SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section
14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LIBERTY FUNDS TRUST I
Liberty Tax-Managed Growth Fund
Liberty Tax-Managed Growth Fund II
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
LIBERTY TAX-MANAGED GROWTH FUND
LIBERTY TAX-MANAGED GROWTH FUND II
Each a series of Liberty Funds Trust I
One Financial Center, Boston, Massachusetts 02111-2621
Dear Shareholder:
Your Fund will hold a special meeting on December 27, 2000 at 10:00 a.m.,
Eastern time, at the offices of Colonial Management Associates, Inc. (Colonial).
A formal Notice of Special Meetings of Shareholders appears on the next page,
followed by the proxy statement which explains in more detail the proposals to
be considered. We hope that you can attend the Meeting in person; however, we
urge you in any event to vote your shares at your earliest convenience.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU CAN VOTE
EASILY AND QUICKLY BY MAIL, BY FAX (NOT AVAILABLE FOR ALL SHAREHOLDERS; REFER TO
ENCLOSED PROXY INSERT), BY PHONE OR IN PERSON. A SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE. PLEASE HELP YOUR FUND AVOID THE
EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
Your Fund is using Shareholder Communications Corporation (SCC), a professional
proxy solicitation firm, to assist shareholders in the voting process. As the
date of the special meeting approaches, if we have not yet received your vote,
you may receive a telephone call from SCC reminding you to exercise your right
to vote.
Please take a few moments to review the details of each proposal. If you have
any questions regarding the proxy statement, please feel free to call SCC
toll-free at 1-877-518-9416 between the hours of 9:00 a.m. and 11:00 p.m.
Eastern time. Our hearing impaired shareholders may call Liberty Funds Services,
Inc., the Funds' transfer agent, at 1-800-528-6979 if you have special TTD
equipment.
We appreciate your participation and prompt response in these matters and thank
you for your continued support.
Sincerely,
Stephen E. Gibson, President
December 8, 2000
G-60/686D-1100
<PAGE>
LIBERTY TAX-MANAGED GROWTH FUND
LIBERTY TAX-MANAGED GROWTH FUND II
Each a series of Liberty Funds Trust I
One Financial Center, Boston, Massachusetts 02111-2621
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON DECEMBER 27, 2000
NOTICE IS HEREBY GIVEN that Special Meetings of the Shareholders of Liberty
Tax-Managed Growth Fund and Liberty Tax-Managed Growth Fund II (each, a Fund,
and collectively, the Funds) will be held at 10:00 a.m., Eastern time, on
Wednesday, December 27, 2000, at the offices of Colonial Management Associates,
Inc., One Financial Center, Boston, Massachusetts 02111-2621 for these purposes:
1. To elect the Board of Trustees of Liberty Funds Trust I;
2. To approve a sub-advisory agreement with Stein Roe Investment Counsel LLC;
and
3. To consider and act upon any other matters that properly come before the
meeting and any adjourned session of the meeting.
Shareholders of record at the close of business on September 29, 2000, are
entitled to notice of and to vote at the meeting and any adjourned session.
By order of the Board of Trustees,
William J. Ballou, Secretary
December 8, 2000
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU
OWN. YOU CAN VOTE EASILY AND QUICKLY BY PHONE, BY MAIL, BY FAX
(NOT AVAILABLE FOR ALL SHAREHOLDERS; REFER TO ENCLOSED PROXY
INSERT) OR IN PERSON. PLEASE HELP YOUR FUND AVOID THE EXPENSE OF
A FOLLOW-UP MAILING BY VOTING TODAY!
<PAGE>
SPECIAL MEETINGS OF SHAREHOLDERS
LIBERTY TAX-MANAGED GROWTH FUND
LIBERTY TAX-MANAGED GROWTH FUND II
Each a series of Liberty Funds Trust I
PROXY STATEMENT
General Information
December 8, 2000
This document gives you information you need in order to vote on the matters
coming before the Meetings. If you have any questions regarding the information
contained in the proxy statement, please call SCC toll-free at 1-877-518-9416
between the hours of 9:00 a.m. and 11:00 p.m. Eastern time. This proxy statement
was first mailed to shareholders on or about December 8, 2000.
The Trustees of Liberty Funds Trust I (Trust), on behalf of Liberty Tax-Managed
Growth Fund and Liberty Tax-Managed Growth Fund II (each, a Fund, and
collectively, the Funds), have called Special Meetings of Shareholders of the
Funds for 10:00 a.m., Eastern time, on Wednesday, December 27, 2000, for the
purposes described in the accompanying Notice. The purpose of this proxy
statement is to provide you with additional information regarding the proposals
to be voted on at the Meetings and to request your proxy to vote in favor of the
proposals.
I. INFORMATION REGARDING VOTING AND SHAREHOLDER MEETINGS.
A. Proxy Solicitation. Shareholders of the Funds entitled to vote at the
Meetings will receive proxy materials in the mail. The Funds have engaged the
services of SCC to assist in the solicitation of proxies. As the date
approaches, if your vote is not received, you may receive a call from SCC
reminding you to exercise your right to vote.
B. Voting Process. You can vote in any one of the following four ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, by calling toll-free 1-877-518-9416 between the hours
of 9:00 a.m. and 11:00 p.m. Eastern time and following the
instructions;
c. By fax (not available for all shareholders; refer to enclosed
proxy insert); or
d. In person at the Meeting.
Shareholders who owned shares on the record date, September 29, 2000, are
entitled to vote at the meeting. Shareholders are entitled to cast one vote for
each share owned on the record date. If you choose to vote by mail or by fax,
and you are an individual account owner, please sign exactly as your name
appears on the proxy card. Either owner of a joint account may sign the proxy
card, but the signer's name must exactly match the name that appears on the
card. Whichever method you choose, please carefully read the proxy statement
which outlines in more detail the proposals you are asked to vote on.
C. Proxy Solicitation Costs. Liberty Financial Companies, Inc. (LFC), the
indirect parent of Stein Roe & Farnham Incorporated (SRF), the advisor to the
Funds, will bear the cost of the solicitation . By voting as soon as you receive
your proxy materials, you will help reduce the cost of additional mailings. The
cost of this assistance for each Fund is not expected to exceed the following:
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Fund Solicitation Cost
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Liberty Tax-Managed Growth Fund $25,000
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Liberty Tax-Managed Growth Fund II $ 3,000
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D. Record Date and Quorum. Each shareholder of record of each Fund at the close
of business on September 29, 2000 (Record Date) will have one vote for each
share held. Holders of 30% of the shares of each Fund outstanding on the Record
Date constitute a quorum and must be present in person or represented by proxy
for business to be transacted by such Fund at the Meetings on Proposal 2. With
respect to Proposal 1, shareholders of each Fund vote together with the
shareholders of the other series of the Trust for the election of Trustees; 30%
of the outstanding shares of the Trust constitutes a quorum for voting on the
election of Trustees. Regardless of how you vote ("For", "Against" or
"Abstain"), your shares will be counted as present and entitled to vote for
purposes of determining the presence of a quorum. If a shareholder withholds
authority or abstains, or the proxy reflects a "broker non-vote" (i.e., shares
held by brokers or nominees as to which (i) instructions have not been received
from the beneficial owners or persons entitled to vote and (ii) the broker or
nominee does not have discretionary voting power on a particular matter), it
will have the effect of votes (a) present for purposes of determining a quorum
for each proposal and (b) against Proposal 2. With respect to the election of
Trustees (Proposal 1), withheld authority, abstentions and broker non-votes have
no effect on the outcome of the voting.
E. Revoking Your Proxy. You may revoke your proxy at any time up until the
voting results are announced at the Meetings. You may revoke your proxy by
writing to the Secretary of the Funds, Attn: William J. Ballou, One Financial
Center, 11th Floor, Boston, Massachusetts 02111-2621. You may also revoke your
proxy by voting again by using one of the following three ways: (a) by using
your enclosed proxy card; (b) by fax (not available for all shareholders; refer
to the enclosed proxy insert) or (c) voting in person at the Meetings. You may
also revoke your vote telephonically by calling SCC at 1-877-518-9416.
F. Shareholder Proposals. Proposals of shareholders which are intended to be
considered for inclusion in the Funds' proxy statement must be received within a
reasonable amount of time prior to any meetings. The Funds do not currently
intend to hold shareholder meetings in 2001. You may submit shareholder
proposals to the Secretary of the Funds, Attention: William J. Ballou, One
Financial Center, 11th Floor, Boston, Massachusetts 02111-2621.
G. Annual/Semiannual Reports. Further information concerning each Fund is
contained in its most recent Annual and/or Semiannual Report to Shareholders,
which is obtainable free of charge by writing Colonial Management Associates,
Inc. at One Financial Center, Boston, Massachusetts 02111-2621 or by calling
1-800-426-3750.
H. Other Matters. As of the date of this proxy statement, only the business
mentioned in Proposals 1 and 2 of the Notice of the Special Meetings of
Shareholders is contemplated to be presented. If any procedural or other matters
come before the Meetings, your proxy shall be voted in accordance with the best
judgement of the proxy holder(s).
I. Adjournment. If sufficient votes in favor of any of the proposals set forth
in the Notice of Special Meetings of Shareholders are not received by the time
scheduled for the meeting, the persons named as proxies may propose adjournments
of the meeting for a period or periods of not more than 120 days in the
aggregate to permit further solicitation of proxies with respect to those
proposals. Any adjournment will require the affirmative vote of a majority of
the votes cast on the question in person or by proxy at the session of the
meeting to be adjourned. The persons named as proxies will vote in favor of
adjournment those proxies that are entitled to vote in favor of such proposals.
They will vote against adjournment those proxies required to be voted against
such proposals. Any proposals for which sufficient favorable votes have been
received by the time of the meeting may be acted upon and considered final
regardless of whether the meeting is adjourned to permit additional solicitation
with respect to any other proposal.
PROPOSAL 1. ELECT A BOARD OF TRUSTEES.
The purpose of this proposal is to elect four new members as well as seven of
the currently serving members of the Board of Trustees of the Trust. All of the
nominees listed below, except for the proposed four new members (Ms. Kelly and
Messrs. Hacker, Nelson and Theobald), are currently members of the Board of
Trustees of the Trust, as well as six other Liberty open-end trusts and nine
Liberty closed-end funds and, in the case of Messrs. Lowry, Mayer and Neuhauser,
one other Liberty open-end trust and eleven Liberty closed-end funds
(collectively, the "Liberty Fund Complex"), and have served in that capacity
continuously since originally elected or appointed. All of the currently serving
members, other than Mr. Palombo, have been previously elected to those Boards by
the shareholders of the Liberty Fund Complex. The proposed four new members
currently serve on the Boards of Trustees of two Stein Roe closed-end funds and
seven Stein Roe open-end trusts (collectively, the "Stein Roe Funds"), and were
recommended for election as Trustees of the Trust by the Board of Trustees of
the Trust at meetings held on October 25-26, 2000. Each of the nominees elected
will serve as a Trustee of the Trust until the next meetings of shareholders of
the Funds called for the purpose of electing a Board of Trustees, and until a
successor is elected and qualified or until death, retirement, resignation or
removal.
Currently, two different boards of trustees are responsible for overseeing
substantially all of the Liberty Fund Complex and Stein Roe Funds. The Trustees
of the Liberty Fund Complex and of the Stein Roe Funds and LFC, the indirect
parent of the investment advisors to the Liberty Fund Complex and Stein Roe
Funds, have agreed that shareholder interests can more effectively be
represented by a single board with responsibility for overseeing substantially
all of the Liberty Fund Complex and Stein Roe Funds. Creation of a single,
consolidated board should also provide certain administrative efficiencies (such
as the elimination of six board meetings as a result of the consolidation and
the corresponding elimination of the need to prepare duplicative board
materials) and potential future cost savings for the Liberty Fund Complex, the
Stein Roe Funds and LFC. The nominees listed below will be the members of the
single, consolidated Board of Trustees. The persons named in the enclosed proxy
card intend to vote at the Meetings in favor of the election of the nominees
named below as Trustees (if so instructed). If any nominee listed below becomes
unavailable for election, the enclosed proxy card may be voted for a substitute
nominee in the discretion of the proxy holder(s).
<PAGE>
Information about the Nominees
Set forth below is information concerning each of the nominees.
Nominee Name & Age Principal Occupation (1) and Directorships Trustee Since
Douglas A. Hacker Executive Vice President and Chief New nominee
(43) Financial Officer of UAL, Inc. (airline)
since July, 1999; Senior Vice President
and Chief Financial Officer of UAL, Inc.
prior thereto.
Janet Langford Kelly Executive Vice President-Corporate New nominee
(41) Development, General Counsel and
Secretary of Kellogg Company (food,
beverage and tobacco producer), since
September, 1999; Senior Vice President,
Secretary and General Counsel of Sara
Lee Corporation branded, packaged,
consumer-products manufacturer)
prior thereto.
Richard W. Lowry Private Investor since 1987 (formerly 1995
(64) Chairman and Chief Executive Officer of
U.S. Plywood Corporation (building
products producer) from August 1985 to
August 1987).
Salvatore Macera Private Investor since 1981 (formerly 1998
(69) Executive Vice President and Director of
Itek Corporation (electronics) from 1975
to 1981).
William E. Mayer(2) Partner, Park Avenue Equity Partners 1994
(60) (venture capital) since November, 1996;
Dean, College of Business and Management,
University of Maryland, prior thereto; Director,
Johns Manville (building products producer),
Lee Enterprises (print and online media)
and WR Hambrecht + Co. (financial service
producer).
Charles R. Nelson Van Voorhis Professor, Department of New nominee
(57) Economics, University of Washington;
consultant on economic and statistical
matters.
John J. Neuhauser Academic Vice President and Dean of 1985
(57) Faculties, Boston College, since August,
1999; Dean, Boston College School of
Management prior thereto.
<PAGE>
Nominee Name & Age Principal Occupation (1) and Directorships Trustee Since
Joseph R. Palombo(3) Trustee of the Liberty Fund Complex since 2000
(47) August 2000; Trustee of the Stein Roe
Funds since October 2000; Vice President
of the Liberty Mutual Funds and Stein Roe
Funds from April, 1999 to October, 2000;
Executive Vice President and Director of
Colonial and Stein Roe & Farnham
Incorporated; Executive Vice President
and Chief Administrative Officer of
Liberty Funds Group LLC since April,
1999; Director of Alpha Trade Inc.
(broker-dealer), Colonial Advisory
Services, Inc. Liberty Funds Distributor,
Inc., and Liberty Funds Services, Inc.
since April, 2000. Chief Operating
Officer, Putnam Mutual Funds prior
thereto.
Thomas E. Stitzel Business Consultant since 1999; Professor 1998
(64) of Finance and Dean, College of Business,
Boise State University prior thereto;
Chartered Financial Analyst.
Thomas C. Theobald Managing Director, William Blair Capital New nominee
(62) Partners (private equity investing) since
1994; Chief Executive Officer and Chairman
of the Board of Directors, Continental Bank
Corporation (banking services) prior thereto.
Anne-Lee Verville Consultant since 1997; General Manager, 1998
(55) Global Education Industry (global
education applications) prior thereto;
formerly President, Applications Solutions
Division, IBM Corporation (global education
and global applications) from 1991 to 1994.
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(1) Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
(2) Mr. Mayer is not affiliated with LFC, but is an "interested person," as
defined in the Investment Company Act of 1940, as amended (1940 Act),
because of his affiliation with WR Hambrecht + Co. (a registered
broker-dealer).
(3) Mr. Palombo is an "interested person," as defined in the 1940 Act, because
of his affiliation with LFC, the parent company of SRF and an indirect
majority-owned subsidiary of Liberty Mutual Insurance Company.
The following persons who are currently serving on the Board of Trustees are not
standing for reelection:
Nominee Name & Age Principal Occupation (1) and Directorships Trustee Since
Tom Bleasdale Retired (formerly Chairman of the Board 1987
(70) and Chief Executive Officer, Shore Bank &
Trust Company (banking services) from
1992 to 1993); Director, Empire Co. (food
distributor).
Lora S. Collins Attorney (formerly Attorney, Kramer, 1991
(65) Levin Naftalis & Frankel (law firm) from
1986 to 1996).
James E. Grinnell Private investor since November 1988. 1995
(72)
James L. Moody, Jr. Retired (formerly Chairman of the Board, 1986
(70) Hannaford Bros. Co. (food retailer) from
1984 to 1997 and Chief Executive Officer
prior thereto).
(1) Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
Trustees' Compensation; Meetings and Committees
A. Trustees' Compensation.
The members of the Board of Trustees of the Trust will serve as Trustees of the
Liberty Fund Complex and Stein Roe Funds, for which service each Trustee, except
for Mr. Palombo, will receive an annual retainer of $45,000, and attendance fees
of $8,000 for each regular joint Board meeting and $1,000 for each special joint
Board meeting. The Board of Trustees is expected to hold six regular joint Board
meetings each year. Committee chairs will receive an additional annual retainer
of $5,000. Other Committee members will receive an additional annual retainer of
$1,000, and receive $1,000 for each special meeting attended on a day other than
a regular joint Board meeting day. Two-thirds of the Trustees' fees are
allocated among the Liberty Fund Complex and Stein Roe Funds based on their
relative net assets, and one-third of the fees is divided equally among the
Liberty Fund Complex and Stein Roe Funds.
The Funds do not currently provide pension or retirement plan benefits to the
Trustees. However, certain Trustees currently serving on the Board of Trustees
of the Funds who are not continuing on the combined Board of Trustees of the
Liberty Fund Complex and Stein Roe Funds will receive payments at an annual rate
equal to their 1999 Trustee compensation for the lesser of two years or until
the date they would otherwise have retired at age 72. These payments will be
made quarterly, beginning in 2001. LFC and the Liberty Fund Complex will each
bear one-half of the cost of the payments; the Liberty Fund Complex portion of
the payments will be allocated among the Liberty Fund Complex based on each
fund's share of the Trustee fees for 2000.
Further information concerning the Trustees' compensation is disclosed under
"III. Other Information Regarding the Funds" on page 25.
B. Meetings and Certain Committees.
Composition. The current Board of Trustees of the Trust consists of two
interested and nine non-interested Trustees. Mr. Mayer is not affiliated with
LFC or any of its investment advisor affiliates, but is considered interested as
a result of his affiliation with a broker-dealer. Mr. Palombo is an interested
person because of his affiliation with LFC.
Audit Committee. The Audit Committee of the Trust, consisting of Ms. Verville
(Chairperson) and Messrs. Bleasdale, Grinnell, Lowry, Macera and Moody, all of
whom are non-interested Trustees, recommends to the Board of Trustees the
independent accountants to serve as auditors, reviews with the independent
accountants the results of the auditing engagement and internal accounting
procedures and considers the independence of the independent accountants the
range of their audit services and their fees.
Compensation Committee. The Compensation Committee of the Trust, consisting of
Messrs. Neuhauser (Chairperson), Grinnell and Stitzel and Ms. Collins, all of
whom are non-interested Trustees, reviews compensation of the Board of Trustees.
Governance Committee. The Governance Committee of the Trust, consisting of
Messrs. Bleasdale (Chairperson), Lowry, Mayer and Moody and Ms. Verville, all of
whom are non-interested Trustees, except for Mr. Mayer (Mr. Mayer is interested
as a result of his affiliation with a broker-dealer, but is not affiliated with
LFC), recommends to the Board of Trustees, among other things, nominees for
trustee and for appointments to various committees. The Committee will consider
candidates for trustee recommended by shareholders. Written recommendations with
supporting information should be directed to the Committee in care of the
applicable Fund, Attention: Secretary, One Financial Center, 11th Floor, Boston,
Massachusetts 02111-2621.
The Board of Trustees and the Committees held the following number of meetings
during the following fiscal year ended October 31, 2000:
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Board of Trustees 6
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Audit Committee 4
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Compensation Committee 2
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Governance Committee 5
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During the most recently completed fiscal year, each of the current Trustees
attended more than 75% of the meetings of the Board of Trustees of the Trust and
the committees of which such Trustee was a member.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF EACH FUND VOTE FOR
EACH NOMINEE IN PROPOSAL 1.
REQUIRED VOTE FOR PROPOSAL 1
Shareholders of each Fund vote together with the shareholders of the other
series of the Trust for the election of Trustees. A plurality of the votes cast
at the Meetings, if a quorum is represented, is required for the election of
each Trustee to the Board of Trustees of the Trust. Since the number of Trustees
has been fixed at eleven, this means that the eleven persons receiving the
highest number of votes will be elected.
PROPOSAL 2. APPROVE A SUB-ADVISORY AGREEMENT WITH STEIN ROE INVESTMENT
COUNSEL LLC.
A. Description of Proposal
Stein Roe & Farnham Incorporated (SRF) currently serves as the investment
advisor to each Fund. SRF's operations include separate strategic business
units, one of which is called Private Capital Management (PCM). A core portfolio
team of investment professionals within PCM runs the day-to-day business of each
Fund, including placing all orders for the purchase and sale of each Fund's
portfolio securities. In a transaction scheduled to close by December 31, 2000,
PCM will commence operations as an independent and unaffiliated
federally-registered investment advisor called Stein Roe Investment Counsel LLC
(SRIC) owned substantially by certain persons previously involved in the
business of PCM. The Board of Trustees which oversees the operations of the
Funds has approved the retention by SRF of SRIC as a sub-advisor to manage the
investment assets of each Fund. Under this arrangement, which is proposed to
begin on or about January 1, 2001, the same core portfolio team of investment
professionals that has been running the day-to-day business of each Fund under
SRF will continue to do so as part of SRIC.
At the Meetings, shareholders of Liberty Tax-Managed Growth Fund and Liberty
Tax-Managed Growth Fund II will be asked to approve Sub-Advisory Agreements,
substantially in the forms set forth in Appendix A and Appendix B, respectively,
between SRF and SRIC. Approval of the Sub-Advisory Agreements will not affect
the amount of management fees paid by the Funds to SRF under the existing
Management Agreements of the Funds. SRF, not the Funds, will pay sub-advisory
fees to SRIC under the Sub-Advisory Agreements.
Prior to the Meetings but before the closing of the transaction, it is expected
that SRIC will become a separate corporate entity which is still under the
control of LFC. At a meeting of the Board of Trustees scheduled to take place on
December 13-14, 2000, the Board of Trustees will be asked to approve interim
sub-advisory agreements between SRF and SRIC for the Funds on substantially the
same terms as the forms of the Sub-Advisory Agreements in Appendix A and
Appendix B, under which SRIC will provide sub-advisory services to the Funds
until the closing of the transaction. Subject to Board approval, these interim
sub-advisory agreements will be entered into immediately following the December
13-14, 2000 Board meeting. Also at that meeting, the Board of Trustees will be
asked to approve another set of interim sub-advisory agreements between SRF and
SRIC for the Funds pursuant to Rule 15a-4 under the Investment Company Act of
1940 (1940 Act), which will be entered into immediately following the closing of
the transaction (at which time the first set of interim sub-advisory agreements
will terminate due to an assignment) only if the Funds do not receive the
requisite shareholder vote for the Sub-Advisory Agreements at the Meetings.
These interim sub-advisory agreements will be in substantially the forms set
forth in Appendix A and Appendix B but also will include certain provisions
required by Rule 15a-4 (such as a maximum term of 150 days, a provision that a
Fund's Board of Trustees or a majority of the Fund's shareholders may terminate
the agreement at any time without penalty on not more than 10 days' written
notice, and a provision that the compensation earned by SRIC thereunder will be
held in an interest-bearing escrow account until shareholder approval of the
Sub-Advisory Agreements is obtained, in which case the amount in the escrow
account will be paid to SRIC).
B. Current Management Agreement
Currently, SRF manages the investment of the assets of Liberty Tax-Managed
Growth Fund and Liberty Tax-Managed Growth Fund II pursuant to Management
Agreements dated December 23, 1996 and March 1, 2000, respectively, which were
most recently approved by the shareholders of each Fund on February 2, 1997 and
March 1, 2000, respectively. Under its Management Agreements with the Funds, SRF
provides the Funds with discretionary investment services. Specifically, SRF is
responsible for supervising and directing the investments of the Funds in
accordance with their respective investment objectives, policies and
restrictions. SRF also is responsible for effecting all security transactions on
behalf of the Funds, including the allocation of principal business and
portfolio brokerage and the negotiation of commissions.
SRF receives monthly fees at the annual rate of 0.60% and 0.80%, respectively,
of the average daily net assets of Liberty Tax-Managed Growth Fund and Liberty
Tax-Managed Growth Fund II. For the fiscal year ended October 31, 2000, the
aggregate fees paid by Liberty Tax-Managed Growth Fund to SRF under the
Management Agreement for the Fund were approximately $4,114,693 (unaudited).
Liberty Tax-Managed Growth Fund II commenced operations on March 1, 2000 and has
yet to complete a full fiscal year. For the period from March 1, 2000 through
October 31, 2000, the aggregate fees paid by Liberty Tax-Managed Growth Fund II
to SRF under the Management Agreement for the Fund were approximately $142,777
(unaudited).
C. Description of Sub-Advisory Agreements
General
Under the Sub-Advisory Agreements, SRIC, under the supervision of the Board of
Trustees and SRF, will: (a) manage the investment of the assets of the Funds in
accordance with the investment objectives, policies and limitations stated in
the Funds' then current Prospectuses and Statements of Additional Information;
(b) place purchase and sale orders for portfolio transactions for the Funds; (c)
evaluate such economic, statistical and financial information and undertake such
investment research as it shall believe advisable; (d) employ professional
portfolio managers to provide research services to the Funds; and (e) report
results to the Board of Trustees.
Each of the Sub-Advisory Agreements provides that, in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its duties and
obligations under the Sub-Advisory Agreement, SRIC shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution and management of the
Fund.
Each of the Sub-Advisory Agreements will remain in effect pursuant to its terms
until January 1, 2002, and from year to year thereafter, but only so long as its
continuance is specifically approved at least annually by the Board of Trustees
or by vote of a majority of the outstanding voting securities of the Fund. Each
of the Sub-Advisory Agreements is terminable at any time without penalty on
sixty days' written notice to SRIC by vote of the Board of Trustees, by vote of
a majority of the outstanding voting securities of the Fund, or by SRF, and by
SRIC on ninety days' written notice to SRF and the Funds. Each of the
Sub-Advisory Agreements also will terminate automatically in the event of its
assignment as defined under the 1940 Act or in the event that the Management
Agreement for the applicable Fund shall have terminated for any reason. Each of
the Sub-Advisory Agreements may be amended only in accordance with the 1940 Act.
The above description of the proposed Sub-Advisory Agreements for Liberty
Tax-Managed Growth Fund and Liberty Tax-Managed Growth Fund II is qualified in
its entirety by reference to the forms of Sub-Advisory Agreements that are set
forth in Appendix A and Appendix B, respectively, to this proxy statement.
Sub-Advisory Fees
For each Fund, SRIC will be entitled to receive compensation for its services
based in part on the performance achieved by the Fund (a "Performance Fee"). The
arrangement will reward SRIC for performance that puts a Fund in the top
quartile of Morningstar, Inc.'s Large Blend Category for domestic equity funds,
but also will reduce SRIC's compensation with respect to periods during which a
Fund's performance is below median in Morningstar, Inc.'s Large Blend Category
for domestic equity funds.
For each Fund, SRF will pay SRIC a monthly Performance Fee that will consist of
a basic fee calculated at the annual rate of 0.20% of the average daily net
assets of the Fund (the "Basic Fee"), which is subject to adjustment by a factor
referred to herein as the "Performance Adjustment Rate." The Performance
Adjustment Rate will be readjusted quarterly depending on the Fund's performance
over a specified period of time as measured by Morningstar, Inc.'s Large Blend
Category for domestic equity funds. The Performance Adjustment Rates applicable
to each Morningstar ranking are as follows:
------------------------------------------ -------------------------------------
Morningstar Ranking Performance Adjustment Rate
------------------------------------------ -------------------------------------
------------------------------------------ -------------------------------------
Quartile 1 1.25
------------------------------------------ -------------------------------------
------------------------------------------ -------------------------------------
Quartile 2 1.00
------------------------------------------ -------------------------------------
------------------------------------------ -------------------------------------
Below Median (i.e., Quartile 3 or 4) 0.75
------------------------------------------ -------------------------------------
The total monthly Performance Fee paid by SRF to SRIC is determined by
multiplying the Basic Fee (0.20% of the average daily net assets of a Fund) by
the Performance Adjustment Rate. Expressed in mathematical terms the monthly fee
payable to SRIC would be:
Monthly Performance Fee = Basic Fee x Performance Adjustment Rate.
The table below sets forth the total Performance Fee to which SRIC would be
entitled from SRF assuming that it achieves the indicated Morningstar ranking:
If a Fund achieves SRIC will receive a fee from SRF
a Morningstar ranking of: at an annual rate of:
--------------------------------- ---------------------------------------------
Quartile 1 0.25% of the Fund's average daily net assets
(Basic Fee x 1.25 Performance
Adjustment Rate)
Quartile 2 0.20% of the Fund's average daily net assets
(Basic Fee x 1.00 Performance
Adjustment Rate)
Quartile 3 or 4 0.15% of the Fund's average daily net assets
(Basic Fee x 0.75 Performance
Adjustment Rate)
As shown in the table above, the Performance Fee payable to SRIC under the
Sub-Advisory Agreements may be adjusted to an annual rate as high as 0.25% of
the average daily net assets of a Fund, or to an annual rate as low as 0.15% of
the average daily net assets of a Fund, depending on the Fund's performance.
Notwithstanding the above, the Sub-Advisory Agreements provide that SRIC shall
not receive a fee less than $350,000 per annum in the aggregate for managing
both Funds.
At the end of each calendar quarter, a new Performance Adjustment Rate will be
calculated based on a Fund's Morningstar ranking for the three-year period ended
on the last day of that calendar quarter. This new Performance Adjustment Rate
will apply to the Performance Fees payable to SRIC for the next calendar
quarter. For example, if a Fund's Morningstar ranking increases from Quartile 2
for the three-year period ended March 31, 2001 to Quartile 1 for the three-year
period ended June 30, 2001, the monthly Performance Fees payable from SRF to
SRIC will increase from an annual rate of 0.20% of the average daily net assets
of the Fund (for the second quarter of 2001) to an annual rate of 0.25% of the
average daily net assets of the Fund (for the third quarter of 2001.)
Because the Liberty Tax-Managed Growth Fund II has not yet been in operation for
three years, its Performance Adjustment Rate will be based on the Fund's
Morningstar ranking for the period from March 1, 2000 (commencement of
operations) to the last day of the most recent calendar quarter. Once the
Liberty Tax-Managed Growth Fund II has been in operation for three years, the
Performance Adjustment Rate for each calendar quarter shall be the rate
applicable to the Fund's Morningstar ranking for the three-year period ending on
the last day of the most recent calendar quarter.
This Performance Fee may create an incentive for SRIC to make investments that
are riskier than would be the case in the absence of this performance
adjustment. However, SRIC's fee will be reduced if a Fund performs poorly, but
not below $350,000 per annum in the aggregate for managing both Funds.
Shareholders should be aware that SRIC could be entitled to a higher fee even
during periods when the value of a Fund declines. This could occur if the Fund's
value declines but the Fund still performs better than its peers as measured by
its Morningstar ranking. In addition, SRIC's fee will partially be based on the
performance of the Funds during a period when it did not act as sub-advisor to
the Funds.
Shareholders should note that the contractual level of management fees for the
Fund shareholders will not increase or decrease as a result of this proposal.
SRF, and not the Funds, will be responsible for paying the Performance Fees to
SRIC under the Sub-Advisory Agreements.
D. Information Regarding SRIC, SRF and their Affiliates
SRIC
The following information regarding SRIC has been provided by SRIC.
SRIC, located at One South Wacker Drive, Suite 3500, Chicago, Illinois 60606, is
a Delaware limited liability company. It is registered as an investment advisor
and will be the successor to the business presently conducted by the PCM
division of SRF. Liberty Financial Services, Inc., a Massachusetts corporation
(Liberty Financial Services) and an affiliate of SRF, is currently the
beneficial owner of all of the membership interest in SRIC.
Liberty Financial Services has entered into a Membership Interest Purchase and
Sale Agreement, dated October 31, 2000 (Purchase and Sale Agreement), among
itself, Liberty Financial Companies, Inc. (LFC), a Massachusetts corporation and
an affiliate of SRF, SRIC Acquisition LLC (SRIC Acquisition), a Delaware limited
liability company, SRIC Holdings LLC, a Delaware limited liability company owned
by certain persons involved in the business presently being conducted by PCM,
and Putnam Lovell Equity Partners LP, a Delaware limited partnership (PLEP).
SRIC Acquisition is currently owned by SRIC Holdings LLC. The General Partner of
PLEP is Putnam Lovell Equity Advisors LLC, and the Managing Member is Putnam
Lovell Capital Partners, Inc.
Under and subject to the conditions of the Purchase and Sale Agreement, SRIC
Acquisition will purchase SRIC and will then merge into SRIC. SRIC will be the
survivor of the merger. For the sale of SRIC under the Purchase and Sale
Agreement, Liberty Financial Services will receive a cash payment in the amount
of $10 million and a promissory note payable to Liberty Financial Services in
the principal amount of $30,000,000 due December 31, 2005 with the principal and
interest paid in installments. As a result, SRIC will be required to make
ongoing payments to Liberty Financial Services under the promissory note issued
in connection with the transaction.
After the consummation of this transaction, SRIC will be owned 40% by PLEP and
60% by SRIC Holdings LLC. The effect of the transaction is that SRIC will be a
separate company that will be operated and substantially owned by former
executives of PCM. The address of SRIC Holdings LLC is One South Wacker Drive,
Suite 3500, Chicago, Illinois 60606, and the address of PLEP is 501 Deep Valley
Drive, Suite 300, Rolling Hills Estates, California 90274.
Each Fund will be managed by a team of investment professionals assigned to it
by SRIC as sub-advisor of the Fund. No single individual has primary management
responsibility over a Fund's portfolio securities. It is expected that
substantially the same team of investment professionals currently managing the
Funds under SRF will be assigned responsibility of managing the Funds under
SRIC.
SRIC will be a newly organized entity with no operating history. Although
substantially the same core team of investment professionals is expected to
manage the Funds under SRIC, the past performance of the Funds under this team
can provide no assurance of future results.
The following table sets forth certain information concerning the principal
executive officers and managers of SRIC. The address of Messrs. Kozanda, Rankin
and Stacke, and Ms. MacAyeal is One South Wacker Drive, Suite 3500, Chicago,
Illinois 60606. The address of Mr. Lovell is 501 Deep Valley Drive, Suite 300,
Rolling Hills Estates, California 90274. The address of Mr. Minnick is 7 Great
Valley Parkway, Suite 290, Malvern, Pennsylvania 19355. In addition to those
managers listed below, Liberty Financial Services has retained the right under
the Purchase and Sale Agreement to appoint a non-voting member of the Board of
Managers of SRIC.
-------------------------------- -----------------------------------------------
Name Principal Occupation
-------------------------------- -----------------------------------------------
-------------------------------- -----------------------------------------------
Kenneth J. Kozanda Chief Operating Officer, Treasurer and Member
of the Board of Managers of SRIC
-------------------------------- -----------------------------------------------
-------------------------------- -----------------------------------------------
Jeffrey D. Lovell Member of the Board of Managers of SRIC,
Managing Director of PLEP
-------------------------------- -----------------------------------------------
-------------------------------- -----------------------------------------------
Linda S. MacAyeal Vice President, General Counsel and Secretary
of SRIC
-------------------------------- -----------------------------------------------
-------------------------------- -----------------------------------------------
James E. Minnick Member of the Board of Managers of SRIC,
Managing Director of PLEP
-------------------------------- -----------------------------------------------
-------------------------------- -----------------------------------------------
James H. Stacke Executive Vice President and Member of the
Board of Managers of SRIC
-------------------------------- -----------------------------------------------
-------------------------------- -----------------------------------------------
William E. Rankin President, Chief Executive Officer and Member
of the Board of Managers of SRIC
-------------------------------- -----------------------------------------------
SRF and Other Affiliates
SRF, located at One South Wacker Drive, Chicago, Illinois 60606, is an indirect
wholly-owned subsidiary of LFC. LFC is a direct majority-owned subsidiary of LFC
Management Corporation, which in turn is a direct wholly-owned subsidiary of
Liberty Corporate Holdings, Inc., which in turn is a direct wholly-owned
subsidiary of LFC Holdings, Inc., which in turn is a direct wholly-owned
subsidiary of Liberty Mutual Equity Corporation, which in turn is a direct
wholly-owned subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). As
of September 30, 2000, LFC Management Corporation owned 71.12% of LFC. LFC is a
diversified and integrated asset management organization which provides
insurance and investment products to individuals and institutions. The principal
executive offices of Liberty Financial Services, LFC, LFC Management
Corporation, Liberty Corporate Holdings, Inc. and LFC Holdings, Inc. are located
at 600 Atlantic Avenue, 24th Floor, Boston, Massachusetts 02210. Liberty Mutual
is an underwriter of workers' compensation insurance and a property and casualty
insurer in the United States, organized under the laws of Massachusetts in 1912.
The principal business activities of Liberty Mutual's subsidiaries other than
LFC are property-casualty insurance, insurance services and life insurance
(including group life and health insurance products) marketed through its own
sales force. The principal executive offices of Liberty Mutual and Liberty
Mutual Equity Corporation are located at 175 Berkeley Street, Boston,
Massachusetts 02117.
On November 1, 2000, LFC announced that it had retained CS First Boston to help
explore strategic alternatives, including the possible sale of LFC.
SRF and its predecessor have been providing investment advisory services since
1932. SRF also acts as investment advisor to wealthy individuals, trustees,
pension and profit sharing plans, charitable organizations and other
institutional investors. The sole director of SRF is C. Allen Merritt, Jr. Mr.
Merritt is Chief Operating Officer of Liberty Financial. Stephen E. Gibson is
President of SRF's Mutual Funds division and William E. Rankin is President of
SRF's Private Capital Management division. In addition, Mr. Gibson serves as an
officer of the Funds. The business address of Mr. Merritt is 600 Atlantic
Avenue, Federal Reserve Plaza, Boston, Massachusetts 02210-2214; that of Mr.
Gibson is One Financial Center, Boston, Massachusetts 02111-2621; and that of
Mr. Rankin is One South Wacker Drive, Chicago, Illinois 60606.
Colonial Management Associates, Inc. (Colonial), an affiliate of SRF located at
One Financial Center, Boston, Massachusetts 02111-2621, provides administrative
services to Liberty Tax-Managed Growth Fund and Liberty Tax-Managed Growth Fund
II under separate Administration Agreements, which will continue after each
Sub-Advisory Agreement is approved, for an annual fee of 0.25% and 0.20%,
respectively, of each Fund's average daily net assets. For the fiscal year ended
October 31, 2000, the aggregate fees paid by Liberty Tax-Managed Growth Fund to
Colonial under the Administration Agreement for the Fund were approximately
$2,334,143 (unaudited). For the period from March 1, 2000 through October 31,
2000, the aggregate fees paid by Liberty Tax-Managed Growth Fund II to Colonial
under the Administration Agreement for the Fund were approximately $35,694
(unaudited). These Administration Agreements with Colonial will remain in
effect.
Colonial provides pricing and bookkeeping services to each of the Funds pursuant
to a Pricing and Bookkeeping Agreement, which will continue after each
Sub-Advisory Agreement is approved. For each Fund, Colonial is paid a monthly
fee of $2,250 plus the following percentages of the Fund's average daily net
assets over $50 million:
0.035% annually on the next $950 million;
0.025% annually on the next $1 billion;
0.015% annually on the next $1 billion; and
0.001% annually on the excess over $3 billion
For the fiscal year ended October 31, 2000, the pricing and bookkeeping fees
paid by Liberty Tax-Managed Growth Fund to Colonial under the Pricing and
Bookkeeping Agreement were approximately $251,413 (unaudited). For the period
from March 1, 2000 through October 31, 2000, the pricing and bookkeeping fees
paid by Liberty Tax-Managed Growth Fund II to Colonial under the Pricing and
Bookkeeping Agreement were approximately $17,860 (unaudited).
Liberty Funds Services, Inc. (LFSI), a subsidiary of LFG located at One
Financial Center, Boston, Massachusetts 02111-2621, is the Funds' investor
servicing agent (transfer, plan and dividend disbursing agent, and shareholder
services provider), for which it receives monthly fees paid by the Funds, which
will continue to be paid after each Sub-Advisory Agreement is approved. The fee
paid to LFSI is based on the average daily net assets of each Fund, charges
based on the number of shareholder accounts and transactions, and reimbursement
for certain out-of-pocket expenses. For the fiscal year ended October 31, 2000,
the aggregate fees paid by to LFSI on behalf of Liberty Tax-Managed Growth Fund
were approximately $1,030,791 (unaudited). For the period from March 1, 2000
through October 31, 2000, the aggregate fees paid by to LFSI on behalf of
Liberty Tax-Managed Growth Fund II were approximately $34,459 (unaudited).
Liberty Funds Distributor, Inc. (LFDI), a subsidiary of Colonial located at One
Financial Center, Boston, MA 02111-2621, acts as distributor for each of the
Funds under a distribution agreement, which will continue after each
Sub-Advisory Agreement is approved. The Trustees have approved a 12b-1 plan
(Plan) for each Fund pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
each Fund pays LFDI a service fee at an annual rate of 0.25% of the Fund's net
assets attributed to Classes A, B and C. Each Fund also pays a monthly
distribution fee at an annual rate of 0.75% of the average daily net assets
attributed to Class B and Class C Shares. Liberty Tax-Managed Growth Fund also
pays a monthly (i) service fee at an annual rate of 0.25% of the Fund's net
assets attributed to Classes E and F, and (ii) distribution fee at an annual
rate of 0.10% of the Fund's net assets attributed to Class E and 0.75% of the
Fund's net assets attributed to Class F. For the periods below, the aggregate
fees paid by the Funds to LFDI were as follows:
12b-1 fees paid to LFDI (Unaudited)
-------------------------- ------------------------- ---------------------------
Liberty Tax-Managed Liberty Tax-Managed Growth
Growth Fund Fund II
(Fiscal Year Ended (For the period from
Fees (Approximate) October 31, 2000) March 1, 2000 to
October 31, 2000)
-------------------------- ------------------------- ---------------------------
-------------------------- ------------------------- ---------------------------
Service Fees $1,722,308(a) $36,814(b)
-------------------------- ------------------------- ---------------------------
-------------------------- ------------------------- ---------------------------
Distribution Fees $4,059,512(c) $98,689(d)
-------------------------- ------------------------- ---------------------------
(a) Classes A, B, C, E, F, G and H. Effective February 28, 2000, Class E
shares merged into Class G shares, Class G shares were redesignated
Class E shares, Class F shares merged into Class H shares and Class H
shares were redesignated Class F shares.
(b) Classes A, B and C.
(c) $3,433,508 were attributable to Class B Shares; $528,692 were
attributable to Class C Shares; $6,049 were attributable to Class E
Shares; $65,834 were attributable to Class F Shares; $2,355 were
attributable to Class G Shares; and $23,074 were attributable to Class
H Shares.
(d) $88,615 were attributable to Class B Shares and $10,074 were
attributable to Class C Shares.
Colonial and SRF may continue to use the services of AlphaTrade Inc.
(AlphaTrade), a registered broker-dealer subsidiary of Colonial, when buying or
selling certain equity securities for a Fund's portfolio pursuant to procedures
adopted by the Trustees and Rule 17e-1 under the 1940 Act. For the fiscal year
ended October 31, 2000, SRF did not pay any commissions to AlphaTrade on behalf
of Liberty Tax-Managed Growth Fund. For the period from March 1, 2000 through
October 31, 2000, SRF did not pay any commissions to AlphaTrade on behalf of
Liberty Tax-Managed Growth Fund II.
These services provided to the Funds will continue to be provided if the
Sub-Advisory Agreements are approved by shareholders of the Funds.
E. The Evaluation by the Board of Trustees
At meetings held on October 25-26, 2000, the Trustees of the Trust considered
information with respect to whether the proposed Sub-Advisory Agreements are in
the best interests of the Funds and their shareholders. The Board of Trustees
considered, among other factors, representations by SRIC regarding the nature
and quality of services to be provided to the Funds and information regarding
fees. The Board of Trustees considered that the Sub-Advisory Agreements with
SRIC will not affect the fees paid by the Funds under the Management Agreements
with SRF, and that the same core portfolio team of investment professionals that
has been running the day-to-day business of each Fund will continue to do so
under the Sub-Advisory Agreements with SRIC. The Board of Trustees also
considered the conflicts of interest inherent in SRF's recommendation that SRIC
be hired as the sub-advisor of the Funds because SRF's affiliates will receive
monetary consideration in connection with the reorganization of PCM as SRIC.
Based upon their review, the Board of Trustees of the Trust concluded that each
of the Sub-Advisory Agreements is reasonable, fair and in the best interests of
each of the Funds and its shareholders, and that the fees provided in each of
the Sub-Advisory Agreements are fair and reasonable in light of the usual and
customary charges made by others for services of the same nature and quality.
The Board of Trustees considered that the fees payable under each of the
Sub-Advisory Agreements would contain a performance component and concluded that
this arrangement would be in the best interest of each of the Funds and its
shareholders. Accordingly, after consideration of the above factors, and such
other factors and information as they deemed relevant, the Board of Trustees of
the Trust, including a majority of the Trustees who are not "interested
persons," as defined in the 1940 Act, of any party to the Sub-Advisory
Agreements, unanimously approved each of the Sub-Advisory Agreements and voted
to recommend their approval by shareholders of the Funds.
F. Interests of Certain Persons
No officer or Trustee of the Trust is an officer, employee or director of SRIC.
Since November 1, 1999, no Trustee or officer of the Trust engaged in
transactions of 1% or more of the outstanding securities of any class of SRIC,
any of its parent companies or subsidiaries of SRIC or SRIC's parent companies.
No Trustee of the Trust has had any direct or indirect material interest in any
material transaction since November 1, 1999, or in any material proposed
transaction, to which SRIC, its parent companies, or subsidiaries of SRIC or its
parent companies was or is to be a party. There is no arrangement or
understanding in connection with the Sub-Advisory Agreements with respect to the
composition of the Trust's Board of Trustees or SRIC's management or with
respect to the selection or appointment of any person to any office of such
company.
G. Vote Required
Approval of each Sub-Advisory Agreement will require the approval of "a majority
of the outstanding voting securities" of each Fund, present in person or
represented by proxy at a meeting of the shareholders of that Fund. A "majority
of the outstanding voting securities" requires approval by the holders of 67% or
more of the Fund's voting securities which are present at the Meeting if the
holders of more than 50% of such securities are present in person or by proxy,
or more than 50% of the Fund's voting securities, whichever is less.
Immediately after the December 13-14, 2000 meeting (and subject to the approval
of) the Board of Trustees of the Trust, SRF and SRIC intend to enter into
interim sub-advisory agreements for each Fund, in substantially the forms set
forth in Appendix A and Appendix B, which will terminate and be replaced on the
closing date of the transaction by the Sub-Advisory Agreements if the requisite
shareholder vote is obtained at the Meetings. In the event that the shareholders
do not approve the Sub-Advisory Agreements at the meetings, SRF and SRIC will
enter into another set of interim sub-advisory agreements pursuant to Rule 15a-4
under the 1940 Act, which will take effect immediately following the closing of
the transaction (at which time the first set of interim sub-advisory agreements
will terminate due to an assignment). These interim sub-advisory agreements will
be in substantially the forms set forth in Appendix A and Appendix B but also
will include certain provisions required by Rule 15a-4 (such as a maximum term
of 150 days, a provision that a Fund's Board of Trustees or a majority of the
fund's shareholders may terminate the agreement at any time without penalty on
not more than 10 days' written notice, and a provision that the compensation
earned by SRIC thereunder will be held in an interest-bearing escrow account
until shareholder approval of the Sub-Advisory Agreements is obtained, in which
case the amount in the escrow account will be paid to SRIC). In the event that a
Sub-Advisory Agreement does not receive the requisite shareholder approval, SRF
will (a) manage all of the assets of the applicable Fund itself, (b) negotiate a
new investment sub-advisory agreement with a different advisory organization, or
(c) make other appropriate arrangements, subject to approval in accordance with
the 1940 Act.
Again, the contractual level of management fees for Fund shareholders will not
increase as a result of this proposal because SRF will be responsible for paying
the sub-advisory fees to SRIC under the Sub-Advisory Agreements or any interim
sub-advisory agreements.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF EACH FUND
VOTE FOR PROPOSAL 2.
<PAGE>
III. OTHER INFORMATION REGARDING THE FUNDS
A. Outstanding Shares
On September 29, 2000, the Funds had shares of beneficial interest outstanding
as follows:
----------------------------- --------------------------- ----------------------
Liberty Tax-Managed Liberty Tax-Managed
Growth Fund Growth Fund II
----------------------------- --------------------------- ----------------------
----------------------------- --------------------------- ----------------------
Class A 8,683,133.528 466,935.419
----------------------------- --------------------------- ----------------------
----------------------------- --------------------------- ----------------------
Class B 29,401,008.779 3,689,774.917
----------------------------- --------------------------- ----------------------
----------------------------- --------------------------- ----------------------
Class C 4,424,400.752 399,039.966
----------------------------- --------------------------- ----------------------
----------------------------- --------------------------- ----------------------
Class E 494,143.783 N/A
----------------------------- --------------------------- ----------------------
----------------------------- --------------------------- ----------------------
Class F 740,379.827 N/A
----------------------------- --------------------------- ----------------------
----------------------------- --------------------------- ----------------------
Class Z 101,713.496 450,302.294
----------------------------- --------------------------- ----------------------
On September 29, 2000, all series of the Trust, including the Funds,
collectively had 559,435,280.400 shares of beneficial interest outstanding.
As of September 29, 2000, the following shareholders of record owned 5% or more
of the applicable outstanding Class(es) of shares of Liberty Tax-Managed Growth
Fund (LTMGF) and Liberty Tax-Managed Growth Fund II (LTMGII):
----------- --------- --------------------------- ----------------- ------------
Percentage
Number of of
Class Outstanding Outstanding
of Name and Address of Shares of Class Shares of
Fund Shares Shareholder Owned Class Owned
----------- --------- --------------------------- ----------------- ------------
----------- --------- --------------------------- ----------------- ------------
LTMGF B & C Merrill Lynch, Pierce, 2,210,197.589 7.52%
Fenner & Smith, Inc. (B) 8.65%
For the Sole Benefit of 382,707.118 (C)
its Customers
4800 Deer Lake Drive E.
2nd Floor
Jacksonville, FL 32246
----------- --------- --------------------------- ----------------- ------------
----------- --------- --------------------------- ----------------- ------------
LTMGF Z Investors Bank & Trust 10,965.698 10.78%
Company Custodian
Leon Jonas Jr. IRA
611 Foxcroft Road
Elkins Park, PA 19207
----------- --------- --------------------------- ----------------- ------------
----------- --------- --------------------------- ----------------- ------------
LTMGF Z Investors Bank and Trust 10,865.715 10.68%
Company Custodian
Patrick J. Banfield IRA
22 Meeting House Square
Middleton, MA 01949
----------- --------- --------------------------- ----------------- ------------
----------- --------- --------------------------- ----------------- ------------
LTMGF Z Investors Bank and Trust 10,865.718 10.68%
Company Custodian
Robert G. Banfield IRA
109 Island Beach Road
Wells, ME 04090
----------- --------- --------------------------- ----------------- ------------
<PAGE>
-------------- -------- ------------------------ ---------------- --------------
Number of Percentage of
Liberty Class Outstanding Outstanding
Mutual of Name and Address of Shares of Shares of
Fund Shares Shareholder Class Owned Class Owned
-------------- -------- ------------------------ ---------------- --------------
-------------- -------- ------------------------ ---------------- --------------
LTMGF Z Paul Rothman 9,319.659 9.16%
Industries LTD Pension
Plan
169 E. 69th Street
Apt. 12A
New York, NY 10021
-------------- -------- ------------------------ ---------------- --------------
-------------- -------- ------------------------ ---------------- --------------
LTMGF Z Investors Bank & Trust 5,790.438 5.69%
Company Custodian
Virginia Sorrells
Trustee
Edward Jones Family
Trust E Ben of Edward
Jones IRA
3159 Ferncreek Lane
Escondido, CA 92027
-------------- -------- ------------------------ ---------------- --------------
-------------- -------- ------------------------ ---------------- --------------
LTMGF Z Investors Bank & Trust 5,243.214 5.15%
Company Custodian
Barbara Witteborg
Trustee
Edward Jones Family
Trust C Ben of Edward
Jones IRA
7334 Northeast 85th
Ter.
Kansas City, MO 64157
-------------- -------- ------------------------ ---------------- --------------
-------------- -------- ------------------------ ---------------- --------------
LTMGF Z The Primary Day School 34,699.567 34.12%
Inc.
7300 River Road
Bethesda, MD 20817
-------------- -------- ------------------------ ---------------- --------------
-------------- -------- ------------------------ ---------------- --------------
LTMGFII A Helen F. Lewis Trustee 24,096.386 5.16%
Helen F. Lewis Trust
200 Glenwood Cir. F-1
Monterey, CA 93940
-------------- -------- ------------------------ ---------------- --------------
-------------- -------- ------------------------ ---------------- --------------
LTMGFII Z Johanna C. Plaut Trust 25,115.596 5.58%
FBO Edward Plaut Jr.
c/o Joann Santoro
Patterson Belknap Webb
& Tyler
1133 Ave. of the
Americas
New York, NY 10036
-------------- -------- ------------------------ ---------------- --------------
-------------- -------- ------------------------ ---------------- --------------
LTMGFII Z Colonial Management 225,000.000 49.97%
Associates, Inc.
One Financial Center
Boston, MA 02111
-------------- -------- ------------------------ ---------------- --------------
As of the Record Date, the executive officers and the current Board of Trustees
as a group were known to beneficially own less than 1% of each of the
outstanding Class(es) of shares of each of the Funds.
<PAGE>
B. Executive Officers
The following table sets forth certain information about the executive officers
of the Trust:
Executive Officer Office with the Trust; Principal Year of Election as
Name & Age Occupation (1) Executive Officer
---------- -------------- -----------------
Stephen E. Gibson President of the Liberty Funds Complex 1998
(46) since June, 1998, President of the
Stein Roe Funds since November, 1999,
Chairman of the Board since July, 1998,
Chief Executive Officer and President
since December, 1996 and Director,
since July, 1996 of the Colonial
(formerly Executive Vice President
from July, 1996 to December, 1996);
Director, Chief Executive Officer and
President of Liberty Funds Group LLC
(LFG) since December, 1998 (formerly
Director, Chief Executive Officer and
President of The Colonial Group, Inc.
(TCG) from December, 1996 to December,
1998); President and Vice Chairman of SR&F
since January, 2000 (formerly Assistant
Chairman and Executive Vice President
from August, 1998 to January, 2000)
(formerly Managing Director of Marketing
of Putnam Investments, June, 1992 to July, 1996.)
<PAGE>
Executive Officer Office with the Funds; Principal Year of Election as
Name & Age Occupation (1) Executive Officer
---------- -------------- -----------------
Kevin M. Carome Executive Vice President of Liberty 2000
(44) Funds Complex and Liberty All-Star
Funds since October, 2000;
Executive Vice President of the
Stein Roe Funds since May, 1999;
formerly Vice President from
April, 1998 to May, 1999, Assistant
Secretary from April, 1998 to
February, 2000 and Secretary
from February, 2000 to May, 2000;
Chief Legal Officer, LFC since
August, 2000; Senior Vice President,
Legal, LFG since January, 1999;
General Counsel and Secretary of SRF
since January, 1998; Associate General
Counsel and Vice President of LFC prior
thereto.
William J. Ballou Secretary of the Liberty Funds Complex 2000
(35) and Liberty All-Star Funds since
October, 2000; Assistant Secretary
from October, 1997 to October, 2000
of the Liberty Funds Complex; Assistant
Secretary of the Stein Roe Funds from May,
2000 to November, 2000; Vice President,
Assistant Secretary and Counsel of
Colonial since October, 1997; Vice
President and Counsel since April,
2000 and Assistant Secretary since December,
1998 of LFG; Associate Counsel; Massachusetts
Financial Services Company; from May, 1995
to September, 1997; Associate, Ropes & Gray
from September, 1991 to May, 1995) .
(1) Except as otherwise noted, each individual has held the office
indicated or other offices in the same company for the last five
years.
<PAGE>
C. Trustee Compensation
The current Board of Trustees received the following compensation from each Fund
as of each Fund's fiscal year end 1:
-------------------------- ----------------------- -----------------------
FUND LTMGF LTMGFII
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Fiscal Year End 10/31/99 10/31/99 2
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Trustee:
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Mr. Bleasdale $1,779 3 $511 4
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Ms. Collins 1,564 491
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Mr. Grinnell 1,629 511
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Mr. Lowry 1,581 491
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Mr. Macera 1,687 491
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Mr. Mayer 1,593 511
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Mr. Moody 1,473 5 511 6
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Mr. Neuhauser 1,650 515
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Mr. Stitzel 1,687 491
-------------------------- ----------------------- -----------------------
-------------------------- ----------------------- -----------------------
Ms. Verville 1,708 7 491 8
-------------------------- ----------------------- -----------------------
-----------------------------
1 The Funds do not currently provide pension or retirement plan benefits to
the Trustees.
2 Since the Fund has not completed its first full fiscal year, compensation is
estimated based upon future payments to be made and upon estimated relative
fund net assets.
3 Includes $850 payable in later years as deferred compensation.
4 Includes $260 payable in later years as deferred compensation.
5 Total compensation of $1,473 for the fiscal year
ended October 31, 1999, will be payable in later years as deferred compensation.
6 Total compensation of $511 for the fiscal year ended October 31, 1999, will
be payable in later years as deferred compensation.
7 Total compensation of $1,708 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
8 Total compensation of $491 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
<PAGE>
-------------------------- -----------------------------------------------
TOTAL COMPENSATION PAID FROM LIBERTY FUND
COMPLEX TO THE BOARD OF TRUSTEES FOR THE
CALENDAR YEAR ENDED
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
12/31/99*
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Trustee:
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Mr. Bleasdale $103,000 9
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Ms. Collins 96,000
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Mr. Grinnell 100,000
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Mr. Lowry 97,000
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Mr. Macera 95,000
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Mr. Mayer 101,000
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Mr. Moody 91,000 10
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Mr. Neuhauser 101,252
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Mr. Stitzel 95,000
-------------------------- -----------------------------------------------
-------------------------- -----------------------------------------------
Ms. Verville 96,000 11
-------------------------- -----------------------------------------------
--------------------------
9 Includes $52,000 payable in later years as deferred compensation.
10 Total compensation of $91,000 for the calendar year ended December 31, 1999,
will be payable in later years as deferred compensation.
11 Total compensation of $96,000 for the calendar year ended December 31,
1999, will be payable in later years as deferred compensation.
* Includes compensation from other funds in the Liberty Fund Complex.
<PAGE>
The following table sets forth the compensation paid to certain Trustees 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) for service during the calendar year ended December 31,
1999:
---------------------------- -----------------------------------------------
Total Compensation Paid To The Trustees From
the Liberty All-Star Funds For The Calendar
Trustee Year Ended December 31, 1999 12
---------------------------- -----------------------------------------------
---------------------------- -----------------------------------------------
James E. Grinnell 25,000
---------------------------- -----------------------------------------------
---------------------------- -----------------------------------------------
Richard W. Lowry 25,000
---------------------------- -----------------------------------------------
---------------------------- -----------------------------------------------
William E. Mayer 25,000
---------------------------- -----------------------------------------------
---------------------------- -----------------------------------------------
John J. Neuhauser 25,000
---------------------------- -----------------------------------------------
----------------------------
12 The Liberty All-Star Funds are advised by Liberty Asset Management Company
(LAMCO). LAMCO is an indirect wholly-owned subsidiary of Liberty Financial
Companies, Inc. (an intermediate parent of the Colonial).
<PAGE>
Appendix A
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this 1st day of January, 2001, by and
between STEIN ROE & FARNHAM INCORPORATED, a Delaware corporation (the "Adviser")
and STEIN ROE INVESTMENT COUNSEL LLC, a Delaware limited liability company (the
"Sub-Adviser").
WITNESSETH:
WHEREAS, the Adviser provides Liberty Tax-Managed Growth Fund (the
"Fund"), a series of Liberty Funds Trust I (the "Trust"), an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), business services pursuant to the terms and conditions of an
investment advisory agreement dated December 23, 1996 (the "Advisory Agreement")
between the Adviser and the Trust, on behalf of the Fund; and
WHEREAS, the Sub-Adviser is willing to provide services to the Adviser on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Sub-Adviser. Subject to the supervision of the Trustees
of the Trust and the Adviser, the Sub-Adviser will: (a) manage the investment of
the assets of the Fund in accordance with the Fund's investment objectives,
policies and limitations as stated in the Fund's then current Prospectus (the
"Prospectus") and Statement of Additional Information (the "Statement") as
provided by the Adviser to the Sub-Adviser and in compliance with the 1940 Act
and the rules, regulations and orders thereunder; (b) place purchase and sale
orders for portfolio transactions for the Fund; (c) evaluate such economic,
statistical and financial information and undertake such investment research as
it shall believe advisable; (d) employ professional portfolio managers to
provide research services to the Fund; and (e) report results to the Board of
Trustees of the Trust. The Adviser agrees to provide the Sub-Adviser with such
assistance as may be reasonably requested by the Sub-Adviser in connection with
its activities under this Agreement, including, without limitation, information
concerning the Fund, its funds available, or to become available, for investment
and generally as to the conditions of the Fund's affairs.
<PAGE>
Should the Trustees of the Trust or the Adviser at any time make any
determination as to investment policy and notify the Sub-Adviser thereof in
writing, the Sub-Adviser shall be bound by such determination for the period, if
any, specified in such notice or until notified that such determination has been
revoked. Further, the Adviser or the Trustees of the Trust may at any time, upon
written notice to the Sub-Adviser, suspend or restrict the right of the
Sub-Adviser to determine what assets of the Fund shall be purchased or sold and
what portion, if any, of the Fund's assets shall be held uninvested. It is
understood that the Adviser undertakes to discuss with the Sub-Adviser any such
determinations of investment policy and any such suspension or restrictions on
the right of the Sub-Adviser to determine what assets of the Fund shall be
purchased or sold or held uninvested, prior to the implementation thereof.
2. Certain Information to the Sub-Adviser. Copies of the Prospectus, the
Statement, and the Trust's Declaration of Trust have been or will be delivered
to the Sub-Adviser. The Adviser agrees to notify the Sub-Adviser of each change
in the investment policies of the Fund and to provide to the Sub-Adviser as
promptly as practicable copies of all amendments and supplements to the
Prospectus, the Statement, and the Trust's Declaration of Trust. In addition,
the Adviser will promptly provide the Sub-Adviser with any procedures applicable
to the Sub-Adviser adopted from time to time by the Trustees of the Trust and
agrees to provide promptly to the Sub-Adviser copies of all amendments thereto.
The Sub-Adviser will be entitled to rely on all documents furnished to it by the
Adviser.
3. Execution of Certain Documents. Subject to any other written
instructions of the Adviser and the Trustees of the Trust, the Sub-Adviser is
hereby appointed the Adviser's and the Trust's agent and attorney-in-fact to
execute account documentation, agreements, contracts and other documents as the
Sub-Adviser shall be requested to execute by brokers, dealers, counterparties
and other persons in connection with its management of the assets of the Fund.
4. Reports. The Sub-Adviser shall furnish to the Trustees of the Trust or
the Adviser, or both, as may be appropriate, quarterly reports of its activities
on behalf of the Fund, as required by applicable law or as otherwise reasonably
requested from time to time by the Trustees of the Trust or the Adviser, and
such additional information, reports, evaluations, analyses and opinions as the
Trustees of the Trust or the Adviser, as appropriate, may reasonably request
from time to time.
<PAGE>
5. Compensation of the Sub-Adviser. For the services to be rendered by
the Sub-Adviser under this Agreement, the Adviser shall pay to the Sub-Adviser a
monthly fee, payable within 10 business days after the last day of each month,
composed of a basic fee and a performance adjustment. The basic fee shall be
calculated at the end of each month by applying one-twelfth of the basic fee
rate (0.20%) to the average of the net assets of the Fund (computed in the
manner set forth in the Prospectus or Statement) determined as of the close of
business on each business day throughout the month. The performance adjustment
shall be determined by multiplying the basic fee by the performance adjustment
rates set forth below. The resulting calculation is the total monthly fee paid
by the Adviser to the Sub-Adviser. The performance adjustment rate shall be
readjusted at the end of each calendar quarter based on the Fund's ranking in
Morningstar, Inc.'s Large Blend category for domestic equity funds. The rates
applicable to each ranking are as follows:
--------------------------------------- ----------------------------------------
Morningstar Ranking Performance Adjustment Rate
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
Quartile 1 1.25
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
Quartile 2 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
Below Median 0.75
--------------------------------------- ----------------------------------------
For the calendar quarter beginning January 1, 2001, and for each calendar
quarter thereafter, the performance adjustment rate shall be the rate applicable
to the Fund's Morningstar ranking for the three-year period ending on the last
day of the prior calendar quarter. In the event this Agreement is terminated
during any month, the basic fee rate and performance adjustment rate shall be
applied to net assets averaged over that month ending on the last business day
on which this Agreement is in effect. Notwithstanding the above, the annual
compensation payable to the Sub-Adviser under this Agreement and the
Sub-Advisory Agreement between the parties, dated on or about January 1, 2001,
with respect to Liberty Tax-Managed Growth Fund II (collectively, the
"Sub-Advisory Agreements") shall not be less than $350,000 in the aggregate. If
the compensation paid to the Sub-Adviser under the Sub-Advisory Agreements for
any calendar year is less than $350,000 in the aggregate, the Adviser, as soon
as practicable after the end of the year, shall pay the Sub-Adviser the
difference between $350,000 and the amount the Adviser has paid the Sub-Adviser
under the Sub-Advisory Agreements for that year. The Sub-Adviser will pay its
expenses incurred in performing its duties under this Agreement. Neither the
Trust nor the Fund shall be liable to the Sub-Adviser for the compensation of
the Sub-Adviser.
<PAGE>
6. Limitation of Liability of the Sub-Adviser. The Sub-Adviser shall not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution and management
of the Fund, except for willful misfeasance, bad faith or gross negligence in
the performance of its duties and obligations hereunder. The Trust, on behalf of
the Fund, may enforce any obligations of the Sub-Adviser under this Agreement
and may recover directly from the Sub-Adviser for any liability it may have to
the Fund.
7. Covenants of the Sub-Adviser. The Sub-Adviser agrees that it (a) will
not deal with itself, "affiliated persons" of the Sub-Adviser, the Trustees of
the Trust or the Fund's distributor, as principals, agents, brokers or dealers
in making purchases or sales of securities or other property for the account of
the Fund, except as permitted by the 1940 Act and the rules, regulations and
orders thereunder and subject to the prior written approval of the Adviser, and
except in accordance with Rule 17e-1 procedures as approved by the Trustees from
time to time and (b) will comply with all other provisions of the then-current
Prospectus and Statement as provided by the Adviser to the Sub-Adviser relative
to the Sub-Adviser and its trustees, officers, employees and affiliates.
8. Representations, Warranties and Additional Agreements of the
Sub-Adviser. The Sub-Adviser represents, warrants and agrees that:
---------------------------------------------------------------------
(a) It: (i) is registered as an investment adviser under the U.S.
Investment Advisers Act of 1940, as amended (the "Advisers Act") and is
registered under the laws of any jurisdiction in which the Sub-Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement, and will continue to be so registered for so
long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act
or the Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will continue to meet for so long as this Agreement remains
in effect, any other applicable Federal or State requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; (v) will immediately notify the Adviser in writing of the occurrence
of any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise; and (vi) will immediately notify the Adviser in writing of any change
of control of the Sub-Adviser or any parent of the Sub-Adviser resulting in an
"assignment" of this Agreement.
<PAGE>
(b) It will maintain, keep current and preserve on behalf of the Fund, in
the manner and for the periods of time required or permitted by the 1940 Act and
the rules, regulations and orders thereunder and the Advisers Act and the rules,
regulations and orders thereunder, records relating to investment transactions
made by the Sub-Adviser for the Fund as may be reasonably requested by the
Adviser or the Fund from time to time. The Sub-Adviser agrees that such records
are the property of the Trust, and will be surrendered to the Trust promptly
upon request.
(c) The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and, if it has not already
done so, will provide the Adviser and the Trust with a copy of such code of
ethics, and upon any amendment to such code of ethics, promptly provide such
amendment. At least annually the Sub-Adviser will provide the Trust and the
Adviser with a certificate signed by the chief compliance officer (or the person
performing such function) of the Sub-Adviser certifying, to the best of his or
her knowledge, compliance with the code of ethics during the immediately
preceding twelve (12) month period, including any material violations of or
amendments to the code of ethics or the administration thereof.
(d) It has provided the Adviser and the Trust with a copy of its Form ADV
as most recently filed with the Securities and Exchange Commission (the "SEC")
and will, promptly after filing any amendment to its Form ADV with the SEC,
furnish a copy of such amendment to the Adviser and the Trust.
9. Representation of the Adviser. The Adviser represents that (i) it is
authorized to perform the services herein, (ii) the appointment of the
Sub-Adviser has been duly authorized; and (iii) it will act in conformity with
the Advisers Act.
10. Non-Exclusivity. The Adviser understands that the Sub-Adviser now
acts, will continue to act, or may act in the future, as investment adviser or
investment sub-adviser to fiduciary and other managed accounts, and the Adviser
has no objection to the Sub-Adviser so acting, provided that the Sub-Adviser
duly performs all obligations under this Agreement. The Adviser also understands
the Sub-Adviser may give advice and take action with respect to any of its other
clients for its own account which may differ from the timing or nature of action
taken by the Sub-Adviser, with respect to the Fund. Nothing in this Agreement
shall impose upon the Sub-Adviser any obligation to purchase or sell or to
recommend for purchase or sale, with respect to the Fund, any security which the
Sub-Adviser or its shareholders, directors, officers, employees or affiliates
may purchase or sell for its or their own account(s) or for the account of any
other client.
11. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
12. Duration and Termination of this Agreement. This Agreement shall
become effective on the date first above written and shall govern the relations
between the parties hereto thereafter, and shall remain in force until January
1, 2002 and from year to year thereafter but only so long as its continuance is
"specifically approved at least annually" by the Board of Trustees of the Trust
or by "vote of a majority of the outstanding voting securities" of the Fund.
This Agreement may be terminated at any time without penalty on sixty days'
written notice to the Sub-Adviser by vote of the Board of Trustees of the Trust,
by "vote of a majority of the outstanding voting securities" of the Fund, or by
the Adviser. This Agreement also may be terminated at any time without penalty
by the Sub-Adviser on ninety days' written notice to the Adviser and Trust. This
Agreement shall automatically terminate in the event of its "assignment" or in
the event that the Advisory Agreement shall have terminated for any reason.
13. Amendments to this Agreement. This Agreement may be amended in
accordance with the 1940 Act.
14. Certain Definitions. The terms "specifically approved at least
annually", "vote of a majority of the outstanding voting securities,"
"assignment," "control," "affiliated persons" and "interested person," when used
in this Agreement, shall have the respective meanings specified, and shall be
construed in a manner consistent with, the 1940 Act and the rules, regulations
and orders thereunder, subject, however, to such exemptions as may be granted by
the SEC under the 1940 Act.
15. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Adviser or
Sub-Adviser pursuant to Sections 8 and 9 hereof shall survive for the duration
of this Agreement and the representing party shall immediately notify, but in no
event later than five (5) business days, the other party in writing upon
becoming aware that any of the foregoing representations and warranties are no
longer true.
<PAGE>
16. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the internal laws of The Commonwealth of Massachusetts. All
notices provided for by this Agreement shall be in writing and shall be deemed
given when received, against appropriate receipt, by the Sub-Adviser's Secretary
in the case of the Sub-Adviser, the Adviser's General Counsel in the case of the
Adviser, and the Trust's Secretary in the case of the Fund, or such other person
as a party shall designate by notice to the other parties. This Agreement
constitutes the entire agreement among the parties hereto and supersedes any
prior agreement among the parties relating to the subject matter hereof. The
section headings of this Agreement are for convenience of reference and do not
constitute a part hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered in their names and on their behalf by the undersigned, thereunto
duly authorized, and their respective seals to be hereto affixed, all as of the
day and year first written above.
STEIN ROE & FARNHAM INCORPORATED
By: __________________________________________
Name:
Title:
STEIN ROE INVESTMENT COUNSEL LLC
By: __________________________________________
Name:
Title:
<PAGE>
B-7
Appendix B
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this 1st day of January, 2001, by and
between STEIN ROE & FARNHAM INCORPORATED, a Delaware corporation (the "Adviser")
and STEIN ROE INVESTMENT COUNSEL LLC, a Delaware limited liability company (the
"Sub-Adviser").
WITNESSETH:
WHEREAS, the Adviser provides Liberty Tax-Managed Growth Fund II (the
"Fund"), a series of Liberty Funds Trust I (the "Trust"), an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), business services pursuant to the terms and conditions of an
investment advisory agreement dated March 1, 2000 (the "Advisory Agreement")
between the Adviser and the Trust, on behalf of the Fund; and
WHEREAS, the Sub-Adviser is willing to provide services to the Adviser on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Sub-Adviser. Subject to the supervision of the Trustees
of the Trust and the Adviser, the Sub-Adviser will: (a) manage the investment of
the assets of the Fund in accordance with the Fund's investment objectives,
policies and limitations as stated in the Fund's then current Prospectus (the
"Prospectus") and Statement of Additional Information (the "Statement") as
provided by the Adviser to the Sub-Adviser and in compliance with the 1940 Act
and the rules, regulations and orders thereunder; (b) place purchase and sale
orders for portfolio transactions for the Fund; (c) evaluate such economic,
statistical and financial information and undertake such investment research as
it shall believe advisable; (d) employ professional portfolio managers to
provide research services to the Fund; and (e) report results to the Board of
Trustees of the Trust. The Adviser agrees to provide the Sub-Adviser with such
assistance as may be reasonably requested by the Sub-Adviser in connection with
its activities under this Agreement, including, without limitation, information
concerning the Fund, its funds available, or to become available, for investment
and generally as to the conditions of the Fund's affairs.
<PAGE>
Should the Trustees of the Trust or the Adviser at any time make any
determination as to investment policy and notify the Sub-Adviser thereof in
writing, the Sub-Adviser shall be bound by such determination for the period, if
any, specified in such notice or until notified that such determination has been
revoked. Further, the Adviser or the Trustees of the Trust may at any time, upon
written notice to the Sub-Adviser, suspend or restrict the right of the
Sub-Adviser to determine what assets of the Fund shall be purchased or sold and
what portion, if any, of the Fund's assets shall be held uninvested. It is
understood that the Adviser undertakes to discuss with the Sub-Adviser any such
determinations of investment policy and any such suspension or restrictions on
the right of the Sub-Adviser to determine what assets of the Fund shall be
purchased or sold or held uninvested, prior to the implementation thereof.
2. Certain Information to the Sub-Adviser. Copies of the Prospectus, the
Statement, and the Trust's Declaration of Trust have been or will be delivered
to the Sub-Adviser. The Adviser agrees to notify the Sub-Adviser of each change
in the investment policies of the Fund and to provide to the Sub-Adviser as
promptly as practicable copies of all amendments and supplements to the
Prospectus, the Statement, and the Trust's Declaration of Trust. In addition,
the Adviser will promptly provide the Sub-Adviser with any procedures applicable
to the Sub-Adviser adopted from time to time by the Trustees of the Trust and
agrees to provide promptly to the Sub-Adviser copies of all amendments thereto.
The Sub-Adviser will be entitled to rely on all documents furnished to it by the
Adviser.
3. Execution of Certain Documents. Subject to any other written
instructions of the Adviser and the Trustees of the Trust, the Sub-Adviser is
hereby appointed the Adviser's and the Trust's agent and attorney-in-fact to
execute account documentation, agreements, contracts and other documents as the
Sub-Adviser shall be requested by brokers, dealers, counterparties and other
persons in connection with its management of the assets of the Fund.
4. Reports. The Sub-Adviser shall furnish to the Trustees of the Trust or
the Adviser, or both, as may be appropriate, quarterly reports of its activities
on behalf of the Fund, as required by applicable law or as otherwise reasonably
requested from time to time by the Trustees of the Trust or the Adviser, and
such additional information, reports, evaluations, analyses and opinions as the
Trustees of the Trust or the Adviser, as appropriate, may reasonably request
from time to time.
<PAGE>
5. Compensation of the Sub-Adviser. For the services to be rendered by
the Sub-Adviser under this Agreement, the Adviser shall pay to the Sub-Adviser a
monthly fee, payable within 10 business days after the last day of each month,
composed of a basic fee and a performance adjustment. The basic fee shall be
calculated at the end of each month by applying one-twelfth of the basic fee
rate (0.20%) to the average of the net assets of the Fund (computed in the
manner set forth in the Prospectus or Statement) determined as of the close of
business on each business day throughout the month. The performance adjustment
shall be determined by multiplying the basic fee by the performance adjustment
rates set forth below. The resulting calculation is the total monthly fee paid
by the Adviser to the Sub-Adviser. The performance adjustment rate shall be
readjusted at the end of each calendar quarter based on the Fund's ranking in
Morningstar, Inc.'s Large Blend category for domestic equity funds. The rates
applicable to each ranking are as follows:
----------------------------------------- --------------------------------------
Morningstar Ranking Performance Adjustment Rate
----------------------------------------- --------------------------------------
----------------------------------------- --------------------------------------
Quartile 1 1.25
----------------------------------------- --------------------------------------
----------------------------------------- --------------------------------------
Quartile 2 1.00
----------------------------------------- --------------------------------------
----------------------------------------- --------------------------------------
Below Median 0.75
----------------------------------------- --------------------------------------
For the calendar quarter beginning January 1, 2001, and for each calendar
quarter thereafter until April 1, 2003, the performance adjustment rate shall be
the rate applicable to the Fund's Morningstar ranking for the period beginning
with the commencement of the Fund's operations and ending on the last day of the
prior calendar quarter. For the calendar quarter beginning April 1, 2003, and
for each calendar quarter thereafter, the performance adjustment rate shall be
the rate applicable to the Fund's Morningstar ranking for the three-year period
ending on the last day of the most recent calendar quarter. In the event this
Agreement is terminated during any month, the basic fee rate and performance
adjustment rate shall be applied to net assets averaged over that month ending
on the last business day on which this Agreement is in effect. Notwithstanding
the above, the annual compensation payable to the Sub-Adviser under this
Agreement and the Sub-Advisory Agreement between the parties, dated on or about
January 1, 2001, with respect to Liberty Tax-Managed Growth Fund (collectively,
the "Sub-Advisory Agreements") shall not be less than $350,000 in the aggregate.
If the compensation paid to the Sub-Adviser under the Sub-Advisory Agreements
for any calendar year is less than $350,000 in the aggregate, the Adviser, as
soon as practicable after the end of the year, shall pay the Sub-Adviser the
difference between $350,000 and the amount the Adviser has paid the Sub-Adviser
under the Sub-Advisory Agreements for that year. The Sub-Adviser will pay its
expenses incurred in performing its duties under this Agreement. Neither the
Trust nor the Fund shall be liable to the Sub-Adviser for the compensation of
the Sub-Adviser.
6. Limitation of Liability of the Sub-Adviser. The Sub-Adviser shall not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution and management
of the Fund, except for willful misfeasance, bad faith or gross negligence in
the performance of its duties and obligations hereunder. The Trust, on behalf of
the Fund, may enforce any obligations of the Sub-Adviser under this Agreement
and may recover directly from the Sub-Adviser for any liability it may have to
the Fund.
7. Covenants of the Sub-Adviser. The Sub-Adviser agrees that it (a) will
not deal with itself, "affiliated persons" of the Sub-Adviser, the Trustees of
the Trust or the Fund's distributor, as principals, agents, brokers or dealers
in making purchases or sales of securities or other property for the account of
the Fund, except as permitted by the 1940 Act and the rules, regulations and
orders thereunder and subject to the prior written approval of the Adviser, and
except in accordance with Rule 17e-1 procedures as approved by the Trustees from
time to time and (b) will comply with all other provisions of the then-current
Prospectus and Statement as provided by the Adviser to the Sub-Adviser relative
to the Sub-Adviser and its trustees, officers, employees and affiliates.
8. Representations, Warranties and Additional Agreements of the
Sub-Adviser. The Sub-Adviser represents, warrants and agrees that:
(a) It: (i) is registered as an investment adviser under the U.S.
Investment Advisers Act of 1940, as amended (the "Advisers Act") and is
registered under the laws of any jurisdiction in which the Sub-Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement, and will continue to be so registered for so
long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act
or the Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will continue to meet for so long as this Agreement remains
in effect, any other applicable Federal or State requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; (v) will immediately notify the Adviser in writing of the occurrence
of any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise; and (vi) will immediately notify the Adviser in writing of any change
of control of the Sub-Adviser or any parent of the Sub-Adviser resulting in an
"assignment" of this Agreement.
<PAGE>
(b) It will maintain, keep current and preserve on behalf of the Fund, in
the manner and for the periods of time required or permitted by the 1940 Act and
the rules, regulations and orders thereunder and the Advisers Act and the rules,
regulations and orders thereunder, records relating to investment transactions
made by the Sub-Adviser for the Fund as may be reasonably requested by the
Adviser or the Fund from time to time. The Sub-Adviser agrees that such records
are the property of the Trust, and will be surrendered to the Trust promptly
upon request.
(c) The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and, if it has not already
done so, will provide the Adviser and the Trust with a copy of such code of
ethics, and upon any amendment to such code of ethics, promptly provide such
amendment. At least annually the Sub-Adviser will provide the Trust and the
Adviser with a certificate signed by the chief compliance officer (or the person
performing such function) of the Sub-Adviser certifying, to the best of his or
her knowledge, compliance with the code of ethics during the immediately
preceding twelve (12) month period, including any material violations of or
amendments to the code of ethics or the administration thereof.
(d) It has provided the Adviser and the Trust with a copy of its Form ADV
as most recently filed with the Securities and Exchange Commission (the "SEC")
and will, promptly after filing any amendment to its Form ADV with the SEC,
furnish a copy of such amendment to the Adviser and the Trust.
9. Representation of the Adviser. The Adviser represents that (i) it is
authorized to perform the services herein, (ii) the appointment of the
Sub-Adviser has been duly authorized; and (iii) it will act in conformity with
the Advisers Act.
10. Non-Exclusivity. The Adviser understands that the Sub-Adviser now
acts, will continue to act, or may act in the future, as investment adviser or
investment sub-adviser to fiduciary and other managed accounts, and the Adviser
has no objection to the Sub-Adviser so acting, provided that the Sub-Adviser
duly performs all obligations under this Agreement. The Adviser also understands
the Sub-Adviser may give advice and take action with respect to any of its other
clients for its own account which may differ from the timing or nature of action
taken by the Sub-Adviser, with respect to the Fund. Nothing in this Agreement
shall impose upon the Sub-Adviser any obligation to purchase or sell or to
recommend for purchase or sale, with respect to the Fund, any security which the
Sub-Adviser or its shareholders, directors, officers, employees or affiliates
may purchase or sell for its or their own account(s) or for the account of any
other client.
11. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
12. Duration and Termination of this Agreement. This Agreement shall
become effective on the date first above written and shall govern the relations
between the parties hereto thereafter, and shall remain in force until January
1, 2002 and from year to year thereafter but only so long as its continuance is
"specifically approved at least annually" by the Board of Trustees of the Trust
or by "vote of a majority of the outstanding voting securities" of the Fund.
This Agreement may be terminated at any time without penalty on sixty days'
written notice to the Sub-Adviser by vote of the Board of Trustees of the Trust,
by "vote of a majority of the outstanding voting securities" of the Fund, or by
the Adviser. This Agreement also may be terminated at any time without penalty
by the Sub-Adviser on ninety days' written notice to the Adviser and Trust. This
Agreement shall automatically terminate in the event of its "assignment" or in
the event that the Advisory Agreement shall have terminated for any reason.
13. Amendments to this Agreement. This Agreement may be amended in
accordance with the 1940 Act.
14. Certain Definitions. The terms "specifically approved at least
annually", "vote of a majority of the outstanding voting securities,"
"assignment," "control," "affiliated persons" and "interested person," when used
in this Agreement, shall have the respective meanings specified, and shall be
construed in a manner consistent with, the 1940 Act and the rules, regulations
and orders thereunder, subject, however, to such exemptions as may be granted by
the SEC under the 1940 Act.
15. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Adviser or
Sub-Adviser pursuant to Sections 8 and 9 hereof shall survive for the duration
of this Agreement and the representing party shall immediately notify, but in no
event later than five (5) business days, the other party in writing upon
becoming aware that any of the foregoing representations and warranties are no
longer true.
<PAGE>
16. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the internal laws of The Commonwealth of Massachusetts. All
notices provided for by this Agreement shall be in writing and shall be deemed
given when received, against appropriate receipt, by the Sub-Adviser's Secretary
in the case of the Sub-Adviser, the Adviser's General Counsel in the case of the
Adviser, and the Trust's Secretary in the case of the Fund, or such other person
as a party shall designate by notice to the other parties. This Agreement
constitutes the entire agreement among the parties hereto and supersedes any
prior agreement among the parties relating to the subject matter hereof. The
section headings of this Agreement are for convenience of reference and do not
constitute a part hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered in their names and on their behalf by the undersigned, thereunto
duly authorized, and their respective seals to be hereto affixed, all as of the
day and year first written above.
STEIN ROE & FARNHAM INCORPORATED
By: ____________________________________________
Name:
Title:
STEIN ROE INVESTMENT COUNSEL LLC
By: ____________________________________________
Name:
Title:
<PAGE>
PLEASE VOTE PROMPTLY
*********************************
Your vote is important, no matter how many shares you own. Please vote on the
reverse side of this proxy card and sign in the space(s) provided. Return your
completed proxy card in the enclosed envelope today.
You may receive additional proxies for other accounts. These are not duplicates;
you should sign and return each proxy card in order for your votes to be
counted.
This proxy is solicited on behalf of the Board of Trustees. The signers of this
proxy hereby appoint William J. Ballou, Suzan M. Barron, Stephen E. Gibson,
Russell L. Kane, Pamela A. McGrath, and Vincent P. Pietropaolo each of them
proxies of the signers, with power of substitution to vote at the
Special Meeting of Shareholders to be held at Boston, Massachusetts, on
Wednesday, December 27, 2000, and at any adjournments, as specified herein, and
in accordance with their best judgement, on any other business that may properly
come before this meeting.
After careful review, the Board of Trustees unanimously has recommended a vote
"FOR" all matters.
<PAGE>
[Liberty Logo] LIBERTY
Liberty Funds Services, Inc.
Liberty Tax-Managed Growth Fund
Liberty Tax-Managed Growth Fund II
This proxy, when properly executed, will be voted in the manner directed herein
and, absent direction, will be voted FOR Item 1 below. This proxy will be voted
in accordance with the holder's best judgement as to any other matter.
The Board of Trustees recommends a vote FOR the following Item:
1. To elect eleven Trustees (Item 1 of the Notice).
(01) Douglas A. Hacker
(02) Janet Langford Kelly
(03) Richard W. Lowry
(04) Salvatore Macera
(05) William E. Mayer
(06) Charles Nelson
(07) John J. Neuhauser
(08) Joseph R. Palombo
(09) Thomas E. Stitzel
(10) Thomas C. Theobald
(11) Anne-Lee Verville
For Withheld For All
All Except
Nominees
-- -- --
|--| |--| |--|
Instruction: To withhold authority to vote for any individual nominee(s), mark
the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
2. To approve or disapprove a sub-advisory agreement with Stein Roe
Investment Counsel LLC (Item 2 of the Notice).
For Against Abstain
-- -- --
|--| |--| |--|
MARK BOX AT RIGHT FOR ADDRESS CHANGE
AND NOTE AT LEFT |__|
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners
should each sign personally. When signing as attorney, executor, administrator,
trustee or guardian, please give full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Please be sure to sign and date this Proxy. Date_________________
------------------------- Shareholder sign here
--------------------------Co-owner sign here
<PAGE>
TWO CONVENIENT WAYS TO VOTE YOUR PROXY
The enclosed proxy statement provides details on important issues affecting your
Liberty Funds. The Board of Trustees recommends that you vote for
all proposals.
We are offering two additional ways to vote: by telephone or fax. These methods
may be faster and more convenient than the traditional method of mailing back
your proxy card.
If you are voting by telephone or fax, you SHOULD NOT mail your proxy card.
Vote by Telephone:
o Read the proxy statement and have your proxy card available.
o When you are ready to vote, call toll free 1-877-518-9416 between 9:00 a.m.
and 11:00 p.m. EST.
o Following the instructions provided to cast your vote. A representative
will be available to answer questions.
Vote by Fax:
o Read the proxy statement
o Complete the enclosed proxy card.
o Fax your proxy card to 1-800-733-1885.
YOUR PROXY VOTE IS IMPORTANT!
