ended November 30, 1999 were:
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
------------------
Class A Shares Class B Shares Class C Shares Class Z Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Yield N/A N/A N/A N/A
Yield Without Waiver N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
----------------
Class A Shares Class B Shares Class C Shares Class Z Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Yield N/A N/A N/A N/A
Yield Without Waiver N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
----------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Yield 4.29% 3.74% 3.73%
Yield Without Waiver 0.23% (0.51)% (0.52)%
</TABLE>
The Funds' cumulative total returns for the period ended November 30, 1999:
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
Class A Shares
Period January 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
With sales charge of 5.75% (1.10)%
Without sales charge 4.93%
</TABLE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
Class B Shares
Period January 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
With applicable CDSC (0.53)%
Without CDSC 4.47%
</TABLE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
Class C Shares
Period January 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
With applicable CDSC 3.56%
</TABLE>
j
<PAGE>
<TABLE>
<S> <C>
Without CDSC 4.56%
</TABLE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
Class Z Shares
Period September 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
At net asset value 4.31%
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
Class A Shares
Period January 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
With sales charge of 5.75% 3.02%
Without sales charge 9.30%
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
Class B Shares
Period January 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
With applicable CDSC 3.70%
Without CDSC 8.70%
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
Class C Shares
Period January 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
With applicable CDSC 7.60%
Without CDSC 8.60%
</TABLE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
Class Z Shares
Period September 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
At net asset value 6.52%
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
Class A Shares
Period January 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
With sales charge of 4.75% (5.45)%
Without sales charge (0.74)%
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
Class B Shares
<S> <C>
</TABLE>
k
<PAGE>
<TABLE>
<CAPTION>
Period January 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
With applicable CDSC (6.21)%
Without CDSC (1.46)%
</TABLE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
Class C Shares
Period January 29, 1999
(commencement of investment operations)
through November 30, 1999
-------------------------
<S> <C>
With applicable CDSC (2.12)%
Without CDSC (1.16)%
</TABLE>
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 AUDITORS
Ernst & Young LLP, located at 200 Clarendon Street, Boston, Massachusetts
02116-5072, are the Portfolios' independent auditors, providing audit and tax
return preparation services and assistance and consultation in connection with
the review of various SEC filings. The Financial Statements incorporated by
reference in this SAI have been so incorporated and the financial highlights
included in the Prospectus have been included, in reliance upon the report of
Ernst & Young LLP given on the authority of said firm as experts in accounting
and auditing.
l
<PAGE>
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 LFD 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.
1
<PAGE>
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. This
"excess distribution" will be allocated over the Underlying Liberty Fund's
holding period for such investment. The PFIC tax is the highest ordinary income
rate in effect for any period multiplied by the portion of the "excess
distribution" allocated to such period, and it could be increased by an interest
charge on the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxation" below.
OTHER INVESTMENT COMPANIES
The fund may invest in other investment companies. Such investments will involve
the payment of duplicative fees through the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies.
ZERO COUPON SECURITIES (ZEROS)
The Underlying Liberty Bond Funds may invest in zero coupon securities which are
securities issued at a significant discount from face value and do no pay
interest at intervals during the life of the security. Zero coupon securities
include securities issued in certificates representing undivided interests in
the interest or principal of mortgage-backed securities (interest only/principal
only), which tend to be more volatile than other types of securities. The Fund
will accrue and distribute income from stripped securities and certificates on a
current basis and may have to sell securities to generate cash for
distributions.
STEP COUPON BONDS (STEPS)
The 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
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secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
Many of the Underlying Liberty Funds may enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments" and "when-issued securities") if the fund holds until the
settlement date, in a segregated account, cash or liquid securities in an amount
sufficient to meet the purchase price, or if the fund enters into offsetting
contracts for the forward sale of other securities it owns. Forward commitments
may be considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
Where such purchases are made through dealers, the fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to the
fund of an advantageous yield or price. Although the fund will generally enter
into forward commitments with the intention of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has entered into, the
fund may dispose of a commitment prior to settlement if the Advisor deems it
appropriate to do so. The fund may realize short-term profits or losses
(generally taxed at ordinary income tax rates in the hands of the shareholders)
upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the 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.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations"
(CMOs) and "real estate mortgage investment conduits" (REMICs), evidence
ownership in a pool of mortgage loans made by certain financial institutions
that may be insured or guaranteed by the U.S. government or its agencies. CMOs
are obligations issued by special-purpose trusts, secured by mortgages. REMICs
are entities that own mortgages and elect REMIC status under the Internal
Revenue Code. Both CMOs and REMICs issue one or more classes of securities of
which one (the Residual) is in the nature of equity. The funds will not invest
in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs
may be prepaid if the underlying mortgages are prepaid. Prepayment rates for
mortgage-backed securities tend to increase as interest rates decline
(effectively shortening the security's life) and decrease as interest rates rise
(effectively lengthening the security's life). Because of the prepayment
feature, these securities may not increase in value as much as other debt
securities when interest rates fall. A fund may be able to invest prepaid
principal only at lower yields. The prepayment of such securities purchased at a
premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The fund may invest in non-investment grade mortgage-backed securities that are
not guaranteed by the U.S. Government or an Agency. Such securities are subject
to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed
Securities." In addition, although the underlying mortgages provide collateral
for the security, the fund may experience losses, costs and delays in enforcing
its rights if the issuer defaults or enters bankruptcy, and the fund may incur a
loss.
REPURCHASE AGREEMENTS
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.
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OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. Each Underlying Liberty Fund may write covered call
options and covered put options on securities held in its portfolio when, in the
opinion of the Underlying Fund Manager, such transactions are consistent with
the fund's investment objective and policies. Call options written by the fund
give the purchaser the right to buy the underlying securities from the fund at a
stated exercise price; put options give the purchaser the right to sell the
underlying securities to the fund at a stated price.
The Underlying Liberty Funds may write only covered options, which means that,
so long as the fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities satisfying
the cover requirements of securities exchanges). In the case of put options, the
fund will hold cash and/or high-grade short-term debt obligations equal to the
price to be paid if the option is exercised. In addition, the fund will be
considered to have covered a put or call option if and to the extent that it
holds an option that offsets some or all of the risk of the option it has
written. The fund may write combinations of covered puts and calls on the same
underlying security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. Each Underlying Liberty 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.
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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 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
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to finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. An Underlying Liberty Fund will enter into written
options on futures contracts only when, in compliance with the SEC's
requirements, cash or liquid securities equal in value to the commodity value
(less any applicable margin deposits) have been deposited in a segregated
account of the fund's custodian. The fund may purchase and write call and put
options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions. The
fund may use such options on futures contracts in lieu of writing options
directly on the underlying securities or purchasing and selling the underlying
futures contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by an Underlying Liberty Fund is subject to its Underlying
Fund Manager's ability to predict correctly, movements in the direction of
interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. An Underlying Liberty Fund may enter into stock
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index futures contracts, debt index futures contracts, or other index futures
contracts appropriate to its objective(s). The fund may also purchase and sell
options on index futures contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Underlying Fund Manager
will attempt to reduce this risk by selling, to the extent possible, futures on
indices the movements of which will, in its judgment, have a significant
correlation with movements in the prices of the fund's portfolio securities
sought to be hedged.
Successful use of index futures by the fund for hedging purposes is also subject
to the Underlying Fund Manager's ability to predict correctly movements in the
direction of the market. It is possible that, where the fund has sold futures to
hedge its portfolio against a decline in the market, the index on which the
futures are written may advance and the value of securities held in the fund's
portfolio may decline. If this occurs, the fund would lose money on the futures
and also experience a decline in the value in its portfolio securities. However,
while this could occur to a certain degree, the Underlying Fund Manager believes
that over time the value of the fund's portfolio will tend to move in the same
direction as the market indices which are intended to correlate to the price
movements of the portfolio securities sought to be hedged. It is also possible
that, if the fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the fund will lose part or all of the benefit of the increased
values of those securities that it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Advisor may still not result in a
successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on
index futures, the Underlying Liberty Funds may purchase call and put options on
the underlying indices themselves. Such options could be used in a manner
identical to the use of options on index futures.
FOREIGN CURRENCY TRANSACTIONS
The Colonial International Horizons 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.
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The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated with the fund's custodian.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
8
<PAGE>
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 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
9
<PAGE>
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
TAXES
In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax advisor for state, local and foreign tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons or not U.S. citizens or
resident aliens.
FEDERAL TAXES. The Fund (even if it is a fund in a Trust with multiple series)
is treated as a separate entity for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund has elected (or
in the case of a new Fund, intends to elect) to be, and intends to qualify to be
treated each year as, a "regulated investment company" under Subchapter M of the
Code by meeting all applicable requirements of Subchapter M, including
requirements as to the nature of the Fund's gross income, the amount of its
distributions (as a percentage of both its overall income and any tax-exempt
income), and the composition of its portfolio assets. As a regulated investment
company, the Fund will not be subject to any federal income or excise taxes on
its net investment income and net realized capital gains that it distributes to
shareholders in accordance with the timing requirements imposed by the Code. The
Fund's foreign-source income, if any, may be subject to foreign withholding
taxes. If the Fund failed to qualify as a "regulated investment company" in any
year, it would incur a regular federal corporate income tax on all of its
taxable income, whether or not distributed, and Fund distributions would
generally be taxable as ordinary dividend income to the shareholders.
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.
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.
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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.
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.
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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>
Tom Bleasdale 69 Trustee Retired (formerly Chairman of the Board and Chief
102 Clubhouse Drive #275 Executive Officer, Shore Bank & Trust Company, from 1992
Naples, Florida 34105 to 1993); Director of The Empire Company since June,
1995.
John V. Carberry * 52 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).
Lora S. Collins 64 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis &
1175 Hill Road Frankel from September, 1986 to November, 1996).
Southold, NY 11971
James E. Grinnell 70 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
Richard W. Lowry 63 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
Salvatore Macera 68 Trustee Private Investor (formerly Executive Vice President of
26 Little Neck Lane Itek Corp. and President of Itek Optical & Electronic
New Seabury, MA 02649 Industries, Inc. (electronics)).
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C>
William E. Mayer 59 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); Director, Johns
Manville; Director, Lee Enterprises.
James L. Moody, Jr. 68 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 56 Trustee Academic Vice President and Dean of Faculties, Boston
84 College Road College, since August, 1999 (formerly, Dean, Boston
Chestnut Hill, MA 02467-3838 College School of Management from September, 1977 to
September, 1999).
Thomas E. Stitzel 63 Trustee Professor of Finance, College of Business, Boise State
2208 Tawny Woods Place University (higher education); Business consultant and
Boise, ID 83706 author.
Robert L. Sullivan 71 Trustee Retired Partner, KPMG LLP
45 Sankaty Avenue
Siaconset, MA 02564
Anne-Lee Verville 54 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 46 President President of the Liberty Funds since June, 1998, Chairman of
the Board since July, 1998, Chief Executive Officer and
President since December 1996 and Director, since July
1996 of the Colonial Management Associates, Inc. (CMA)
(formerly Executive Vice President from July, 1996 to
December, 1996); Director, Chief Executive Officer and
President of LFG since December, 1998 (formerly
Director, Chief Executive Officer and President of The
Colonial Group, Inc. (TCG) from December, 1996 to
December, 1998); Assistant Chairman of Stein Roe &
Farnham Incorporated (SR&F) since August, 1998
(formerly Managing Director of Marketing of Putnam
Investments, June, 1992 to July, 1996.)
Joseph R. Palombo 46 Vice President Vice President, Liberty Funds since April, 1999;
Executive Vice President and Director of the CMA since
April, 1999; Executive Vice President and Chief
Administrative Officer, LFG since April, 1999 (formerly
Managing Director, Putnam Investments from December,
1993 to January, 1999).
J. Kevin Connaughton 35 Controller and Controller and Chief Accounting Officer of the Liberty Funds
Chief Accounting since February, 1998; Vice President of the CMA since
Officer February, 1998 (formerly Senior Tax Manager, Coopers &
Lybrand, LLP from April, 1996 to January, 1998; Vice
President, 440 Financial Group/First Data Investor
Services Group from March, 1994 to April, 1996).
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Timothy J. Jacoby 47 Treasurer and Treasurer and Chief Financial Officer of the Liberty Funds
Chief Financial since October, 1996 (formerly Controller and Chief
Officer Accounting Officer from October, 1997 to February,
1998); Senior Vice President of the CMA since September,
1996; Vice President, Chief Financial Officer and
Treasurer since December, 1998 of LFG (formerly Vice
President, Chief Financial Officer and Treasurer from
July, 1997 to December, 1998 of TCG); Senior Vice
President of SR&F since August, 1998 (formerly Senior Vice
President, Fidelity Accounting and Custody Services from
September, 1993 to September, 1996).
Nancy L. Conlin 46 Secretary Secretary of the Liberty Funds since April, 1998 (formerly
Assistant Secretary from July, 1994 to April, 1998);
Director, Senior Vice President, General Counsel, Clerk
and Secretary of the CMA since April, 1998 (formerly
Vice President, Counsel, Assistant Secretary and
Assistant Clerk from July, 1994 to April, 1998); Vice
President, General Counsel and Secretary of LFG since
December, 1998 (formerly Vice President - , General
Counsel and Clerk of TCG from April, 1998 to December,
1998; (formerly Assistant Clerk from July, 1994 to
April, 1998).
</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.
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. LFD pays the cost of printing and distributing all other
Prospectuses.
PRINCIPAL UNDERWRITER
LFD is the principal underwriter of the Portfolios' shares. LFD 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
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LFS is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent) . The Trust's agreement with LFS continues indefinitely but
may be terminated by 90 days' notice by the Portfolio to LFS or generally by 6
months' notice by LFS to the Portfolio. The agreement limits the liability of
LFS to the Portfolio for loss or damage incurred by the Portfolio to situations
involving a failure of LFS to use reasonable care or to act in good faith in
performing its duties under the agreement. It also provides that the Portfolio
will indemnify LFS against, among other things, loss or damage incurred by LFS
on account of any claim, demand, action or suit made on or against LFS not
resulting from LFS's bad faith or negligence and arising out of, or in
connection with, its duties under the agreement.
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,
Independence Day, 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.
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 LFS, 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, LFD'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 LFD retains the entire sales charge on any sales made to a
shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFD generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFD for any up-front and/or ongoing commissions paid to FSFs. Checks
presented for the
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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.
LFS acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to LFS, provided the new FSF has a sales agreement
with LFD.
Shares credited to an account are transferable upon written instructions in good
order to LFS and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C or Z
shares. Shareholders may send any certificates which have been previously
acquired to LFS 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.
Automatic Investment Plan. 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
LFD receives the proceeds from the draft (normally the 5th or the 20th of each
month, or the next business day thereafter). If your Fundamatic purchase is by
electronic funds transfer, you may request the Fundamatic purchase for any day.
Further information and application forms are available from FSFs or from LFD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B and C). The Automated Dollar Cost
Averaging program allows you to exchange $100 or more on a monthly basis from
any 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.
LFD offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges. These plans may be altered or discontinued at
any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
TAX-SHELTERED RETIREMENT PLANS. LFD offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. Investors Bank & Trust
Company. is the Trustee of LFD prototype plans and charges a $10 annual fee.
Detailed information concerning these Retirement Plans and copies of the
Retirement Plans are available from LFD.
Participants in non-LFD prototype Retirement Plans (other than IRAs) also are
charged a $10 annual fee unless the plan maintains an omnibus account with LFS.
Participants in LFD prototype Plans (other than IRAs) who liquidate the total
value of their account will also be charged a $15 close-out processing fee
payable to LFS. The fee is in addition to any applicable CDSC. The fee will not
apply if the participant uses the proceeds to open a LFD IRA Rollover account in
any 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.
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TELEPHONE ADDRESS CHANGE SERVICES. By calling LFS, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
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 LFS 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 LFD. The
applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on
the previous day of all funds' Class A shares held by the
shareholder (except shares of any money market fund, unless such
shares were acquired by exchange from Class A shares of another
fund other than a money market fund and Class B, C, T and Z
shares).
LFD must be promptly notified of each purchase which entitles a shareholder to a
reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by LFS. A fund may terminate or amend
this Right of Accumulation.
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, LFS 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 LFD the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
LFD an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, LFS will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from LFS at 1-800-345-6611.
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 LFS receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or LFS. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal
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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, LFD and other companies
affiliated with the Advisor; registered representatives and employees of FSFs
(including their affiliates) that are parties to dealer agreements or other
sales arrangements with LFD; and such persons' families and their beneficial
accounts.
SPONSORED ARRANGEMENTS. Class A 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 LFD pursuant to which the funds are included
as investment options in programs involving fee-based compensation arrangements,
and by participants in certain retirement plans.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (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 LFS, to the extent the redemptions do not exceed, on
an annual basis, 12% of the account's value, so long as at the time of
the first SWP redemption the account had had distributions reinvested
for a period at least equal to the period of the SWP (e.g., if it is a
quarterly SWP, distributions must have been reinvested at least for the
three month period prior to the first SWP redemption); otherwise CDSCs
will be charged on SWP redemptions until this requirement is met. This
requirement does not apply if the SWP is set up at the time the account
is established, and distributions are being reinvested. See below under
"Investor Services - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as defined
in Section 72(m)(7) of the Internal Revenue Code). To be eligible for
such waiver, (i) the disability must arise AFTER the purchase of shares
AND (ii) the disabled shareholder must have been under age 65 at the
time of the initial determination of disability. If the account is
transferred to a new registration and then a redemption is requested,
the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death
of the sole trustee where (i) the grantor of the trust is the sole
trustee and the sole life beneficiary, (ii) death occurs following the
purchase AND (iii) the trust document provides for dissolution of the
trust upon the trustee's death. If the account is transferred to a new
registration (including that of a successor trustee), the applicable
CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return the
applicable portion of any commission paid by Colonial.
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6. Qualified Retirement Plans. CDSCs may be waived on redemptions
required to make distributions from qualified retirement plans
following normal retirement (as stated in the Plan document).
CDSCs also will be waived on SWP redemptions made to make
required minimum distributions from qualified retirement plans
that have invested in funds distributed by LFD for at least two
years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
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 may delay selling your shares 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 LFS, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the 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, LFS and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call LFS for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Portfolio's shares are
valued to receive that day's price, are responsible for furnishing all necessary
documentation to LFS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. If a shareholder's account balance is at least
$5,000, the shareholder may establish a SWP. A specified dollar amount or
percentage of the then current net asset value of the shareholder's investment
in any 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.
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, LFS will not be liable for any payment made in accordance
with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the Portfolio as an expense of all shareholders.
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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 redemptions are
limited to a total of $100,000 in a 30-day period. Redemptions that exceed
$100,000 may be accomplished by placing a wire order trade through a broker or
furnishing a signature guarantee request. Telephone redemption privileges for
larger amounts may be elected on the Application. LFS will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days and proceeds and confirmations will only be mailed or sent
to the address of record unless the redemption proceeds are being sent to a
pre-designated bank account. Shareholders and/or their FSFs will be required to
provide their name, address and account number. FSFs will also be required to
provide their broker number. All telephone transactions are recorded. A loss to
a shareholder may result from an unauthorized transaction reasonably believed to
have been authorized. No shareholder is obligated to execute the telephone
authorization form or to use the telephone to execute transactions.
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 LFS, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting LFS by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another 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. LFS will also make exchanges upon receipt of a written exchange
request and, share certificates, if any. If the shareholder is a corporation,
partnership, agent, or surviving joint owner, LFS will require customary
additional documentation. Prospectuses of the other Portfolios are available
from the LFD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A shares for five months before exchanging to a
Portfolio having a higher maximum sales charge. Consult your FSF or LFS. In all
cases, the shares to be exchanged must be registered on the records of the
Portfolio in the name of the shareholder desiring to exchange.
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An exchange is generally a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time 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", 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.
NONSTANDARDIZED TOTAL RETURN. Nonstandardized total returns may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate (i.e. cumulative) rather than
average annual total returns or may not reflect the sales charge or CDSC.
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
21
<PAGE>
portion of the yield which is fully taxable. Adjusted yield is calculated in the
same manner as yield except that expenses voluntarily borne or waived by the
Administrator and its affiliates 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, Bloomberg and Ibbotson.
All data are based on past performance and do not predict future results.
TAX-RELATED ILLUSTRATIONS. The Fund also may present hypothetical illustrations
(i) comparing the Fund's and other mutual fund's pre-tax and after-tax total
returns, and (ii) showing the effects of income, capital gain and estate taxes
on performance.
GENERAL. From time to time, the Portfolios may discuss or quote their Advisor as
well the investment personnel of the Underlying Liberty Funds and members of the
tax oversight team, including such person's views on: the economy; securities
markets; portfolio securities and their issuers; investment philosophies,
strategies, techniques and criteria used in the selection of securities to be
purchased or sold for the Underlying Liberty Funds, including the New Value(TM)
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.
22
<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+.
23
<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.
24
<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.
25
<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
26
<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.
27
<PAGE>
APPENDIX II
1999
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
CREDIT SUISSE
FIRST BOSTON:
- --------------
<S> <C> <C>
First Boston High Yield Index- 3.28
Global
LIPPER, INC.:
AMEX Composite Index P 27.28
AMEX Computer Tech IX P 75.02
AMEX Institutional IX P 24.46
AMEX Major Market IX P 17.76
Bse Sensex Index 63.83
CAC 40:FFR IX P 51.12
CD Rate 1 Month Index Tr 5.31
CD Rate 3 Month Index Tr 5.46
CD Rate 6 Month Index Tr 5.59
Consumer Price Index 2.99
Copnhgn SE:Dkr IX P 20.46
DAX:Dm IX Tr 39.10
Domini 400 Social Index 24.50
Dow Jones 65 Comp Av P 11.97
Dow Jones Ind Average P 25.22
Dow Jones Ind Dly Reinv 27.21
Dow Jones Ind Mth Reinv 27.29
Dow Jones Trans Av P -5.47
Dow Jones Trans Av Tr -4.52
Dow Jones Util Av P -9.27
Dow Jones Util Av Tr -6.02
Ft/S&P Act Wld Ex US IX N/A
Ft/S&P Actuaries Wld IX N/A
FT-SE 100:Pd IX P 17.81
FT-SE Gold Mines IX 0.20
Hang Seng:Hng Kng $ IX 68.80
Jakarta Composite Index 70.06
Jasdaq Index:Yen P 244.48
Klse Composite Index 38.59
Kospi Index 82.78
Lear High Growth Rate IX N/A
Lear Low Priced Value IX N/A
Lehman 1-3 Govt/Corp P -2.89
Lehman 1-3 Govt/Corp Tr 3.15
Lehman Aggregate Bd P -7.03
Lehman Aggregate Bd Tr -0.82
Lehman Cp Bd Int P -6.43
Lehman Cp Bd Int Tr 0.16
Lehman Govt Bd Int P -5.36
Lehman Govt Bd Int Tr 0.49
Lehman Govt Bd Long P -14.59
Lehman Govt Bd Long Tr -8.73
Lehman Govt Bd P -8.08
Lehman Govt Bd Tr -2.23
Lehman Govt/Cp Bd P -8.26
Lehman Govt/Cp Bd Tr -2.15
Lehman Govt/Cp Int P -5.70
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
Lehman Govt/Cp Int Tr 0.39
Lehman High Yield P -6.64
Lehman High Yield Tr 2.39
Lehman Muni 10 Yr IX P -6.08
Lehman Muni 10 Yr IX Tr -1.25
Lehman Muni 3 Yr IX P -3.36
Lehman Muni 3 Yr IX Tr 1.96
Lehman Muni Bond IX P -7.08
Lehman Muni Bond IX Tr -2.06
Lipper 1000 N/A
Lipper Mgmt Co Price IX 12.57
Madrid SE:Pst IX P 16.22
ML 10+ Yr Treasury IX Tr -8.61
ML 1-3 Yr Muni IX P -2.72
ML 1-3 Yr Muni IX Tr 2.51
ML 1-3 Yr Treasury IX P -2.85
ML 1-3 Yr Treasury IX Tr 3.06
ML 1-5 Yr Gv/Cp Bd IX P -3.84
ML 1-5 Yr Gv/Cp Bd IX Tr 2.19
ML 15 Yr Mortgage IX P -4.14
ML 15 Yr Mortgage IX Tr 2.17
ML 1-5 Yr Treasury IX P -3.83
ML 1-5 Yr Treasury IX Tr 2.04
ML 3 MO T-Bill IX Tr 4.85
ML 3-5 Yr Govt IX P -5.45
ML 3-5 Yr Govt IX Tr 0.32
ML 3-7 Yr Muni IX Tr 0.66
ML Corp Master Index P -8.53
ML Corp Master Index Tr -1.89
ML Glbl Govt Bond Inx P -6.83
ML Glbl Govt Bond Inx Tr -1.66
ML Glbl Gv Bond IX II P -9.65
ML Glbl Gv Bond IX II Tr -4.52
ML Global Bond Index P -9.04
ML Global Bond Index Tr -3.50
ML Gov Corp Master IX Tr -2.05
ML Govt Master Index P -8.02
ML Govt Master Index Tr -2.11
ML Govt/Corp Master IX P -8.19
ML High Yld Master IX P -7.86
ML High Yld Master IX Tr 1.57
ML Master Muni IX Tr -6.35
ML Mortgage Master IX P -4.86
ML Mortgage Master IX Tr 1.61
ML Treasury Master IX P -8.31
ML Treasury Master IX Tr -2.38
MSCI AC Americas Free ID 22.71
MSCI AC Asia Fr-Ja IX GD 64.67
MSCI AC Asia Fr-Ja IX ID 61.95
MSCI AC Asia Pac - Ja GD 55.23
MSCI AC Asia Pac - Ja ID 52.30
MSCI AC Asia Pac Fr-J GD 49.83
MSCI AC Asia Pac Fr-J ID 46.80
MSCI AC Asia Pac IX GD 59.66
MSCI AC Asia Pac IX ID 57.86
MSCI AC Europe IX GD 17.35
MSCI AC Europe IX ID 15.22
MSCI AC Fe - Ja IX GD 67.83
MSCI AC Fe - Ja IX ID 65.24
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
MSCI AC Fe Free IX GD 61.81
MSCI AC Fe Free IX ID 60.29
MSCI AC Fe Fr-Ja IX GD 62.11
MSCI AC Fe Fr-Ja IX ID 59.40
MSCI AC Pac Fr-Jpn IX GD 46.89
MSCI AC Pac Fr-Jpn IX ID 43.84
MSCI AC World Free IX GD 26.82
MSCI AC World Fr-USA GD 30.91
MSCI AC World Fr-USA ID 28.80
MSCI AC World IX GD 27.31
MSCI AC World IX ID 25.49
MSCI AC World-USA IX GD 31.79
MSCI AC Wrld Fr-Ja IX GD 23.07
MSCI AC Wrld Fr-Ja IX ID 21.20
MSCI AC Wrld-Ja IX GD 23.64
MSCI AC Wrld-Ja IX ID 21.77
MSCI Argentina IX GD 34.29
MSCI Argentina IX ID 30.05
MSCI Australia IX GD 18.67
MSCI Australia IX ID 15.19
MSCI Australia IX ND 17.62
MSCI Austria IX GD -8.66
MSCI Austria IX ID -10.47
MSCI Austria IX ND -9.11
MSCI Belgium IX GD -13.75
MSCI Belgium IX ID -15.77
MSCI Belgium IX ND -14.26
MSCI Brazil IX GD 67.23
MSCI Brazil IX ID 61.57
MSCI Canada IX GD 54.40
MSCI Canada IX ID 51.78
MSCI Canada IX ND 53.74
MSCI Chile IX GD 39.01
MSCI Chile IX ID 36.45
MSCI China Dom Fr IX ID 31.10
MSCI China Free IX ID 9.94
MSCI China Non Dom IX ID 5.82
MSCI Colombia IX GD -13.69
MSCI Colombia IX ID -19.14
MSCI Czech Rep IX GD 5.35
MSCI Czech Rep IX ID 3.97
MSCI Denmark IX GD 12.47
MSCI Denmark IX ID 10.85
MSCI Denmark IX ND 12.06
MSCI EAFE - UK IX GD 31.45
MSCI EAFE - UK IX ID 29.63
MSCI EAFE - UK IX ND 31.01
MSCI EAFE + Canada IX GD 28.27
MSCI EAFE + Canada IX ID 26.22
MSCI EAFE + Canada IX ND 27.93
MSCI EAFE + Em IX GD 31.03
MSCI EAFE + EM IX ID 28.93
MSCI EAFE + EMF IX GD 30.33
MSCI EAFE + EMF IX ID 28.24
MSCI EAFE Fr IX ID 25.03
MSCI EAFE GDP Wt IX GD 31.38
MSCI EAFE GDP Wt IX ID 29.49
MSCI EAFE GDP Wt IX ND 31.00
MSCI EAFE IX GD 27.30
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
MSCI EAFE IX ID 25.27
MSCI EAFE IX ND 26.96
MSCI EASEA IX GD 18.12
MSCI EASEA IX ID 15.90
MSCI EASEA IX ND 17.77
MSCI Em Asia IX GD 69.73
MSCI Em Asia IX ID 67.96
MSCI Em Eur/Mid East GD 79.61
MSCI Em Eur/Mid East ID 76.67
MSCI Em Europe IX GD 83.98
MSCI Em Europe IX ID 81.28
MSCI Em Far East IX GD 67.27
MSCI Em Far East IX ID 65.67
MSCI Em IX GD 68.82
MSCI Em IX ID 66.18
MSCI Em Latin Am IX GD 65.45
MSCI Em Latin Am IX ID 61.81
MSCI EMF Asia IX GD 69.41
MSCI EMF Asia IX ID 67.65
MSCI EMF Far East IX GD 65.50
MSCI EMF Far East IX ID 63.97
MSCI EMF IX GD 66.41
MSCI EMF IX ID 63.70
MSCI EMF Latin Am IX GD 58.89
MSCI EMF Latin Am IX ID 55.48
MSCI Europe - UK IX GD 17.84
MSCI Europe - UK IX ID 16.00
MSCI Europe - UK IX ND 17.35
MSCI Europe GDP Wt IX ID 14.08
MSCI Europe IX GD 16.23
MSCI Europe IX ID 14.12
MSCI Europe IX ND 15.89
MSCI European Union GD 19.22
MSCI European Union ID 16.99
MSCI Far East Free IX ID 59.99
MSCI Far East IX GD 62.63
MSCI Far East IX ID 61.10
MSCI Far East IX ND 62.41
MSCI Finland IX GD 153.33
MSCI Finland IX ID 150.71
MSCI Finland IX ND 152.60
MSCI France IX GD 29.69
MSCI France IX ID 28.00
MSCI France IX ND 29.27
MSCI Germany IX GD 20.53
MSCI Germany IX ID 18.70
MSCI Germany IX ND 20.04
MSCI Greece IX GD 49.64
MSCI Greece IX ID 47.58
MSCI Hongkong IX GD 59.52
MSCI Hongkong IX ID 54.85
MSCI Hongkong IX ND 59.52
MSCI Hungary IX GD 11.66
MSCI Hungary IX ID 10.81
MSCI India IX GD 87.35
MSCI India IX ID 84.67
MSCI Indonesia IX GD 93.46
MSCI Indonesia IX ID 92.04
MSCI Ireland IX ID -14.02
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C>
MSCI Israel Dom IX ID 51.10
MSCI Israel IX ID 56.29
MSCI Israel Non Dom Ixid 47.06
MSCI Italy IX GD 0.19
MSCI Italy IX ID -1.48
MSCI Italy IX ND -0.26
MSCI Japan IX GD 61.77
MSCI Japan IX ID 60.56
MSCI Japan IX ND 61.53
MSCI Jordan IX GD 6.26
MSCI Jordan IX ID 2.00
MSCI Kokusai IX GD 21.26
MSCI Kokusai IX ID 19.43
MSCI Kokusai IX ND 20.84
MSCI Korea IX GD 92.42
MSCI Korea IX ID 90.17
MSCI Luxembourg IX ID 50.50
MSCI Malaysia IX GD 109.92
MSCI Malaysia IX ID 107.23
MSCI Mexico Free IX GD 80.07
MSCI Mexico Free IX ID 78.50
MSCI Mexico IX GD 81.76
MSCI Mexico IX ID 80.19
MSCI Netherland IX GD 7.43
MSCI Netherland IX ID 5.25
MSCI Netherland IX ND 6.88
MSCI New Zealand IX GD 14.30
MSCI New Zealand IX ID 9.70
MSCI New Zealand IX ND 12.90
MSCI Nordic IX GD 87.75
MSCI Nordic IX ID 85.11
MSCI Nordic IX ND 87.00
MSCI Norway IX GD 32.43
MSCI Norway IX ID 29.52
MSCI Norway IX ND 31.70
MSCI Nth Amer IX GD 23.47
MSCI Nth Amer IX ID 21.91
MSCI Nth Amer IX ND 23.00
MSCI Pac - Japan IX GD 43.20
MSCI Pac - Japan IX ID 39.35
MSCI Pac - Japan IX ND 42.58
MSCI Pacific Free IX ID 55.19
MSCI Pacific Fr-Jpn ID 34.95
MSCI Pacific IX GD 57.96
MSCI Pacific IX ID 56.17
MSCI Pacific IX ND 57.63
MSCI Pakistan IX GD 49.62
MSCI Pakistan IX ID 42.24
MSCI Peru IX GD 18.86
MSCI Peru IX ID 16.34
MSCI Philippines Fr Ixgd 3.32
MSCI Philippines Fr Ixid 2.33
MSCI Philippines IX GD 8.90
MSCI Philippines IX ID 7.62
MSCI Portugal IX GD -8.45
MSCI Portugal IX ID -10.86
MSCI Russia IX GD 247.06
MSCI Russia IX ID 246.20
MSCI Sing/Mlysia IX GD 99.40
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
MSCI Sing/Mlysia IX ID 97.08
MSCI Sing/Mlysia IX ND 99.40
MSCI Singapore Fr IX GD 60.17
MSCI Singapore Fr IX ID 58.43
MSCI South Africa IX GD 57.20
MSCI South Africa IX ID 53.43
MSCI Spain IX GD 5.27
MSCI Spain IX ID 3.53
MSCI Spain IX ND 4.83
MSCI Sri Lanka IX GD -6.27
MSCI Sri Lanka IX ID -9.73
MSCI Sweden IX GD 80.60
MSCI Sweden IX ID 77.76
MSCI Sweden IX ND 79.74
MSCI Swtzrlnd IX GD -6.59
MSCI Swtzrlnd IX ID -7.81
MSCI Swtzrlnd IX ND -7.02
MSCI Taiwan IX GD 52.71
MSCI Taiwan IX ID 51.52
MSCI Thailand IX GD 40.92
MSCI Thailand IX ID 40.49
MSCI Turkey IX GD 252.41
MSCI Turkey IX ID 244.36
MSCI UK IX GD 12.45
MSCI UK IX ID 9.74
MSCI UK IX ND 12.45
MSCI USA IX GD 22.38
MSCI USA IX ID 20.86
MSCI USA IX ND 21.92
MSCI Venezuela IX GD 8.71
MSCI Venezuela IX ID 1.68
MSCI World - UK IX GD 26.83
MSCI World - UK IX ID 25.17
MSCI World - UK IX ND 26.38
MSCI World - USA IX GD 28.27
MSCI World - USA IX ID 26.22
MSCI World - USA IX ND 27.93
MSCI World GDP Wt IX ID 27.26
MSCI World IX Free ID 23.45
MSCI World IX GD 25.34
MSCI World IX ID 23.56
MSCI World IX ND 24.93
MSCI Wrld - Austrl IX GD 25.42
MSCI Wrld - Austrl IX ID 23.67
MSCI Wrld - Austrl IX ND 25.03
NASDAQ 100 IX P 101.95
NASDAQ Bank IX P -7.98
NASDAQ Composite IX P 85.59
NASDAQ Industrial IX P 71.67
NASDAQ Insurance IX P 5.54
NASDAQ Natl Mkt Cmp IX 85.87
NASDAQ Natl Mkt Ind IX 72.04
NASDAQ Transport IX P 1.82
Nikkei 225 Avg:Yen P 36.79
NYSE Composite P 9.15
NYSE Finance IX P -0.92
NYSE Industrials IX P 11.37
NYSE Transportation IX -3.25
NYSE Utilities IX P 14.62
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
Oslo SE Tot:Fmk IX P 45.54
Philippines Composite IX 8.85
PSE Technology IX P 116.40
Russell 1000 Grow IX Tr 33.16
Russell 1000 IX P 19.46
Russell 1000 IX Tr 20.91
Russell 1000 Value IX Tr 7.35
Russell 2000 Grow IX Tr 43.09
Russell 2000 IX P 19.62
Russell 2000 IX Tr 21.26
Russell 2000 Value IX Tr -1.49
Russell 3000 IX P 19.43
Russell 3000 IX Tr 20.90
Russell Midcap Grow IX 51.29
Russell Midcap IX Tr 18.23
Russell Midcap Value IX -0.11
S & P 100 Index P 31.26
S & P 500 Daily Reinv 21.04
S & P 500 Index P 19.53
S & P 500 Mnthly Reinv 21.03
S & P 600 Index P 11.52
S & P 600 Index Tr 12.41
S & P Financial IX P 2.19
S & P Financial IX Tr 3.97
S & P Industrial IX Tr 25.87
S & P Industrials P 24.52
S & P Midcap 400 IX P 13.35
S & P Midcap 400 IX Tr 14.72
S & P Transport Index P -10.69
S & P Transport IX Tr -9.32
S & P Utility Index P -12.48
S & P Utility Index Tr -8.88
S & P/Barra Growth IX Tr 27.98
S & P/Barra Value IX Tr 12.72
SB Cr-Hdg Nn-US Wd IX Tr 2.88
SB Cr-Hdg Wd Gv Bd IX Tr 1.31
SB Non-US Wd Gv Bd IX Tr -5.07
SB Wd Gv Bd:Austrl IX Tr 4.07
SB Wd Gv Bd:Germny IX Tr -16.42
SB Wd Gv Bd:Japan IX Tr 15.53
SB Wd Gv Bd:UK IX Tr -4.30
SB Wd Gv Bd:US IX Tr -2.45
SB World Govt Bond IX Tr -4.27
SB World Money Mkt IX Tr 0.39
Straits Times Index 77.54
Swiss Perf:Sfr IX Tr 11.69
Taiwan SE:T$ IX P 42.86
T-Bill 1 Year Index Tr 4.91
T-Bill 3 Month Index Tr 4.74
T-Bill 6 Month Index Tr 4.85
Thailand Set Index 35.44
Tokyo 2nd Sct:Yen IX P 121.27
Tokyo Se(Topix):Yen IX 58.44
Toronto 300:C$ IX P 29.72
Toronto SE 35:C$ IX P 36.42
Value Line Cmp IX-Arth 10.56
Value Line Cmp IX-Geom -1.40
Value Line Industrl IX -0.05
Value Line Railroad IX -9.93
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
Value Line Utilties IX -7.10
Lipper CE Pac Ex Jpn IX 73.32
Lipper Pac Ex-Jpn Fd IX 74.88
</TABLE>
<TABLE>
<CAPTION>
THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUST:
<S> <C>
Real Estate Investment Trust Index -4.62
</TABLE>
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY WGBI MARKET SECTORS: LOCAL CURRENCY U.S. DOLLARS
- ----------------------------------------- -------------- ------------
<S> <C> <C>
U.S. Government (Sovereign) -2.45 -2.45
United Kingdom (Sovereign) -1.20 -4.3
France (Sovereign) -2.95 -17.16
Germany (Sovereign) -2.08 -16.42
Japan (Sovereign) 4.83 15.53
Canada (Sovereign) -1.46 4.29
</TABLE>
Each Russell Index listed above is a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
*in U.S. currency
<PAGE>
LIBERTY FUNDS TRUST IV_(F/K/A_COLONIAL TRUST IV)
Part C OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits:
<S> <C>
Colonial Counselor Select Balanced Portfolio (CCSBP)
Colonial Counselor Select Growth Portfolio (CCSGP)
Colonial Counselor Select Income Portfolio (CCSIP)
(a)(1) Amendment No. 4 to the Agreement and Declaration of Trust (5)
(a)(2) Amendment No. 5 to the Agreement and Declaration of
Trust (6)
(b) Amended By-Laws (4/1/99) (6)
(c) Form of Specimen of Share Certificate (4)
(d) Form of Management Agreement (CCSP) (6)
(e)(1) Distribution Agreement with Liberty Funds Distributor, Inc. - filed as Exhibit (e)(1)
in Part C, Item 23 of Post-Effective Amendment No. 17 to the Registration Statement
on Form N-1A of Liberty Funds 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
(e)(2) Appendix 1 to the Distribution Agreement between the Registrant and Liberty Funds
Distributor, Inc. - filed as Exhibit (e)(2) in Part C, Item 23 of Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A of Liberty Funds Trust
VII (File Nos. 33-41559 and 811-6347), filed with the Commission on or about
September 7, 1999, and is hereby incorporated by reference and made a part of this
Registration Statement
(e)(3) 12b-1 Implementing Agreement between the Registrant and Liberty Funds Distributor,
Inc. - filed as Exhibit (e)(2) in Part C, Item 23 of Post-Effective Amendment No. 17
to the Registration Statement on Form N-1A of Liberty Funds 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
(e)(4) Appendix 1 to the 12b-1 Plan Implementing Agreement between the Registrant and
Liberty Funds Distributor, Inc. - filed as Exhibit (e)(4) in Part C, Item 23 of
Post-Effective Amendment No. 15 to the Registration Statement on Form N-1A of Liberty
Funds Trust VII (File Nos. 33-41559 and 811-6347), filed with
</TABLE>
<PAGE>
<TABLE>
<S> <C>
the Commission on or about September 7, 1999, and is hereby incorporated by reference
and made a part of this Registration Statement
(e)(5) 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 Liberty
Funds Trust VI (File Nos. 33-45117 & 811-6529), filed with the Commission on or about
November 10, 1998, and is hereby incorporated by reference and made a part of this
Registration Statement
(e)(6) Form of Asset Retention Agreement - filed as Exhibit 6(d) in Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A of Liberty
Funds Trust VI (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
(f) Not Applicable
(g)(1) 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 Liberty Funds 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
(g)(2) Amendment No. 10 to Appendix A of Global Custody Agreement with The Chase Manhattan
Bank - filed as Exhibit (g)(2) to Part C, Item 23 of Post-Effective Amendment No. 46
to the Registration Statement on Form N-1A of Liberty Funds Trust II (File Nos.
2-66976 and 811-3009), filed with the Commission on or about February 4, 2000, and is
hereby incorporated by reference and made a part of this Registration Statement
(h)(1) 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 Liberty Funds Trust VI (File Nos. 33-45117
& 811-6529), filed with the Commission on or about September 27, 1996, and is hereby
incorporated by reference and made a part of this Registration Statement
(h)(2) Amendment No. 16 to Schedule A of Amended and Restated Shareholders' Servicing and
Transfer Agent Agreement as amended - filed as Exhibit (k)(2) in Part C, Item 24(2)
of Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 of
Liberty-Stein Roe Advisor Floating Rate Advantage Fund (File Nos. 333-91637 and
811-09709), filed with the Commission on or about January 14, 2000, and is hereby
incorporated by reference and made a part of this Registration
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Statement
(h)(3) Amendment No. 21 to Appendix I of Amended and Restated Shareholders' Servicing and
Transfer Agent Agreement as amended - filed as Exhibit (k)(3) in Part C, Item 24(2)
of Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 of
Liberty-Stein Roe Advisor Floating Rate Advantage Fund (File Nos. 333-91637 and
811-09709), filed with the Commission on or about January 14, 2000, and is hereby
incorporated by reference and made a part of this Registration Statement
(h)(4) Form of Pricing and Bookkeeping Agreement (CCSBP, CCSGP, CCSIP)(6)
(h)(5) Form of Administration Agreement (CCSBP, CCSGP, CCSIP) (6)
(h)(6) Amended and Restated Credit Agreement - filed as Exhibit (h)(8) in Part C, Item 23 of
Post-Effective Amendment No. 110 to the Registration Statement on Form N-1A of
Liberty Funds Trust III (File Nos. 2-15184 & 811-881), filed with the Commission on
or about August 12, 1999, and is hereby incorporated by reference and made a part of
this Registration Statement
(i) Opinion and Consent of Counsel (on behalf of Colonial High Yield Municipal Fund,
Colonial Intermediate Tax-Exempt Fund, Colonial Tax-Exempt Fund, Colonial Tax-Exempt
Insured Fund, Colonial Municipal Money Market Fund, Colonial Utilities Fund, Colonial
Counselor Select Balanced Portfolio, Colonial Counselor Select Growth Portfolio and
Colonial Counselor Select Income Portfolio)
(j) Consent of Independent Auditors
(k) Not Applicable
(l) Not Applicable
(m) Rule 12b-1 Distribution Plan - filed as Exhibit (m) in Part C, Item 24(2) of
Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 of
Liberty-Stein Roe Advisor Floating Rate Advantage Fund (File Nos. 333-91637 and
811-09709), filed with the Commission on or about January 24, 2000 and is hereby
incorporated by reference and made a part of this Registration Statement
(n) Not applicable
(o) Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 - filed as
Exhibit (o) in Part C, Item 23 of Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A of Liberty Funds Trust IX (File Nos. 333-66819 & 811-09095),
filed with the Commission on
</TABLE>
<PAGE>
<TABLE>
<S> <C>
or about February 16, 2000, and is hereby incorporated by reference and made a part
of this Registration Statement
</TABLE>
Power of Attorney for each of 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 (6)
<TABLE>
<S> <C>
(1) Incorporated by reference to Post-Effective Amendment No. 40 filed on or about July
27, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 42 filed on March 22, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 44 filed on October 15,
1996.
(4) Incorporated by reference to Post-Effective Amendment No. 45 filed on March 21, 1997.
(5) Incorporated by reference to Post-Effective Amendment No. 46 filed on July 31, 1997.
(6) Incorporated by reference to Post-Effective Amendment No. 54 filed on May 26, 1999.
</TABLE>
<TABLE>
<S> <C>
Item 24. Persons Controlled by or Under Common Control with Registrant
None
Item 25. Indemnification
See Article VIII of Amendment No. 4 to the Agreement and Declaration of Trust filed as Exhibit
(a)(1) hereto.
Item 26. Business and Other Connections of Investment Adviser
Certain information pertaining to the business and other connections of the Registrant's investment
adviser, Liberty Asset Management Company (LAMCO), which in turn is an indirect wholly-owned
subsidiary of Liberty Financial Company, Inc. (LFCI), which in turn is a majority owned subsidiary
of LFC Management Corporation, which in turn is a wholly owned subsidiary of Liberty Corporate
Holdings, Inc., which in turn is a wholly owned subsidiary of LFC Liberty Mutual Equity Corporation,
which in turn is a wholly owned subsidiary of Liberty Mutual Equity Corporation, which in turn is a
wholly owned subsidiary of Liberty Mutual Insurance Company. LAMCO serves as investment advisor to
the Counselor Select Portfolios. The information required above is incorporated herein by reference
from LAMCO's Form ADV, as most recently filed with the Securities and Exchange Commission.
</TABLE>
Item 27 Principal Underwriter
- ------- ---------------------
(a) Liberty Funds Distributor, Inc. (LFDI), a subsidiary of Colonial
Management Associates, Inc., is the Registrant's principal
underwriter. LFDI acts in such capacity for each series of Liberty Funds
Trust I, Liberty Funds Trust II, Liberty Funds Trust III, Liberty Funds
Trust IV, Liberty Funds Trust V, Liberty Funds Trust VI, Liberty Funds
Trust VII, Liberty Funds Trust IX, Liberty Variable Investment Trust,
Liberty-Stein Roe Advisor Trust, Stein Roe Income Trust, Stein Roe
Municipal Trust, Stein Roe Investment Trust, Stein Roe Floating Rate
Income Fund, Stein Roe Institutional Floating Rate Income Fund,
SteinRoe Variable Investment Trust and Stein Roe Trust.
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ------------------ ------------------- --------------
Anderson, Judith V.P. None
Babbitt, Debra V.P. and None
Comp. Officer
Bartlett, John Managing Director None
Blakeslee, James Sr. V.P. None
Blumenfeld, Alex V.P. None
Bozek, James Sr. V.P. None
Brown, Beth V.P. None
Burtman, Tracy V.P. None
Carroll, Sean V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Clapp, Elizabeth A. Managing Director None
Claiborne, Doug V.P. None
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
Evitts, Stephen V.P. None
Feldman, David Managing Director None
Fifield, Robert V.P. None
Fragasso, Philip Managing Director None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman President
of the Board
Goldberg, Matthew Sr. V.P. None
Grace, Anthony V.P. None
Guenard, Brian V.P. None
Harrington, Tom Sr. V.P. None
Hodgkins, Joseph Sr. V.P. None
Huennekens, James V.P. None
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia V.P. None
Jones, Jonathan V.P. None
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Lichtenberg, Susyn V.P. None
Lynn, Jerry V.P. None
Marsh, Curtis Sr. V.P. None
Martin, John Sr. V.P. None
Martin, Peter V.P. None
McCombs, Gregory Sr. V.P. None
McKenzie, Mary V.P. None
Menchin, Catherine Sr. V.P. None
Miller, Anthony V.P. None
Moberly, Ann R. Sr. V.P. None
Morse, Jonathan V.P. None
Nickodemus, Paul V.P. None
O'Shea, Kevin Managing Director None
Palombo, Joseph R. Director Vice President
Piken, Keith V.P. None
Place, Jeffrey Managing Director None
Powell, Douglas V.P. None
Quirk, Frank V.P. None
Raftery-Arpino, Linda Sr. V.P. None
Ratto, Gregory V.P. None
Reed, Christopher B. Sr. V.P. None
Riegel, Joyce V.P. None
Robb, Douglas V.P. None
Santosuosso, Louise Sr. V.P. None
Schulman, David Sr. V.P. None
Scully-Power, Adam V.P. None
Shea, Terence V.P. None
Sideropoulos, Lou V.P. None
Sinatra, Peter V.P. None
Smith, Darren V.P. None
Soester, Trisha V.P. None
Studer, Eric V.P. None
Sweeney, Maureen V.P. None
Tambone, James CEO; Co-President None
Tasiopoulos, Lou Co-President None
Torrisi, Susan V.P. None
VanEtten, Keith H. Sr. V.P. None
Warfield, James 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>
<TABLE>
<S> <C>
Item 28. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder include
Registrant's Secretary; Registrant's investment adviser and/or administrator, Colonial Management
Associates, Inc.; Registrant's principal underwriter, Liberty Funds Distributor, Inc.; Registrant's
transfer and dividend disbursing agent, Liberty Funds Services, Inc.; and the Registrant's
custodian, The Chase Manhattan Bank. The address for each person except the Registrant's custodian
is One Financial Center, Boston, MA 02111. The address for The Chase Manhattan Bank is 270 Park
Avenue, New York, NY 10017-2070.
Item 29. Management Services
See Item 5, Part A and Item 16, Part B
Item 30. Undertakings
Not applicable
</TABLE>
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Liberty
Funds Trust IV (Trust) is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that this Registration
Statement has been executed on behalf of the Trust by an officer of the Trust as
an officer and by its Trustees as trustees and not individually and the
obligations of or arising out of this Registration Statement is not binding upon
any of the Trustees, officers or shareholders individually but are binding only
upon the assets and property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Liberty Funds Trust IV, has duly
caused this Post-Effective Amendment No. 58 to its Registration Statement under
the Securities Act of 1933 and Amendment No. 56 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 16th day of February, 2000.
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ STEPHEN E. GIBSON President (chief February 16, 2000
- ----------------------- executive officer)
Stephen E. Gibson
/s/ TIMOTHY J. JACOBY Treasurer and Chief February 16, 2000
- ----------------------- Financial Officer
Timothy J. Jacoby
/s/ J. KEVIN CONNAUGHTON Controller and Chief February 16, 2000
- -------------------------- Accounting Officer
J. Kevin Connaughton
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
TOM BLEASDALE* Trustee
- --------------
Tom Bleasdale
JOHN V. CARBERRY* Trustee
- -----------------
John V. 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 February 16, 2000
- -----------------
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
</TABLE>
<PAGE>
EXHIBIT INDEX
(i) Opinion and Consent of Counsel
(j) Consent of Independent Auditors
<PAGE>
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
FAX: (617) 951-7050
WRITER'S DIRECT DIAL NUMBER: (617) 951-7405
WRITER'S E-MAIL ADDRESS: [email protected]
30 Kennedy Plaza One Franklin Square
Providence, RI 02903-2328 1301 K Street, N.W.
(401) 455-4400 Suite 800 East
FAX: (401) 455-4401 Washington, D.C. 20005-3333
(202) 626-3900
FAX: (202) 626-3961
February 16, 2000
Liberty Funds Trust IV
One Financial Center
Boston, Massachusetts 02111
Ladies and Gentlemen:
You have informed us that you propose to register under the Securities
Act of 1933, as amended (the "Act"), and offer and sell from time to time shares
of beneficial interest ("Shares") of the funds listed on Schedule A attached
hereto (the "Funds"), each a series of Liberty Funds Trust IV (the "Trust").
We act as counsel for the Trust and are familiar with the actions taken
by its Board of Trustees to authorize the issuance of the Shares. We have
examined the Trust's Agreement and Declaration of Trust and amendments thereto
on file at the office of the Secretary of the Commonwealth of Massachusetts
(collectively, the "Agreement and Declaration of Trust") and the Trust's
By-Laws. We have also examined such other documents as we deem necessary for the
purpose of this opinion.
We assume that appropriate action has been taken to register or qualify
the sale of the Shares under any applicable state and federal laws regulating
offerings and sales of securities.
Based on the foregoing, we are of the opinion that the issue and sale
by the Trust of an unlimited number of Shares of each Fund has been duly
authorized under Massachusetts law. Upon the original issue and sale of any such
authorized but unissued Shares and upon receipt by the Trust of the authorized
consideration therefor in an amount not less than the applicable net asset
value, the Shares so issued will be validly issued, fully paid and nonassessable
by the Trust.
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Liberty Funds Trust IV -2- February 16, 2000
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or its Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the property of the particular Fund for all loss and
expenses of any shareholder of such Fund held personally liable solely by reason
of being or having been a shareholder of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the particular Fund of which he or she is or
was a shareholder would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of an indefinite number of Shares for offering and sale pursuant to
the Act. We consent to the filing of this opinion with and as part of your
Registration Statement on Form N-1A relating to such offering and sale.
Very truly yours,
/s/ Ropes & Gray
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Ropes & Gray
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Schedule A
Colonial High Yield Municipal Fund Colonial Intermediate Tax-Exempt Fund
Colonial Tax-Exempt Fund Colonial Tax-Exempt Insured Fund Colonial Utilities
Fund Colonial Municipal Money Market Fund Colonial Counselor Select Income
Portfolio Colonial Counselor Select Balanced Portfolio Colonial Counselor Select
Growth Portfolio
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information in Post-Effective Amendment Number 58 to the Registration
Statement (Form N-1A, No. 2-62492) of the Colonial Counselor Select Income
Portfolio, Colonial Counselor Select Balanced Portfolio, and Colonial Counselor
Select Growth Portfolio, three of the series of Liberty Funds Trust IV.
We also consent to the incorporation by reference into the Statement of
Additional Information of our report dated January 11, 2000 on the financial
statements included in the Annual Report of the Counselor Select Portfolios, a
series of Liberty Funds Trust IV, for the period ended November 30, 1999.
ERNST & YOUNG LLP
Boston, Massachusetts
February 11, 2000
