<PAGE> 1
LIBERTY MUTUAL FUNDS
STEIN ROE MUTUAL FUNDS
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. You will be
asked to vote on the acquisition of your Fund and on the election of eleven
Trustees. A formal Notice of Special Meeting of Shareholders appears on the next
page, followed by the combined Prospectus/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 Fund is part of one of several proposed acquisitions and liquidations
of funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial
Companies, Inc., the indirect parent of each of the investment advisors to the
Liberty and Stein Roe Funds. The overall purposes of these acquisitions and
liquidations include streamlining the product offerings of the Liberty and Stein
Roe Funds, potentially reducing fund expense ratios by creating larger funds and
permitting the Liberty Financial organization to concentrate its portfolio
management resources on a more focused group of portfolios. Please review the
enclosed Prospectus/Proxy Statement for a more detailed description of the
proposed acquisition of your Fund and the specific reasons it is being proposed.
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 combined Prospectus/Proxy Statement, please
feel free to call the contact number listed in the enclosed Prospectus/Proxy
Statement.
We appreciate your participation and prompt response in these matters and
thank you for your continued support.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson, President
November 17, 2000
G-60/609D-1000
<PAGE> 2
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
DECEMBER 27, 2000
LIBERTY FUNDS TRUST III
LIBERTY CONTRARIAN BALANCED FUND
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of the
Liberty Contrarian Balanced Fund 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 approve an Agreement and Plan of Reorganization providing for the
sale of all of the assets of the Liberty Contrarian Balanced Fund to,
and the assumption of all of the liabilities of the Liberty Contrarian
Balanced Fund by, the Liberty Contrarian Equity Fund in exchange for
shares of the Liberty Contrarian Equity Fund and the distribution of
such shares to the shareholders of the Liberty Contrarian Balanced Fund
in complete liquidation of the Liberty Contrarian Balanced Fund.
2. To elect eleven Trustees.
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
November 17, 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> 3
COMBINED PROSPECTUS AND PROXY STATEMENT
NOVEMBER 17, 2000
ACQUISITION OF THE ASSETS AND LIABILITIES OF
LIBERTY CONTRARIAN BALANCED FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111-2621
1-800-426-3750
BY AND IN EXCHANGE FOR SHARES OF
LIBERTY CONTRARIAN EQUITY FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111-2621
1-800-426-3750
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS....................................... 3
PROPOSAL 1 -- Acquisition of the Liberty Contrarian Balanced
Fund by the Liberty Contrarian Equity Fund.... 7
Principal Investment Risks................................ 7
Information about the Acquisition......................... 8
PROPOSAL 2 -- Election of Trustees.......................... 13
GENERAL..................................................... 17
Voting Information........................................ 17
Appendix A -- Agreement and Plan of Reorganization.......... A-1
Appendix B -- Fund Information.............................. B-1
Appendix C -- Capitalization................................ C-1
Appendix D -- Management's Discussion of Fund Performance
for the Liberty Contrarian Equity Fund........ D-1
</TABLE>
This combined Prospectus/Proxy Statement contains information you should
know before voting on the proposed acquisition of the Liberty Contrarian
Balanced Fund (the "Balanced Fund") by the Liberty Contrarian Equity Fund (the
"Equity Fund") or voting on the other proposals to be considered at a Special
Meeting of Shareholders of the Balanced Fund (the "Meeting"), which will be held
at 10:00 a.m. Eastern Time on December 27, 2000 at the offices of Colonial
Management Associates, Inc. ("Colonial"), One Financial Center, Boston,
Massachusetts 02111-2621. Please read this Prospectus/Proxy Statement and keep
it for future reference.
Proposal 1 in this Prospectus/Proxy Statement relates to the proposed
acquisition of the Balanced Fund by the Equity Fund (the "Acquisition"). If the
Acquisition occurs, you will become a shareholder of the Equity Fund. The Equity
Fund seeks long-term capital appreciation. If the Agreement and Plan of
Reorganization is approved by the shareholders of the Balanced Fund and the
Acquisition occurs, the Balanced Fund will transfer all of the assets and
liabilities attributable to each class of its shares to the Equity Fund in
exchange for shares of the same class of the Equity Fund with the same aggregate
net asset value as the assets and liabilities transferred. After that exchange,
shares of each class received by the Balanced Fund will be distributed pro rata
to its shareholders of the same class.
Proposal 2 in this Prospectus/Proxy Statement relates to the election of
Trustees of Liberty Funds Trust III ("Trust III"), of which the Balanced Fund is
a series.
1
<PAGE> 4
Please review the enclosed Prospectus of the Equity Fund for your class of
shares. This document is incorporated in this Prospectus/Proxy Statement by
reference. The following documents have also been filed with the Securities and
Exchange Commission (the "SEC") and are incorporated in this Prospectus/Proxy
Statement by reference:
- The Prospectuses of the Balanced Fund dated March 1, 2000, as
supplemented on May 5, 2000, June 23, 2000, August 1, 2000, October 23,
2000 and October 26, 2000.
- The Statement of Additional Information of the Balanced Fund dated March
1, 2000, as supplemented on June 23, 2000, August 21, 2000 and October
23, 2000.
- The Statement of Additional Information of the Equity Fund dated March 1,
2000, as supplemented on June 23, 2000, August 21, 2000 and October 23,
2000.
- The Report of Independent Accountants and financial statements included
in the Annual Report to Shareholders of the Balanced Fund dated October
31, 1999.
- The financial statements included in the Balanced Fund's Semi-Annual
Report to Shareholders dated April 30, 2000.
- The Statement of Additional Information of the Equity Fund dated November
17, 2000 relating to the Acquisition.
The Balanced Fund has previously sent its Annual and Semi-Annual Reports to
its shareholders. For a free copy of these Reports or any of the documents
listed above, please call 1-800-426-3750 or write to your Fund at One Financial
Center, Boston, Massachusetts 02111-2621. You may also obtain many of these
documents by accessing our web site at www.libertyfunds.com. Our hearing
impaired shareholders may call Liberty Funds Services, Inc. at 1-800-528-6979 if
you have special TTD equipment. Text-only versions of all the Balanced Fund and
Equity Fund documents can be viewed online or downloaded from the Edgar database
on the SEC's internet site at www.sec.gov. You can review and copy information
about the Funds by visiting the following location, and you can obtain copies,
upon payment of a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing the Public Reference Room, U.S.
Securities and Exchange Commission, Washington, DC 20549-0102. Information on
the operation of the Public Reference Room may be obtained by calling
202-942-8090.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 5
QUESTIONS AND ANSWERS
THE FOLLOWING QUESTIONS AND ANSWERS PROVIDE AN OVERVIEW OF KEY FEATURES OF THE
ACQUISITION AND OF THE OTHER MATTERS TO BE CONSIDERED AT THE MEETING AND OF THE
INFORMATION CONTAINED IN THIS COMBINED PROSPECTUS/ PROXY STATEMENT. PLEASE
REVIEW THE FULL PROSPECTUS/PROXY STATEMENT PRIOR TO CASTING YOUR VOTE.
1. WHAT IS BEING PROPOSED?
First, the Trustees of Trust III are recommending in Proposal 1 that the Equity
Fund acquire the Balanced Fund. This means that the Equity Fund would acquire
all of the assets and liabilities of the Balanced Fund in exchange for shares of
the Equity Fund representing the aggregate net asset value of the Balanced
Fund's assets and liabilities. If Proposal 1 is approved, you will receive
shares of the Equity Fund with an aggregate net asset value equal to the
aggregate net asset value of your Balanced Fund shares as of the business day
before the closing of the Acquisition. The Acquisition is currently scheduled to
take place on or around January 16, 2001.
In addition, the Trustees of Trust III are recommending in Proposal 2 that you
vote in favor of eleven nominees for Trustees.
2. WHY IS THE ACQUISITION BEING PROPOSED?
The Trustees of Trust III recommend approval of the Acquisition. In reviewing
the Acquisition, the Trustees considered:
- that absent the Acquisition, Liberty Financial Companies, Inc. ("Liberty
Financial"), the indirect parent of the investment advisor to the
Balanced Fund, has indicated to the Trustees that it will recommend that
the Fund be liquidated;
- the expected reduction in the fees and expenses payable by the Balanced
Fund, assuming that the Fund's investment advisor declined to continue
the current voluntary fee waiver or expense reimbursement in effect with
respect to the Fund;
- that the Acquisition offers shareholders of the Balanced Fund an
investment in a larger fund with somewhat similar investment goals and
strategies;
- that the Balanced Fund has not achieved sufficient sales growth and is
not likely to do so in the near future;
- the expected tax-free nature of the Acquisition as opposed to other
alternatives for the Fund and for shareholders; and
- the fact that the Equity Fund has a superior performance record for the
five and ten-year periods ending July 31, 2000, while the Balanced Fund
has a superior performance record for the one-year period ending July 31,
2000.
Please review "Reasons for the Acquisition" in Proposal 1 of this
Prospectus/Proxy Statement for a full description of the factors considered by
the Trustees.
SHAREHOLDERS OF THE BALANCED FUND SHOULD NOTE THAT THE EQUITY FUND IS PRIMARILY
AN EQUITY FUND, NOT A "BALANCED" FUND.
3. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE AND WHAT ARE
THEY ESTIMATED TO BE FOLLOWING THE ACQUISITION?
The following tables allow you to compare the sales charges and management fees
and expenses of the Balanced Fund and the Equity Fund and to analyze the
estimated expenses that Liberty Financial, the indirect parent of each Fund's
investment advisor, expects the combined fund to bear in the first year
following the Acquisition. The shareholder fees presented below for the Equity
Fund apply both before and after giving effect to the Acquisition. Sales charges
are paid directly by shareholders to Liberty Funds Distributor, Inc.,
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<PAGE> 6
each Fund's distributor. Annual Fund Operating Expenses are deducted from the
Fund's assets. They include management and administration fees, 12b-1 fees and
administrative costs, including pricing and custody services. The Annual Fund
Operating Expenses shown in the table below represent expenses incurred by each
Fund for its fiscal year ended October 31, 1999. Continuing shareholders who
purchase new Class A shares of the Equity Fund after the Acquisition will pay
more in sales charges than shareholders of the Balanced Fund currently pay.
SHAREHOLDER FEES(1)
(paid directly from your investment)
<TABLE>
<CAPTION>
BALANCED FUND EQUITY FUND
------------- -----------
CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load) on
purchases (%) (as a percentage
of the offering price) 4.75 0.00 0.00 0.00 5.75 0.00 0.00 0.00
---------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge
(load) on redemptions (%) (as a
percentage of the lesser of
purchase price or redemption
price) 1.00(2) 5.00 1.00 0.00 1.00(2) 5.00 1.00 0.00
---------------------------------------------------------------------------------------------------------------------
Redemption fee (%) (as a
percentage of amount redeemed,
if applicable) (3) (3) (3) (3) (3) (3) (3) (3)
</TABLE>
---------------
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial
sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES
(deducted directly from Fund assets)
<TABLE>
<CAPTION>
BALANCED FUND EQUITY FUND
------------- -----------
CLASS A CLASS B CLASS C CLASS I CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management and administration
fees(4) (%) 1.05 1.05 1.05 1.05 0.99 0.99 0.99 0.99
---------------------------------------------------------------------------------------------------------------------
Distribution and service
(12b-1) fees (%) 0.25 1.00 1.00 0.00 0.25 1.00 1.00 0.00
---------------------------------------------------------------------------------------------------------------------
Other expenses(4) (%) 0.49 0.49 0.49 0.24 0.46 0.46 0.46 0.24
---------------------------------------------------------------------------------------------------------------------
Total annual fund operating
expenses(4) (%) 1.79 2.54 2.54 1.29 1.70 2.45 2.45 1.23
</TABLE>
<TABLE>
<CAPTION>
EQUITY FUND (PRO FORMA COMBINED)
CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Management and administration fees(5) (%) 0.98 0.98 0.98 0.98
-----------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00 0.00
-----------------------------------------------------------------------------------------------------
Other expenses(5) (%) 0.27 0.27 0.27 0.10
-----------------------------------------------------------------------------------------------------
Total annual fund operating expenses(5) (%) 1.50 2.25 2.25 1.08
</TABLE>
---------------
(4) The Balanced Fund and Equity Fund's investment advisor has voluntarily
agreed to waive advisory fees and reimburse the Funds for certain expenses
so that the total annual fund operating expenses (exclusive of distribution
and service fees, brokerage commissions, interest, taxes and extraordinary
expenses, if any) will not exceed 1.17% for Class A, B and C shares, and
1.00% for Class I shares. As a result, with respect to Class A, B and C
shares of the Balanced Fund, the actual management fee for each share class
would be 0.76%, other expenses for each share class would be 0.41% and total
annual fund operating expenses for Class A, B and C shares would be 1.42%,
2.17% and 2.17%, respectively. With respect to Class I shares of the
Balanced Fund, the actual management fee would be 0.76%, other expenses
would be 0.24% and total annual fund operating expenses would be 1.00%. With
respect to Class A, B and C shares of the Equity Fund, the actual management
fee for each share class would be 0.77%, other expenses for each share class
would be 0.40% and total annual fund operating expenses for Class A, B and C
shares would be 1.42%, 2.17% and 2.17%,
4
<PAGE> 7
respectively. With respect to Class I shares of the Equity Fund, the actual
management fee would be 0.77%, other expenses would be 0.23% and total
annual fund operating expenses would be 1.00%. This arrangement may be
modified or terminated by the investment advisor at any time.
(5) The Equity Fund's investment advisor has voluntarily agreed to waive
advisory fees and reimburse the Fund for certain expenses so that the total
annual fund operating expenses (exclusive of distribution and service fees,
brokerage commissions, interest, taxes and extraordinary expenses, if any)
will not exceed 1.17% for Class A, B and C shares, and 1.00% for Class I
shares. As a result, with respect to Class A, B and C shares, the actual
management fee for each share class would be 0.90%, other expenses for each
share class would be 0.27% and total annual fund operating expenses for
Class A, B and C shares would be 1.42%, 2.17% and 2.17%, respectively. With
respect to Class I shares, the actual management fee would be 0.90%, other
expenses would be 0.10% and total annual fund operating expenses would be
1.00%. This arrangement may be modified or terminated by the investment
advisor at any time.
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in the Balanced Fund and
the Equity Fund currently with the cost of investing in the combined fund on a
pro forma basis and also allows you to compare this with the cost of investing
in other mutual funds. The table does not take into account any expense
reduction arrangements discussed in the footnotes to the Annual Fund Operating
Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Each Fund's operating expenses remain the same
- Assumes reinvestment of all dividends and distributions
- Assumes Class B shares convert to Class A shares after eight years
EXAMPLE EXPENSES
(your actual costs may be higher or lower)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
BALANCED FUND
Class A $648 $1,010 $1,397 $2,476
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $257 $ 789 $1,348 $2,688
sold all your shares at end of period $757 $1,089 $1,548 $2,688
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $257 $ 789 $1,348 $2,871
sold all your shares at end of period $357 $ 789 $1,348 $2,871
--------------------------------------------------------------------------------------------------
Class I $131 $ 409 $ 708 $1,556
--------------------------------------------------------------------------------------------------
EQUITY FUND
Class A $737 $1,079 $1,443 $2,464
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $248 $ 762 $1,304 $2,597
sold all your shares at end of period $748 $1,062 $1,504 $2,597
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $248 $ 762 $1,304 $2,782
sold all your shares at end of period $348 $ 762 $1,304 $2,782
--------------------------------------------------------------------------------------------------
Class I $125 $ 390 $ 676 $1,489
--------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
EQUITY FUND
(pro forma combined)
Class A $719 $1,022 $1,346 $2,263
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $228 $ 703 $1,205 $2,396
sold all your shares at end of period $728 $1,003 $1,405 $2,396
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $228 $ 703 $1,205 $2,585
sold all your shares at end of period $328 $ 703 $1,205 $2,585
--------------------------------------------------------------------------------------------------
Class I $110 $ 343 $ 595 $1,317
--------------------------------------------------------------------------------------------------
</TABLE>
Significant assumptions underlying the pro forma Annual Fund Operating Expenses
and Example Expenses are as follows: (1) the current contractual agreements will
remain in place; (2) certain duplicate costs involved in operating the Balanced
Fund are eliminated; and (3) expense ratios are based on pro forma combined
average net assets for the year ended April 30, 2000.
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE BALANCED FUND
AND THE EQUITY FUND COMPARE?
This table shows the investment goals and primary investment strategies of each
Fund:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
BALANCED FUND EQUITY FUND
-------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT GOALS: The Balanced Fund INVESTMENT GOAL: The Equity Fund
seeks preservation of capital, seeks long-term capital
capital appreciation and income. appreciation.
-------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES: The PRIMARY INVESTMENT STRATEGIES: The
Balanced Fund seeks to achieve its Equity Fund seeks to achieve its
goals as follows: goal as follows:
- The Fund invests in a combination - The Fund invests at least 65% of
of stocks, bonds and cash. its total assets in common stocks.
- Under normal market conditions, - The Fund's stock investments are
the Fund's assets will be invested primarily U.S. stocks of medium
as follows: 25% to 60% in stocks; ($1-3 billion) to large (over $3
30% to 55% in bonds; and 5% to 30% billion) cap companies.
in cash or cash equivalents.
- The Fund's stock investments are - The Fund follows a basic value,
primarily U.S. stocks of medium contrarian approach in selecting
($1-3 billion) to large (over $3 stocks for its portfolio.
billion) cap companies.
- The Fund's bond investments are
primarily U.S. government
securities and investment grade
bonds.
- The Fund follows a basic value,
contrarian approach in selecting
stocks for its portfolio.
-------------------------------------------------------------------------------
</TABLE>
The following compares the primary investment strategies that each Fund uses to
achieve its investment goal:
- The Balanced Fund invests in a combination of stocks, bonds and cash,
while the Equity Fund invests primarily in common stocks. The Equity Fund
invests at least 65% of its total assets in stocks, while the
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<PAGE> 9
Balanced Fund normally invests between 25% to 60% of its total assets in
stocks, and 30% to 55% in bonds and 5% to 30% in cash or cash
equivalents.
- The stock investments of both the Balanced Fund and the Equity Fund are
primarily in U.S. stocks of medium to large capitalization companies.
- Both Funds follow a basic value, contrarian approach in selecting stocks
for their portfolios.
The fundamental and non-fundamental investment policies of the Balanced Fund and
the Equity Fund are substantially similar. After the Acquisition, the Equity
Fund may retain for any period of time some or all of the portfolio holdings of
the Balanced Fund at the discretion of the investment advisor to the Fund, as
the advisor has determined that these holdings are substantially compatible with
the investment objectives, strategies and policies of the Equity Fund. As a
result, the Equity Fund may hold a higher percentage of assets in debt
securities and cash after the Acquisition than immediately before the
Acquisition.
5. WHAT CLASS OF SHARES WILL YOU RECEIVE IN THE EQUITY FUND IF THE ACQUISITION
OCCURS?
You will receive the same class of shares that you currently own in the Balanced
Fund. The shares will have the same exchange rights and will bear the same
contingent deferred sales charges ("CDSCs"), if applicable, as your current
shares. The shares will also have the same distribution, purchase and redemption
procedures as your current shares.
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION?
The Acquisition is expected to be tax free to you for federal income tax
purposes. This means that no gain or loss will be recognized by the Balanced
Fund or its shareholders as a result of the Acquisition.
The cost basis and holding period of your Balanced Fund shares are expected to
carry over to your new shares in the Equity Fund.
PROPOSAL 1 -- ACQUISITION OF THE LIBERTY CONTRARIAN BALANCED FUND
BY THE LIBERTY CONTRARIAN EQUITY FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of the Agreement and Plan of Reorganization is
attached as Appendix A to this Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Balanced Fund by the Equity Fund under the Agreement and Plan of
Reorganization.
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the Equity Fund, and how do they
compare with the Balanced Fund?
Because the Funds have somewhat similar goals and strategies, the principal
risks associated with each Fund are similar. Both Funds are subject to market
risk and the risks associated with investments in value stocks. Market risk
means that security prices in a market, sector or industry may move down.
Downward movements will reduce the value of your investment. Value stocks are
securities of companies that may have experienced adverse business or industry
developments or may be subject to special risks that have caused the stocks to
be out of favor. If the advisor's assessment of the company's prospects is
wrong, the price of its stock may not approach the value the advisor has placed
on it. However, because the Balanced Fund invests in bonds as part of its
primary investment strategy, it is also subject to interest rate risk, issuer
risk, structure risk and prepayment risk. The Equity Fund, on the other hand,
invests a greater proportion of its assets in stocks than the Balanced Fund, and
is therefore more subject to equity risk. Equity risk is the risk that stock
prices will fall over short or extended periods of time. For more information
about the principal risks associated with the Equity Fund, please see the
enclosed Prospectus of the Equity Fund. The actual risks of investing in each
7
<PAGE> 10
Fund depend on the securities held in each Fund's portfolio and on market
conditions, both of which change over time.
INFORMATION ABOUT THE ACQUISITION
Terms of the Agreement and Plan of Reorganization
If approved by the shareholders of the Balanced Fund, the Acquisition is
expected to occur on or around January 16, 2001 under the Agreement and Plan of
Reorganization, a form of which is attached as Appendix A to this combined
Prospectus/Proxy Statement. Please review Appendix A. The following is a brief
summary of the principal terms of the Agreement and Plan of Reorganization:
- The Balanced Fund will transfer all of the assets and liabilities
attributable to each class of shares of the Balanced Fund to the Equity
Fund in exchange for shares of the same class of the Equity Fund with an
aggregate net asset value equal to the net asset value of the transferred
assets and liabilities.
- The Acquisition will occur on the next business day after the time
(currently scheduled to be 4:00 p.m. Eastern Time on January 12, 2001 or
such other date and time as the parties may determine) when the assets of
each Fund are valued for purposes of the Acquisition (the "Valuation
Date").
- The shares of each class of the Equity Fund received by the Balanced Fund
will be distributed to the shareholders of the same class of the Balanced
Fund pro rata in accordance with their percentage ownership of each class
of the Balanced Fund in full liquidation of the Balanced Fund.
- After the Acquisition, the Balanced Fund will be terminated, and its
affairs will be wound up in an orderly fashion.
- The Acquisition requires approval by the Balanced Fund's shareholders and
satisfaction of a number of other conditions; the Acquisition may be
terminated at any time with the approval of the Trustees of Trust III.
A shareholder who objects to the Acquisition will not be entitled under
Massachusetts law or the Declaration of Trust of Trust III (the "Declaration")
to demand payment for, or an appraisal of, his or her shares. However,
shareholders should be aware that the Acquisition as proposed is not expected to
result in recognition of gain or loss to shareholders for federal income tax
purposes and that, if the Acquisition is consummated, shareholders will be free
to redeem the shares which they receive in the transaction at their then-current
net asset value, plus any applicable CDSC. In addition, shares may be redeemed
(at net asset value plus any applicable CDSC) at any time prior to the
consummation of the Acquisition.
Section 17(a) of the Investment Company Act of 1940, as amended (the "1940
Act"), prohibits the purchase or sale of any security or other property between
a registered investment company, such as the Balanced Fund and the Equity Fund,
and any "affiliated person" (as defined in the 1940 Act) or any affiliated
person of an affiliated person of such company. The prohibitions of Section
17(a) could be relevant if, at the time of the proposed closing of the
Acquisition, any person who owns five percent or more of the outstanding shares
of the Balanced Fund also owns five percent or more of the outstanding shares of
the Equity Fund. As of September 29, 2000, a shareholder owned five percent or
more of the outstanding shares of each of the Balanced Fund and the Equity Fund.
If such shareholdings were still outstanding on the proposed closing date for
the Acquisition, the Funds might be unable to effect the Acquisition at that
time without obtaining an order of exemption from the SEC. There can be no
assurance that such an order will be obtained.
Shares You Will Receive
If the Acquisition occurs, you will receive shares in the Equity Fund of
the same class as the shares that you currently own in the Balanced Fund. In
comparison to the shares you currently own, the shares you receive will have the
following characteristics:
- The shares you receive will have an aggregate net asset value equal to
the aggregate net asset value of your current shares as of the Valuation
Date.
8
<PAGE> 11
- If applicable, your Equity Fund shares will bear the same sales charges,
redemption fees and CDSCs as your current shares, but for purposes of
determining the CDSC applicable to any redemption, the new shares will
continue to age from the date you purchased your Balanced Fund shares.
However, if you purchase new Class A shares of the Equity Fund after the
Acquisition you will pay a sales charge equal to 5.75% of the public
offering price of the shares, as opposed to the 4.75% sales charge on
Balanced Fund Class A shares.
- The procedures for purchasing and redeeming your shares will not change
as a result of the Acquisition.
- You will have the same exchange options as you currently have.
- You will have the same voting rights as you currently have, but as a
shareholder of the Equity Fund.
Information concerning the capitalization of each of the Funds is contained
in Appendix C.
Reasons for the Acquisition
The Trustees of Trust III, including all Trustees who are not "interested
persons" of the Trust, have determined that the Acquisition would be in the best
interests of each Fund, on balance in light of all relevant factors, and that
the interests of existing shareholders of each Fund would not be diluted as a
result of the Acquisition. For these reasons, the Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the Agreement and Plan of Reorganization, a form of which is
attached as Appendix A to this Prospectus/Proxy Statement. Each shareholder
should carefully consider whether remaining a shareholder of the Equity Fund
after the Acquisition is consistent with that shareholder's financial needs and
circumstances.
The Acquisition is one of several proposed acquisitions and liquidations of
funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial,
the indirect parent of each of the investment advisors to the Liberty and Stein
Roe Funds. The overall purposes of these acquisitions and liquidations include
streamlining the product offerings of the Liberty and Stein Roe Funds,
potentially reducing fund expense ratios by creating larger funds and permitting
the Liberty Financial organization to concentrate its portfolio management
resources on a more focused group of portfolios.
In proposing the Acquisition, Liberty Financial presented to the Trustees
the following reasons for the Balanced Fund to enter into the Acquisition:
- Absent the Acquisition, Liberty Financial indicated to the Trustees that
it will discontinue subsidizing the Balanced Fund's operations (through
fee waivers or expense reductions) and that it will recommend to the
Trustees that the Balanced Fund be liquidated. Liberty Financial informed
the Trustees that the Balanced Fund has not achieved sufficient sales
growth and is not likely to do so in the near future, and, therefore, the
Fund may not be able to provide a competitive investment return in the
absence of a subsidy.
- The Acquisition is intended to permit the Balanced Fund's shareholders to
exchange their investment for an investment in a larger fund with
somewhat similar investment goals and strategies to the Balanced Fund
without recognizing gain or loss for federal income tax purposes. By
contrast, if a Balanced Fund shareholder redeemed his or her shares to
invest in another fund, like the Equity Fund, the transaction would
likely be a taxable event for such shareholder. Similarly, if the
Balanced Fund were liquidated or reorganized in a taxable transaction,
the transaction would likely be a taxable event for the Fund's
shareholders. After the Acquisition, shareholders may redeem any or all
of their Equity Fund shares at net asset value (subject to any applicable
CDSC) at any time, at which point they would recognize a taxable gain or
loss.
- As a result of Liberty Financial's decision to discontinue its expense
subsidy of the Balanced Fund, the expense ratio of the Balanced Fund will
increase significantly if the Acquisition does not occur. If the
Acquisition does occur, then the expense ratio of the combined Equity
Fund is expected to be materially lower than the Balanced Fund's expense
ratio after Liberty Financial discontinues its
9
<PAGE> 12
subsidy. (The Trustees did note that the Equity Fund has a higher expense
ratio than the subsidized expense ratio of the Balanced Fund). Although,
as explained below, it is not possible to predict future expense ratios
with certainty, information provided to the Trustees by Liberty Financial
indicated that, based on the assets of the Balanced Fund and the Equity
Fund on July 31, 2000 and the Funds' current expense structures (assuming
the voluntary expense limitation is discontinued), the Equity Fund's
annualized expense ratio (excluding 12b-1 fees) immediately after the
Acquisition would be about 0.24% lower than the Balanced Fund's current
expense ratio (for example, for Class A shares, a 1.35% expense ratio for
the Equity Fund, as compared to 1.59% for the Balanced Fund if the
limitation were discontinued and 1.17% if it continued). Note that the
12b-1 fees on Class A, B and C shares of each Fund are 0.25%, 1.00% and
1.00%, respectively. There are no 12b-1 fees on Class I shares.
- The Acquisition will permit the advisor to concentrate on a smaller, more
focused set of fund offerings rather than manage multiple similar
portfolios with somewhat different investment approaches.
- The Equity Fund has a superior performance record to the Balanced Fund
for the five and ten-year periods ending July 31, 2000, with the Class A
shares of the Equity Fund achieving average annual total returns (without
sales charges) of 9.57% and 13.87% for such periods and the Class A
shares of the Balanced Fund achieving average annual total returns of
8.58% and 10.54%. For the one-year period ending July 31, 2000, however,
the Balanced Fund actually had a superior performance record to the
Equity Fund (4.29% compared to 3.20%).
In reviewing the Acquisition, the Trustees also considered the fact that
shareholders who purchased a balanced fund would be receiving shares in an
equity fund. The Trustees determined, despite this consideration, that on
balance the Acquisition is in the best interests of the Balanced Fund's
shareholders.
The Trustees also considered the differences in the Fund's investment
objectives, policies and strategies and the related risks. In addition, the
Trustees considered the relative Fund performance results which are based on the
factors and assumptions set forth below under "Performance Information." No
assurance can be given that the Equity Fund will achieve any particular level of
performance after the Acquisition.
The Trustees further considered that while there is expected to be a
reduction in the annual fund operating expenses with respect to shareholders of
the Balanced Fund who continue to hold shares of the Equity Fund after the
Acquisition, continuing shareholders who purchase new Class A shares of the
Equity Fund after the Acquisition will pay more in sales charges than
shareholders of the Balanced Fund currently pay.
The projected post-Acquisition expense reductions presented above are based
on the Equity Fund's current expense structure and the projected
post-Acquisition assets of the combined Fund. The projected reductions are
further based upon numerous material assumptions, including that: (1) the
current contractual agreements will remain in place; and (2) certain duplicate
costs involved in operating the Balanced Fund are eliminated. Although these
projections represent good faith estimates, there can be no assurance that any
particular level of expenses or expense savings will be achieved, because
expenses depend on a variety of factors (including the future level of Fund
assets), many of which factors are beyond the control of the Equity Fund or
Liberty Financial.
Performance Information
The charts below show the percentage gain or loss in each calendar year for
the 10-year period ending December 31, 1999 for the Class A shares of the
Balanced Fund and the Class A shares of the Equity Fund. They should give you a
general idea of how each Fund's return has varied from year to year. The charts
include the effects of Fund expenses, but not sales charges. Returns would be
lower if applicable sales charges were included. The calculations of total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment date. Past performance is not an indication of future
results. Performance results include the effect of expense reduction
arrangements, if any. If these arrangements were not in place, then the
performance results would have been lower. Any expense reduction arrangements
may be discontinued at any time.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, each of which are incorporated by reference in this
Prospectus/Proxy Statement.
10
<PAGE> 13
BALANCED FUND
[BAR CHART]
<TABLE>
<CAPTION>
BALANCED FUND
-------------
<S> <C>
1990 -0.76%
1991 21.22%
1992 12.2%
1993 18.2%
1994 -0.84%
1995 20.21%
1996 6.84%
1997 19.19%
1998 -0.18%
1999 6.16%
</TABLE>
The Fund's year-to-date total return through
September 30, 2000 was 10.44%.
For period shown in bar chart:
Best quarter: Second quarter 1997, +11.85%
Worst quarter: Third quarter 1998, -10.21%
EQUITY FUND
[BAR CHART]
<TABLE>
<CAPTION>
EQUITY FUND
-----------
<S> <C>
1990 -1.54%
1991 35.07%
1992 16.4%
1993 25.97%
1994 1.6%
1995 23.8%
1996 11.74%
1997 25.72%
1998 -8.83%
1999 10.45%
</TABLE>
The Fund's year-to-date total return through
September 30, 2000 was 12.50%.
For period shown in bar chart:
Best quarter: First quarter 1991, +18.98%
Worst quarter: Third quarter 1998, -19.93%
The following tables list each Fund's average annual total return for each
class of its shares for the one-year, five-year and ten-year periods ending
December 31, 1999, including the applicable sales charges. These tables are
intended to provide you with some indication of the risks of investing in the
Funds. At the bottom of each table, you can compare the Funds' performance with
one or more indices or averages.
BALANCED FUND*
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 1.12 9.09 9.35
-------------------------------------------------------------------------------------------
Class B (%) 0.42(1) 9.73(1) 9.80(1)
-------------------------------------------------------------------------------------------
Class C (%) 4.42(1) 10.00(1) 9.80(1)
-------------------------------------------------------------------------------------------
Class I (%) 6.65 10.43 10.02
-------------------------------------------------------------------------------------------
Lehman Index (%) (2.15) 7.61 7.65
-------------------------------------------------------------------------------------------
S&P Index (%) 21.03 28.54 18.19
-------------------------------------------------------------------------------------------
Lipper Flexible Average (%) 12.53 16.84 12.27
</TABLE>
11
<PAGE> 14
EQUITY FUND+
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 4.09 10.54 12.58
-------------------------------------------------------------------------------------------
Class B (%) 4.53(2) 11.41(2) 13.15(2)
-------------------------------------------------------------------------------------------
Class C (%) 8.53(2) 11.63(2) 13.15(2)
-------------------------------------------------------------------------------------------
Class I (%) 10.95 12.16 13.40
-------------------------------------------------------------------------------------------
S&P Index (%) 21.03 28.54 18.19
-------------------------------------------------------------------------------------------
Lipper Growth Average (%) 29.32 25.05 16.53
</TABLE>
---------------
* The Balanced Fund's return is compared to the S&P 500 Index ("S&P Index"),
an unmanaged index that tracks the performance of 500 widely held, large
capitalization U.S. stocks, and the Lehman Brothers Government/Corporate
Bond Index ("Lehman Index"), an unmanaged index that tracks the performance
of a selection of U.S. government and investment grade U.S. corporate bonds.
Unlike the Fund, indices are not investments, do not incur fees or expenses
and are not professionally managed. It is not possible to invest directly in
indices. The Balanced Fund's return is also compared to the average return
of the funds included in the Lipper Flexible Portfolio Funds category
average ("Lipper Flexible Average"). This Lipper Flexible Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Balanced Fund. Sales charges are not reflected in the
Lipper Flexible Average.
+ The Equity Fund's return is compared to the S&P Index. Unlike the Fund,
indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in indices.
The Equity Fund's return is also compared to the average return of the funds
included in the Lipper Growth Funds category average ("Lipper Growth
Average"). This Lipper Growth Average, which is calculated by Lipper, Inc.,
is composed of funds with similar investment objectives to the Equity Fund.
Sales charges are not reflected in the Lipper Growth Average.
(1) Class B and Class C are newer classes of shares. Their performance
information includes returns of the Balanced Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. These Class A share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class A shares
and the newer classes of shares. If differences in expenses were reflected,
the returns for periods prior to the inception of the newer classes of
shares would be lower. Class A shares were initially offered on January 31,
1989 and Class B and Class C shares were initially offered on January 27,
1999.
(2) Class B and Class C are newer classes of shares. Their performance
information includes returns of the Equity Fund's Class A shares (the oldest
existing fund class) for periods prior to the inception of the newer classes
of shares. These Class A share returns are not restated to reflect any
differences in expenses (such as Rule 12b-1 fees) between Class A shares and
the newer classes of shares. If differences in expenses were reflected, the
returns for periods prior to the inception of the newer classes of shares
would be lower. Class A shares were initially offered on January 31, 1989
and Class B and C shares were initially offered on January 27, 1999.
Federal Income Tax Consequences
The Acquisition is intended to be a tax-free reorganization. Ropes & Gray
has delivered to the Balanced Fund and the Equity Fund an opinion, and the
closing of the Acquisition will be conditioned on receipt of a letter from Ropes
& Gray confirming such opinion, to the effect that, on the basis of existing law
under specified sections of the Internal Revenue Code of 1986, as amended (the
"Code"), for federal income tax purposes:
- under Section 361 or Section 354 of the Code, respectively, no gain or
loss will be recognized by the Balanced Fund or the shareholders of the
Balanced Fund as a result of the Acquisition;
- under Section 358 of the Code, the tax basis of the Equity Fund shares
you receive will be the same, in the aggregate, as the aggregate tax
basis of your Balanced Fund shares;
- under Section 1223(1) of the Code, your holding period for the Equity
Fund shares you receive will include the holding period for your Balanced
Fund shares if you hold Balanced Fund shares as a capital asset;
- under Section 1032 of the Code, no gain or loss will be recognized by the
Equity Fund as a result of the Acquisition;
12
<PAGE> 15
- under Section 362(b) of the Code, the Equity Fund's tax basis in the
assets that the Equity Fund receives from the Balanced Fund will be the
same as the Balanced Fund's basis in such assets; and
- under Section 1223(2) of the Code, the Equity Fund's holding period in
such assets will include the Balanced Fund's holding period in such
assets.
The opinion is, and the confirmation letter will be, based on certain
factual certifications made by officers of Trust III. The opinion is not a
guarantee that the tax consequences of the Acquisition will be as described
above.
Prior to the closing of the Acquisition, the Balanced Fund and the Equity
Fund will each distribute to their shareholders all of their respective
investment company taxable income and net realized capital gains that have not
previously been distributed to shareholders. Such distributions will be taxable
to the shareholders of the respective Funds.
This description of the federal income tax consequences of the Acquisition
does not take into account your particular facts and circumstances. Consult your
own tax advisor about the effect of state, local, foreign and other tax laws.
THE TRUSTEES OF TRUST III UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND
PLAN OF REORGANIZATION.
The Declaration establishing Trust III provides that any series of Trust
III (such as the Balanced Fund) may be terminated by a two-thirds vote of the
series' shares or by notice from the Trustees to the shareholders. The Trust
believes that, under this provision, no shareholder vote is required to approve
the Acquisition, although the provision could also be interpreted to require a
two-thirds vote, if the Acquisition is submitted for shareholder approval. The
Declaration also provides that it may be amended by the Trustees, upon majority
vote of the shareholders of the affected series. To eliminate any uncertainty
about whether any shareholder vote is required to approve the Acquisition, the
Trustees will consider any vote in favor of the Acquisition to be a vote in
favor of amending the Declaration to provide that the Balanced Fund may be
terminated by majority vote of the Balanced Fund's shares entitled to vote (or
by Trustee notice to shareholders), and will so amend the Declaration if a
majority of the Balanced Fund's shareholders entitled to vote on the proposal
vote in favor of such proposal.
Required Vote for Proposal 1
Approval of the Agreement and Plan of Reorganization dated October 26, 2000
among Trust III on behalf of the Balanced Fund, Trust III on behalf of the
Equity Fund, and Liberty Financial will require the affirmative vote of a
majority of the shares of the Balanced Fund outstanding at the record date for
the Meeting.
PROPOSAL 2 -- ELECTION OF TRUSTEES
THE PROPOSAL
You are being asked to approve the election of four new members as well as
seven of the currently serving members of the Board of Trustees of Trust III, of
which the Balanced Fund is a series. 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 Trust III, as well
as nine Liberty closed-end funds and seven other Liberty open-end trusts (or, in
the case of Messrs. Lowry, Mayer and Neuhauser, eleven Liberty closed-end funds
and eight other Liberty open-end trusts (collectively, the "Liberty Mutual
Funds")), 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 by the shareholders of Trust III. The proposed four new
members currently serve on the Board of Trustees of two Stein Roe closed-end
funds and seven Stein Roe open-end trusts (collectively, the "Stein Roe Mutual
Funds"), and were recommended for election as Trustees of the Liberty Mutual
Funds by the Board of Trustees at meetings held
13
<PAGE> 16
on October 25 and 26, 2000. Each of the nominees elected will serve as a Trustee
of Trust III until the next meeting of shareholders of Trust III 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 and Stein Roe Mutual Funds. Liberty Financial
and the Trustees of Trust III have agreed that shareholder interests can more
effectively be represented by a single board with responsibility for overseeing
substantially all of the Liberty and Stein Roe Mutual Funds. Creation of a
single, consolidated board should also provide certain administrative
efficiencies for Liberty Financial and potential future cost savings for both
the Liberty and Stein Roe Mutual Funds and Liberty Financial. 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 Meeting in
favor of the election of the nominees named below as Trustees of Trust III (if
so instructed). If any nominee listed below becomes unavailable for election,
the proxy may be voted for a substitute nominee in the discretion of the proxy
holder(s).
INFORMATION ABOUT THE NOMINEES
Set forth below is information concerning each of the nominees.
<TABLE>
<CAPTION>
NOMINEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
Douglas A. Hacker Executive Vice President and Chief Financial New nominee
(43) 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 Development, New nominee
(41) 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 Chairman and 1995
(64) Chief Executive Officer of U.S. Plywood Corporation
(building products producer) from August 1985 to
August 1987.)
Salvatore Macera Private Investor since 1981. (Formerly Executive 1998
(69) Vice President and Director of Itek Corporation
(electronics) from 1975 to 1981.)
William E. Mayer(2) Partner, Park Avenue Equity Partners (venture 1994
(60) 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
on-line media) and WR Hambrecht + Co. (financial
services provider).
Charles R. Nelson Van Voorhis Professor, Department of Economics, New nominee
(57) University of Washington; Consultant on economic
and statistical matters.
John J. Neuhauser Academic Vice President and Dean of Faculties, 1985
(57) Boston College, since August 1999; Dean, Boston
College School of Management, prior thereto.
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
NOMINEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
Joseph R. Palombo(3) Trustee of the Stein Roe Mutual Funds since October 2000
(47) 2000; Executive Vice President and Director of
Colonial and Stein Roe & Farnham Incorporated since
April 1999; Executive Vice President and Chief
Administrative Officer of Liberty Funds Group LLC
since April 1999; Director of AlphaTrade Inc.
(broker-dealer), Colonial Advisory Services, Inc.,
Liberty Funds Distributor, Inc. and Liberty Funds
Services, Inc. since April 1999. (Formerly Vice
President of the Stein Roe Mutual Funds from April
1999 to October 2000, Vice President of the Liberty
Mutual Funds from April 1999 to August 2000, and
Chief Operating Officer of Putnam Mutual Funds
(investments) from 1994 to 1998.)
Thomas E. Stitzel Business Consultant since 1999; Professor of 1998
(64) Finance and Dean, College of Business, Boise State
University, prior thereto; Chartered Financial
Analyst.
Thomas C. Theobald Managing Director, William Blair Capital Partners New nominee
(62) (private equity investing), since 1994; Chief
Executive Officer and Chairman of the Board of
Directors of Continental Bank Corporation (banking
services) prior thereto.
Anne-Lee Verville Consultant since 1997; General Manager, Global 1998
(55) Education Industry (global education applications),
prior thereto. (Formerly President, Applications
Solutions Division, IBM Corporation (global
education and global applications), from 1991 to
1994.)
</TABLE>
---------------
(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 Liberty Financial, but is an "interested
person," as defined in the 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 Liberty Financial.
The following persons who are currently serving on the Board of Trustees of
Trust III are not standing for reelection:
<TABLE>
<CAPTION>
TRUSTEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
Tom Bleasdale Retired (formerly Chairman of the Board and Chief 1987
(70) Executive Officer, Shore Bank & Trust Company (banking
services) from 1992 to 1993); Director, Empire Co.
(food distributor).
Lora S. Collins Attorney (formerly Attorney, Kramer Levin Naftalis & 1991
(65) Frankel LLP (law firm) from 1986 to 1996).
James E. Grinnell Private investor since November 1988. 1995
(72)
James L. Moody, Retired (formerly Chairman of the Board, Hannaford 1986
Jr. Bros. Co. (food retailer) from 1984 to 1997 and Chief
(70) Executive Officer prior thereto).
</TABLE>
---------------
(1) Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
15
<PAGE> 18
TRUSTEES' COMPENSATION
The members of the Board of Trustees will serve as Trustees of the Liberty
and Stein Roe Mutual 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 meeting and $1,000 for each special joint meeting.
The Board of Trustees is expected to hold six regular joint meetings each year.
Committee chairs will receive an additional annual retainer of $5,000, and
receive $1,000 for each special meeting attended on a day other than a regular
joint meeting day. 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 meeting day. Two-thirds of the Trustees' fees are allocated
among the Liberty and Stein Roe Mutual Funds based on each fund's relative net
assets, and one-third of the fees is divided equally among the Liberty and Stein
Roe Mutual Funds.
The Liberty Mutual 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 Liberty Mutual Funds who are not continuing on the
combined Board of Trustees of the Liberty and Stein Roe Mutual 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. Liberty
Financial and the Liberty Mutual Funds will each bear one-half of the cost of
the payments; the Liberty Mutual Funds' portion of the payments will be
allocated among the Liberty Mutual Funds based on each fund's share of the
Trustee fees for 2000.
Further information concerning the Trustees' compensation is included in
Appendix B.
MEETINGS AND CERTAIN COMMITTEES
Composition. The current Board of Trustees of the Liberty Mutual Funds
consists of two interested and nine non-interested Trustees. Mr. Mayer is not
affiliated with Liberty Financial 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 Liberty Financial.
Audit Committee. The Audit Committee of the Liberty Mutual Funds,
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 Liberty Mutual
Funds, consisting of Messrs. Neuhauser (Chairman), 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 Liberty Mutual
Funds, consisting of Messrs. Bleasdale (Chairman), Lowry, Mayer, 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 Liberty Financial or any of its investment advisor
affiliates), 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 Trust III, Attention: Secretary, One Financial Center, Boston,
Massachusetts 02111-2621.
Record of Board and Committee Meetings. During the fiscal year ended
October 31, 2000, the Board of Trustees of Trust III (excluding the Liberty
Federal Securities Fund, which has a different fiscal year end) held six
meetings, the Audit Committee held four meetings, the Compensation Committee
held two meetings, and the Governance Committee held five meetings.
During the most recently completed fiscal year, each of the current
Trustees attended more than 75% of the meetings of the Board of Trustees and the
committees of which such Trustee was a member.
16
<PAGE> 19
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE BALANCED FUND VOTE
FOR EACH NOMINEE IN PROPOSAL 2.
Required Vote for Proposal 2
A plurality of the votes cast at the Meeting for Trust III, if a quorum is
represented, is required for the election of each Trustee to the Board of
Trustees of Trust III. 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.
GENERAL
VOTING INFORMATION
The Trustees of Trust III are soliciting proxies from the shareholders of
the Balanced Fund in connection with the Meeting, which has been called to be
held at 10:00 a.m. Eastern Time on December 27, 2000 at Colonial's offices, One
Financial Center, Boston, Massachusetts 02111-2621. The meeting notice, this
combined Prospectus/Proxy Statement and proxy cards and inserts are being mailed
to shareholders beginning on or about November 17, 2000.
Information About Proxies and the Conduct of the Meeting
Solicitation of Proxies. Proxies will be solicited primarily by mailing
this combined Prospectus/Proxy Statement and its enclosures, but proxies may
also be solicited through further mailings, telephone calls, personal interviews
or e-mail by officers of the Balanced Fund or by employees or agents of Crabbe
Huson Group, Inc. ("Crabbe Huson"), each Fund's investment advisor, and its
affiliated companies. In addition, Shareholder Communications Corporation
("SCC") has been engaged to assist in the solicitation of proxies, at an
estimated total cost of $700,000 for all of the proposed acquisitions of funds
in the Liberty and Stein Roe Mutual Fund groups scheduled to take place in
January 2001.
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.
Costs. The estimated costs of the Meeting, including the costs of
soliciting proxies, and the costs of the Acquisition to be borne by the Balanced
Fund and the Equity Fund are approximately $20,000 and $22,000, respectively.
Liberty Financial is also bearing a portion of such costs. This portion to be
borne by Liberty Financial is in addition to the amounts to be borne by the
Funds.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy card. If no instructions are
given, the proxy will be voted in favor of each Proposal. You can revoke your
proxy by sending a signed, written letter of revocation to the Secretary of the
Balanced Fund, by properly executing and submitting a later-dated proxy or by
attending the Meeting and voting in person.
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<PAGE> 20
Votes cast in person or by proxy at the Meeting will be counted by persons
appointed by the Balanced Fund as tellers for the Meeting (the "Tellers").
Thirty percent (30%) of the shares of the Balanced Fund outstanding on the
record date, present in person or represented by proxy, constitutes a quorum for
the transaction of business by the shareholders of the Balanced Fund at the
Meeting. Shareholders of the Balanced Fund vote together with the shareholders
of the other series of Trust III for the election of Trustees; thirty percent
(30%) of the outstanding shares of Trust III constitutes a quorum for voting on
the election of Trustees. In determining whether a quorum is present, the
Tellers will count shares represented by proxies that reflect abstentions and
"broker non-votes" as shares that are present and entitled to vote. Since these
shares will be counted as present, but not as voting in favor of any proposal,
these shares will have the same effect as if they cast votes against Proposal 1
and will have no effect on the outcome of Proposal 2. "Broker non-votes" are
shares held by brokers or nominees as to which (i) the broker or nominee does
not have discretionary voting power and (ii) the broker or nominee has not
received instructions from the beneficial owner or other person who is entitled
to instruct how the shares will be voted.
Advisor's, Underwriter's and Administrator's Addresses. The address of
each Fund's investment advisor, Crabbe Huson Group, Inc., is 121 S. W. Morrison,
Suite 1400, Portland, Oregon 97204. The address of each Fund's principal
underwriter, Liberty Funds Distributor, Inc., is One Financial Center, Boston,
Massachusetts 02111-2621. The address of each Fund's administrator, Colonial
Management Associates, Inc., is One Financial Center, Boston, Massachusetts
02111-2621.
Information About Liberty Financial. On November 1, 2000, Liberty
Financial announced that it had retained CS First Boston to help it explore
strategic alternatives, including the possible sale of Liberty Financial.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists for the Balanced Fund and Trust III the total
number of shares outstanding as of September 29, 2000 for each class of the
shares of the Balanced Fund and Trust III entitled to vote at the Meeting. It
also lists for the Equity Fund the total number of shares outstanding as of
September 29, 2000 for each class of the Fund's shares. It also identifies
holders of more than 5% or 25% of any class of shares of each Fund, and contains
information about the executive officers and Trustees of Trust III and their
shareholdings in the Funds and Trust III.
Adjournments; Other Business. If the Balanced Fund or Trust III, as
applicable, has not received enough votes by the time of the Meeting to approve
any Proposal, the persons named as proxies may propose that the Meeting be
adjourned one or more times to permit further solicitation of proxies. Any
adjournment requires the affirmative vote of a majority of the total number of
shares of the Balanced Fund or Trust III, as applicable, that are present in
person or by proxy on the question when the adjournment is being voted on. The
persons named as proxies will vote in favor of any such adjournment all proxies
that they are entitled to vote in favor of the relevant Proposal (or in favor of
any nominee, in the case of Proposal 2). They will vote against any such
adjournment any proxy that directs them to vote against the Proposal (or against
all nominees, in the case of Proposal 2). They will not vote any proxy that
directs them to abstain from voting on the Proposal in question.
The Meeting has been called to transact any business that properly comes
before it. The only business that management of the Balanced Fund intends to
present or knows that others will present is Proposals 1 and 2. If any other
matters properly come before the Meeting, and on all matters incidental to the
conduct of the Meeting, the persons named as proxies intend to vote the proxies
in accordance with their judgment, unless the Secretary of the Balanced Fund has
previously received written contrary instructions from the shareholder entitled
to vote the shares.
Shareholder Proposals at Future Meetings. Trust III, of which the Balanced
Fund is a series, does not hold annual or other regular meetings of
shareholders. Shareholder proposals to be presented at any future meeting of
shareholders of the Balanced Fund or Trust III must be received by the Balanced
Fund or Trust III in writing a reasonable amount of time before the Trust
solicits proxies for that meeting in order to be considered for inclusion in the
proxy materials for that meeting. Shareholder proposals should be sent to the
Balanced Fund, care of Trust III, Attention: Secretary, One Financial Center,
Boston, Massachusetts 02111-2621.
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<PAGE> 21
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 26, 2000 is
by and among Liberty Funds Trust III (the "Trust"), a Massachusetts business
trust established under a Declaration of Trust dated May 30, 1986, as amended,
on behalf of Liberty Contrarian Balanced Fund (the "Acquired Fund"), a series of
the Trust, Liberty Funds Trust III (the "Acquiring Trust"), a Massachusetts
business trust established under a Declaration of Trust dated May 30, 1986, as
amended, on behalf of Liberty Contrarian Equity Fund (the "Acquiring Fund"), a
series of the Acquiring Trust, and Liberty Financial Companies, Inc.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and any successor
provision. The reorganization will consist of the transfer of all of the assets
of the Acquired Fund in exchange solely for Class A, B, C and I shares of
beneficial interest of the Acquiring Fund ("Acquiring Shares") and the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund (other
than certain expenses of the reorganization contemplated hereby) and the
distribution of such Acquiring Shares to the shareholders of the Acquired Fund
in liquidation of the Acquired Fund, all upon the terms and conditions set forth
in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES
AND ACQUIRING SHARES AND LIQUIDATION OF ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein,
(a) The Trust, on behalf of the Acquired Fund, will transfer and deliver
to the Acquiring Fund, and the Acquiring Fund will acquire, all the
assets of the Acquired Fund as set forth in paragraph 1.2;
(b) The Acquiring Fund will assume all of the Acquired Fund's
liabilities and obligations of any kind whatsoever, whether
absolute, accrued, contingent or otherwise in existence on the
Closing Date (as defined in paragraph 1.2 hereof) (the
"Obligations"), except that expenses of reorganization contemplated
hereby to be paid by the Acquired Fund pursuant to paragraphs 1.5
and 9.2 shall not be assumed or paid by the Acquiring Fund; and
(c) The Acquiring Fund will issue and deliver to the Acquired Fund in
exchange for such assets the number of Acquiring Shares (including
fractional shares, if any) determined by dividing the net asset
value of the Acquired Fund, computed in the manner and as of the
time and date set forth in paragraph 2.1, by the net asset value of
one Acquiring Share, computed in the manner and as of the time and
date set forth in paragraph 2.2. Such transactions shall take place
at the closing provided for in paragraph 3.1 (the "Closing").
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all cash, securities, dividends and interest
receivable, receivables for shares sold and all other assets which are
owned by the Acquired Fund on the closing date provided in paragraph
3.1 (the "Closing Date") and any deferred expenses, other than
unamortized organizational expenses, shown as an asset on the books of
the Acquired Fund on the Closing Date.
1.3 As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to its shareholders of record
("Acquired Fund Shareholders"), determined as of the close of business
on the Valuation Date (as defined in paragraph 2.1), the Acquiring
Shares received by the Acquired Fund pursuant to
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<PAGE> 22
paragraph 1.1. Such liquidation and distribution will be accomplished
by the transfer of the Acquiring Shares then credited to the account of
the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the Acquired
Fund Shareholders and representing the respective pro rata number of
Acquiring Shares due such shareholders. The Acquiring Fund shall not be
obligated to issue certificates representing Acquiring Shares in
connection with such exchange.
1.4 With respect to Acquiring Shares distributable pursuant to paragraph
1.3 to an Acquired Fund Shareholder holding a certificate or
certificates for shares of the Acquired Fund, if any, on the Valuation
Date, the Acquiring Trust will not permit such shareholder to receive
Acquiring Share certificates therefor, exchange such Acquiring Shares
for shares of other investment companies, effect an account transfer of
such Acquiring Shares, or pledge or redeem such Acquiring Shares until
the Acquiring Trust has been notified by the Acquired Fund or its agent
that such Acquired Fund Shareholder has surrendered all his or her
outstanding certificates for Acquired Fund shares or, in the event of
lost certificates, posted adequate bond.
1.5 [RESERVED]
1.6 As promptly as possible after the Closing Date, the Acquired Fund shall
be terminated pursuant to the provisions of the laws of the
Commonwealth of Massachusetts, and, after the Closing Date, the
Acquired Fund shall not conduct any business except in connection with
its liquidation.
2. VALUATION.
2.1 For the purpose of paragraph 1, the value of the Acquired Fund's assets
to be acquired by the Acquiring Fund hereunder shall be the net asset
value computed as of the close of regular trading on the New York Stock
Exchange on the business day next preceding the Closing (such time and
date being herein called the "Valuation Date") using the valuation
procedures set forth in the Declaration of Trust of the Acquiring Trust
and the then current prospectus or statement of additional information
of the Acquiring Fund, after deduction for the expenses of the
reorganization contemplated hereby to be paid by the Acquired Fund
pursuant to paragraphs 1.5, and shall be certified by the Acquired
Fund.
2.2 For the purpose of paragraph 2.1, the net asset value of an Acquiring
Share shall be the net asset value per share computed as of the close
of regular trading on the New York Stock Exchange on the Valuation
Date, using the valuation procedures set forth in the Declaration of
Trust of the Acquiring Trust and the then current prospectus or
prospectuses and the statement or statements of additional information
of the Acquiring Fund (collectively, as from time to time amended and
supplemented, the "Acquiring Fund Prospectus").
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be on January 16, 2001, or on such other date as
the parties may agree in writing. The Closing shall be held at 9:00
a.m. at the offices of Colonial Management Associates, Inc., One
Financial Center, Boston, Massachusetts 02111, or at such other time
and/or place as the parties may agree.
3.2 The portfolio securities of the Acquired Fund shall be made available
by the Acquired Fund to The Chase Manhattan Bank, as custodian for the
Acquiring Fund (the "Custodian"), for examination no later than five
business days preceding the Valuation Date. On the Closing Date, such
portfolio securities and all the Acquired Fund's cash shall be
delivered by the Acquired Fund to the Custodian for the account of the
Acquiring Fund, such portfolio securities to be duly endorsed in proper
form for transfer in such manner and condition as to constitute good
delivery thereof in accordance with the custom of brokers or, in the
case of portfolio securities held in the U.S. Treasury Department's
book-entry system or by the Depository Trust Company, Participants
Trust Company or other third party depositories, by transfer to the
account of the Custodian in accordance with Rule 17f-4 or
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Rule 17f-5, as the case may be, under the Investment Company Act of
1940 (the "1940 Act") and accompanied by all necessary federal and
state stock transfer stamps or a check for the appropriate purchase
price thereof. The cash delivered shall be in the form of currency or
certified or official bank checks, payable to the order of "The Chase
Manhattan Bank, custodian for Acquiring Fund."
3.3 In the event that on the Valuation Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere
shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquired Fund or the Acquiring Fund is impracticable, the
Closing Date shall be postponed until the first business day after the
day when trading shall have been fully resumed and reporting shall have
been restored; provided that if trading shall not be fully resumed and
reporting restored within three business days of the Valuation Date,
this Agreement may be terminated by either of the Trust or the
Acquiring Trust upon the giving of written notice to the other party.
3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver
to the Acquiring Fund or its designated agent a list of the names and
addresses of the Acquired Fund Shareholders and the number of
outstanding shares of beneficial interest of the Acquired Fund owned by
each Acquired Fund Shareholder, all as of the close of business on the
Valuation Date, certified by the Secretary or Assistant Secretary of
the Trust. The Acquiring Trust will provide to the Acquired Fund
evidence satisfactory to the Acquired Fund that the Acquiring Shares
issuable pursuant to paragraph 1.1 have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. On the Liquidation
Date, the Acquiring Trust will provide to the Acquired Fund evidence
satisfactory to the Acquired Fund that such Acquiring Shares have been
credited pro rata to open accounts in the names of the Acquired Fund
shareholders as provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other such bills of
sale, instruments of assumption of liabilities, checks, assignments,
stock certificates, receipts or other documents as such other party or
its counsel may reasonably request in connection with the transfer of
assets, assumption of liabilities and liquidation contemplated by
paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Trust, on behalf of the Acquired Fund, represents and warrants the
following to the Acquiring Trust and to the Acquiring Fund as of the
date hereof and agrees to confirm the continuing accuracy and
completeness in all material respects of the following on the Closing
Date:
(a) The Trust is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Massachusetts;
(b) The Trust is a duly registered investment company classified as a
management company of the open-end type and its registration with
the Securities and Exchange Commission as an investment company
under the 1940 Act is in full force and effect, and the Acquired
Fund is a separate series thereof duly designated in accordance with
the applicable provisions of the Declaration of Trust of the Trust
and the 1940 Act;
(c) The Trust is not in violation in any material respect of any
provision of its Declaration of Trust or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust is a party or by which the Acquired
Fund is bound, and the execution, delivery and performance of this
Agreement will not result in any such violation;
(d) The Trust has no material contracts or other commitments (other than
this Agreement and such other contracts as may be entered into in
the ordinary course of its business) which if terminated may result
in material liability to the Acquired Fund or under which (whether
or not terminated) any material payments for periods subsequent to
the Closing Date will be due from the Acquired Fund;
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<PAGE> 24
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or
threatened against the Acquired Fund, any of its properties or
assets, or any person whom the Acquired Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions contemplated hereby;
(f) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the schedule
of investments as at and for the two years ended October 31, 1999 of
the Acquired Fund, audited by Ernst & Young LLP and the statement of
assets, the statement of changes in net assets and the schedule of
investments for the six months ended April 30, 2000, copies of which
have been furnished to the Acquiring Fund, fairly reflect the
financial condition and results of operations of the Acquired Fund
as of such dates and for the periods then ended in accordance with
generally accepted accounting principles consistently applied, and
the Acquired Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on the statements of
assets referred to above or those incurred in the ordinary course of
its business since April 30, 2000;
(g) Since April 30, 2000, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or
business (other than changes occurring in the ordinary course of
business), or any incurrence by the Acquired Fund of indebtedness,
except as disclosed in writing to the Acquiring Fund. For the
purposes of this subparagraph (g), distributions of net investment
income and net realized capital gains, changes in portfolio
securities, changes in the market value of portfolio securities or
net redemptions shall be deemed to be in the ordinary course of
business;
(h) By the Closing Date, all federal and other tax returns and reports
of the Acquired Fund required by law to have been filed by such date
(giving effect to extensions) shall have been filed, and all federal
and other taxes shown to be due on said returns and reports shall
have been paid so far as due, or provision shall have been made for
the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment
has been asserted with respect to such returns;
(i) For all taxable years and all applicable quarters of such years from
the date of its inception, the Acquired Fund has met the
requirements of subchapter M of the Code, for treatment as a
"regulated investment company" within the meaning of Section 851 of
the Code. Neither the Trust nor the Acquired Fund has at any time
since its inception been liable for nor is now liable for any
material excise tax pursuant to Section 852 or 4982 of the Code. The
Acquired Fund has duly filed all federal, state, local and foreign
tax returns which are required to have been filed, and all taxes of
the Acquired Fund which are due and payable have been paid except
for amounts that alone or in the aggregate would not reasonably be
expected to have a material adverse effect. The Acquired Fund is in
compliance in all material respects with applicable regulations of
the Internal Revenue Service pertaining to the reporting of
dividends and other distributions on and redemptions of its capital
stock and to withholding in respect of dividends and other
distributions to shareholders, and is not liable for any material
penalties which could be imposed thereunder;
(j) The authorized capital of the Trust consists of an unlimited number
of shares of beneficial interest with no par value, of multiple
series and classes. All issued and outstanding shares of the
Acquired Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and (except as set forth in the
Acquired Fund's then current prospectus or prospectuses and
statement or statements of additional information (collectively, as
amended or supplemented from time to time, the "Acquired Fund
Prospectus")), non-assessable by the
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<PAGE> 25
Acquired Fund and will have been issued in compliance with all
applicable registration or qualification requirements of federal and
state securities laws. No options, warrants or other rights to
subscribe for or purchase, or securities convertible into, any
shares of beneficial interest of the Acquired Fund are outstanding
and none will be outstanding on the Closing Date (except that Class
B shares of the Acquired Fund convert automatically into Class A
shares, as set forth in the Acquired Fund Prospectus);
(k) The Acquired Fund's investment operations from inception to the date
hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in its
prospectus and statement of additional information as in effect from
time to time, except as previously disclosed in writing to the
Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has been
duly authorized by the Trustees of the Trust, and, upon approval
thereof by the required majority of the shareholders of the Acquired
Fund, this Agreement will constitute the valid and binding
obligation of the Acquired Fund enforceable in accordance with its
terms except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles;
(m) The Acquiring Shares to be issued to the Acquired Fund pursuant to
paragraph 1 will not be acquired for the purpose of making any
distribution thereof other than to the Acquired Fund Shareholders as
provided in paragraph 1.3;
(n) The information provided by the Acquired Fund for use in the
Registration Statement and Proxy Statement referred to in paragraph
5.3 shall be accurate and complete in all material respects and
shall comply with federal securities and other laws and regulations
applicable thereto;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement,
except such as may be required under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act and state insurance,
securities or "Blue Sky" laws (which term as used herein shall
include the laws of the District of Columbia and of Puerto Rico);
(p) At the Closing Date, the Trust, on behalf of the Acquired Fund, will
have good and marketable title to its assets to be transferred to
the Acquiring Fund pursuant to paragraph 1.1 and will have full
right, power and authority to sell, assign, transfer and deliver the
Investments (as defined below) and any other assets and liabilities
of the Acquired Fund to be transferred to the Acquiring Fund
pursuant to this Agreement. At the Closing Date, subject only to the
delivery of the Investments and any such other assets and
liabilities and payment therefor as contemplated by this Agreement,
the Acquiring Fund will acquire good and marketable title thereto
and will acquire the Investments and any such other assets and
liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof,
except as previously disclosed to the Acquiring Fund. As used in
this Agreement, the term "Investments" shall mean the Acquired
Fund's investments shown on the schedule of its investments as of
April 30, 2000 referred to in Section 4.1(f) hereof, as supplemented
with such changes in the portfolio as the Acquired Fund shall make,
and changes resulting from stock dividends, stock split-ups, mergers
and similar corporate actions through the Closing Date;
(q) At the Closing Date, the Acquired Fund will have sold such of its
assets, if any, as are necessary to assure that, after giving effect
to the acquisition of the assets of the Acquired Fund pursuant to
this Agreement, the Acquiring Fund will remain a "diversified
company" within the meaning of Section 5(b)(1) of the 1940 Act and
in compliance with such other mandatory investment restrictions as
are set forth in the Acquiring Fund Prospectus, as amended through
the Closing Date; and
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<PAGE> 26
(r) No registration of any of the Investments would be required if they
were, as of the time of such transfer, the subject of a public
distribution by either of the Acquiring Fund or the Acquired Fund,
except as previously disclosed by the Acquired Fund to the Acquiring
Fund.
4.2 The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants the following to the Trust and to the Acquired Fund as of the
date hereof and agrees to confirm the continuing accuracy and
completeness in all material respects of the following on the Closing
Date:
(a) The Acquiring Trust is a business trust duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts;
(b) The Acquiring Trust is a duly registered investment company
classified as a management company of the open-end type and its
registration with the Securities and Exchange Commission as an
investment company under the 1940 Act is in full force and effect,
and the Acquiring Fund is a separate series thereof duly designated
in accordance with the applicable provisions of the Declaration of
Trust of the Acquiring Trust and the 1940 Act;
(c) The Acquiring Fund Prospectus conforms in all material respects to
the applicable requirements of the 1933 Act and the rules and
regulations of the Securities and Exchange Commission thereunder and
does not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading, and there are no material
contracts to which the Acquiring Fund is a party that are not
referred to in such Prospectus or in the registration statement of
which it is a part;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
(e) The Acquiring Trust is not in violation in any material respect of
any provisions of its Declaration of Trust or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Trust is a party or by which the
Acquiring Fund is bound, and the execution, delivery and performance
of this Agreement will not result in any such violation;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or
threatened against the Acquiring Fund or any of its properties or
assets. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects
its business or its ability to consummate the transactions
contemplated hereby;
(g) The statement of assets, the statement of operations, the statement
of changes in assets and the schedule of investments as at and for
the two years ended October 31, 1999 of the Acquiring Fund, audited
by Ernst & Young LLP, and the statement of assets, the statement of
changes in net assets and the schedule of investments for the six
months ended April 30, 2000, copies of which have been furnished to
the Acquired Fund, fairly reflect the financial condition and
results of operations of the Acquiring Fund as of such dates and the
results of its operations for the periods then ended in accordance
with generally accepted accounting principles consistently applied,
and the Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on the
statements of assets referred to above or those incurred in the
ordinary course of its business since April 30, 2000;
(h) Since April 30, 2000, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business (other than changes occurring in the ordinary course of
business), or any incurrence by the Acquiring Fund of indebtedness.
For the purposes of this subparagraph (h), changes in portfolio
securities, changes in the market value of portfolio securities or
net redemptions shall be deemed to be in the ordinary course of
business;
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<PAGE> 27
(i) By the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law to have been filed by such
date (giving effect to extensions) shall have been filed, and all
federal and other taxes shown to be due on said returns and reports
shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquiring
Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(j) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company;
(k) The authorized capital of the Acquiring Trust consists of an
unlimited number of shares of beneficial interest, no par value, of
such number of different series as the Board of Trustees may
authorize from time to time. The outstanding shares of beneficial
interest in the Acquiring Fund are, and at the Closing Date will be,
divided into Class A shares, Class B shares, Class C shares and
Class I shares each having the characteristics described in the
Acquiring Fund Prospectus. All issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and non-assessable
(except as set forth in the Acquiring Fund Prospectus) by the
Acquiring Trust, and will have been issued in compliance with all
applicable registration or qualification requirements of federal and
state securities laws. Except for Class B shares which convert to
Class A shares after the expiration of a period of time, no options,
warrants or other rights to subscribe for or purchase, or securities
convertible into, any shares of beneficial interest in the Acquiring
Fund of any class are outstanding and none will be outstanding on
the Closing Date;
(l) The Acquiring Fund's investment operations from inception to the
date hereof have been in compliance in all material respects with
the investment policies and investment restrictions set forth in its
prospectus and statement of additional information as in effect from
time to time;
(m) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquiring
Trust, and this Agreement constitutes the valid and binding
obligation of the Acquiring Trust and the Acquiring Fund enforceable
in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles;
(n) The Acquiring Shares to be issued and delivered to the Acquired Fund
pursuant to the terms of this Agreement will at the Closing Date
have been duly authorized and, when so issued and delivered, will be
duly and validly issued Class A shares, Class B shares, Class C
shares and Class I shares of beneficial interest in the Acquiring
Fund, and will be fully paid and non-assessable (except as set forth
in the Acquiring Fund Prospectus) by the Acquiring Trust, and no
shareholder of the Acquiring Trust will have any preemptive right of
subscription or purchase in respect thereof;
(o) The information to be furnished by the Acquiring Fund for use in the
Registration Statement and Proxy Statement referred to in paragraph
5.3 shall be accurate and complete in all material respects and
shall comply with federal securities and other laws and regulations
applicable thereto; and
(p) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this Agreement,
except such as may be required under 1933 Act, the 1934 Act, the
1940 Act and state insurance, securities or "Blue Sky" laws (which
term as used herein shall include the laws of the District of
Columbia and of Puerto Rico).
A-7
<PAGE> 28
5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND.
The Acquiring Trust, on behalf of the Acquiring Fund, and the Trust, on
behalf of the Acquired Fund, each hereby covenants and agrees with the other as
follows:
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it
being understood that such ordinary course of business will include
regular and customary periodic dividends and distributions.
5.2 The Acquired Fund will call a meeting of its shareholders to be held
prior to the Closing Date to consider and act upon this Agreement and
take all other reasonable action necessary to obtain the required
shareholder approval of the transactions contemplated hereby.
5.3 In connection with the Acquired Fund shareholders' meeting referred to
in paragraph 5.2, the Acquired Fund will prepare a Proxy Statement for
such meeting, to be included in a Registration Statement on Form N-14
(the "Registration Statement") which the Acquiring Trust will prepare
and file for the registration under the 1933 Act of the Acquiring
Shares to be distributed to the Acquired Fund shareholders pursuant
hereto, all in compliance with the applicable requirements of the 1933
Act, the 1934 Act, and the 1940 Act.
5.4 The information to be furnished by the Acquired Fund for use in the
Registration Statement and the information to be furnished by the
Acquiring Fund for use in the Proxy Statement, each as referred to in
paragraph 5.3, shall be accurate and complete in all material respects
and shall comply with federal securities and other laws and regulations
thereunder applicable thereto.
5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any
time prior to the Closing Date the assets of the Acquired Fund include
any securities which the Acquiring Fund is not permitted to acquire.
5.6 Subject to the provisions of this Agreement, the Acquired Fund and the
Acquiring Fund will each take, or cause to be taken, all action, and do
or cause to be done, all things reasonably necessary, proper or
advisable to cause the conditions to the other party's obligations to
consummate the transactions contemplated hereby to be met or fulfilled
and otherwise to consummate and make effective such transactions.
5.7 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities or "Blue Sky" laws as it may deem
appropriate in order to continue its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Trust and the Acquiring Fund of all the obligations to be performed by
them hereunder on or before the Closing Date and, in addition thereto, to the
following further conditions:
6.1 The Acquiring Trust, on behalf of the Acquiring Fund, shall have
delivered to the Trust a certificate executed in its name by its
President or Vice President and its Treasurer or Assistant Treasurer,
in form satisfactory to the Trust and dated as of the Closing Date, to
the effect that the representations and warranties of the Acquiring
Trust on behalf of the Acquiring Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and that
the Acquiring Trust and the Acquiring Fund have complied with all the
covenants and agreements and satisfied all of the conditions on their
parts to be performed or satisfied under this Agreement at or prior to
the Closing Date.
A-8
<PAGE> 29
6.2 The Trust shall have received a favorable opinion from Ropes & Gray,
counsel to the Acquiring Trust for the transactions contemplated
hereby, dated the Closing Date and, in a form satisfactory to the
Trust, to the following effect:
(a) The Acquiring Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and
has power to own all of its properties and assets and to carry on
its business as presently conducted, and the Acquiring Fund is a
separate series thereof duly constituted in accordance with the
applicable provisions of the 1940 Act and the Declaration of Trust
and By-laws of the Acquiring Trust; (b) this Agreement has been
duly authorized, executed and delivered on behalf of the Acquiring
Fund and, assuming the Prospectus and Registration Statement
referred to in paragraph 5.3 complies with applicable federal
securities laws and assuming the due authorization, execution and
delivery of this Agreement by the Trust on behalf of the Acquired
Fund, is the valid and binding obligation of the Acquiring Fund
enforceable against the Acquiring Fund in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles; (c) the
Acquiring Fund has the power to assume the liabilities to be
assumed by it hereunder and upon consummation of the transactions
contemplated hereby the Acquiring Fund will have duly assumed such
liabilities; (d) the Acquiring Shares to be issued for transfer to
the shareholders of the Acquired Fund as provided by this Agreement
are duly authorized and upon such transfer and delivery will be
validly issued and outstanding and fully paid and nonassessable
Class A shares, Class B shares, Class C shares and Class I shares
of beneficial interest in the Acquiring Fund, and no shareholder of
the Acquiring Fund has any preemptive right of subscription or
purchase in respect thereof; (e) the execution and delivery of this
Agreement did not, and the performance by the Acquiring Trust and
the Acquiring Fund of their respective obligations hereunder will
not, violate the Acquiring Trust's Declaration of Trust or By-laws,
or any provision of any agreement known to such counsel to which
the Acquiring Trust or the Acquiring Fund is a party or by which
either of them is bound or, to the knowledge of such counsel,
result in the acceleration of any obligation or the imposition of
any penalty under any agreement, judgment, or decree to which the
Acquiring Trust or the Acquiring Fund is a party or by which either
of them is bound; (f) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquiring Trust
or the Acquiring Fund of the transactions contemplated by this
Agreement except such as may be required under state securities or
"Blue Sky" laws or such as have been obtained; (g) except as
previously disclosed, pursuant to section 4.2(f) above, such
counsel does not know of any legal or governmental proceedings
relating to the Acquiring Trust or the Acquiring Fund existing on
or before the date of mailing of the Prospectus referred to in
paragraph 5.3 or the Closing Date required to be described in the
Registration Statement referred to in paragraph 5.3 which are not
described as required; (h) the Acquiring Trust is registered with
the Securities and Exchange Commission as an investment company
under the 1940 Act; and (i) to the best knowledge of such counsel,
no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or
threatened as to the Acquiring Trust or the Acquiring Fund or any
of their properties or assets and neither the Acquiring Trust nor
the Acquiring Fund is a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body,
which materially and adversely affects its business.
A-9
<PAGE> 30
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, to the following further conditions:
7.1 The Trust, on behalf of the Acquired Fund, shall have delivered to the
Acquiring Trust a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquiring Trust and dated the Closing
Date, to the effect that the representations and warranties of the
Acquired Fund made in this Agreement are true and correct at and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and that the Trust and the Acquired
Fund have complied with all the covenants and agreements and satisfied
all of the conditions on its part to be performed or satisfied under
this Agreement at or prior to the Closing Date.
7.2 The Acquiring Trust shall have received a favorable opinion from Ropes
& Gray, counsel to the Trust, dated the Closing Date and in a form
satisfactory to the Acquiring Trust, to the following effect:
(a) The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts and has
corporate power to own all of its properties and assets and to
carry on its business as presently conducted, and the Acquired Fund
is a separate series thereof duly constituted in accordance with
the applicable provisions of the 1940 Act and the Declaration of
Trust of the Trust; (b) this Agreement has been duly authorized,
executed and delivered on behalf of the Acquired Fund and, assuming
the Proxy Statement referred to in paragraph 5.3 complies with
applicable federal securities laws and assuming the due
authorization, execution and delivery of this Agreement by the
Acquiring Trust on behalf of the Acquiring Fund, is the valid and
binding obligation of the Acquired Fund enforceable against the
Acquired Fund in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights
generally and other equitable principles; (c) the Acquired Fund has
the power to sell, assign, transfer and deliver the assets to be
transferred by it hereunder, and, upon consummation of the
transactions contemplated hereby, the Acquired Fund will have duly
transferred such assets to the Acquiring Fund; (d) the execution
and delivery of this Agreement did not, and the performance by the
Trust and the Acquired Fund of their respective obligations
hereunder will not, violate the Trust's Declaration of Trust or
By-laws, or any provision of any agreement known to such counsel to
which the Trust or the Acquired Fund is a party or by which either
of them is bound or, to the knowledge of such counsel, result in
the acceleration of any obligation or the imposition of any penalty
under any agreement, judgment, or decree to which the Trust or the
Acquired Fund is a party or by which either of them is bound; (e)
to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the Trust or the Acquired Fund of
the transactions contemplated by this Agreement, except such as may
be required under state securities or "Blue Sky" laws or such as
have been obtained; (f) such counsel does not know of any legal or
governmental proceedings relating to the Trust or the Acquired Fund
existing on or before the date of mailing of the Prospectus
referred to in paragraph 5.3 or the Closing Date required to be
described in the Registration Statement referred to in paragraph
5.3 which are not described as required; (g) the Trust is
registered with the Securities and Exchange Commission as an
investment company under the 1940 Act; and (h) to the best
knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Trust or the
Acquired Fund or any of its properties or assets and neither the
Trust nor the Acquired Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its
business.
A-10
<PAGE> 31
7.3 [RESERVED]
7.4 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous dividends,
shall have the effect of distributing all of the Acquired Fund's
investment company taxable income for its taxable years ending on or
after October 31, 2000 and on or prior to the Closing Date (computed
without regard to any deduction for dividends paid), and all of its net
capital gains realized in each of its taxable years ending on or after
October 31, 2000 and on or prior to the Closing Date.
7.5 The Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer of the Trust, as to the adjusted tax basis in the hands of
the Acquired Fund of the securities delivered to the Acquiring Fund
pursuant to this Agreement.
7.6 The custodian of the Acquired Fund shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the
Acquired Fund held by such custodian as of the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND AND
THE ACQUIRED FUND.
The respective obligations of the Trust and the Acquiring Trust hereunder
are each subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the vote of the required majority of the holders of the
outstanding shares of the Acquired Fund of record on the record date
for the meeting of its shareholders referred to in paragraph 5.2.
8.2 On the Closing Date no action, suit or other preceding shall be pending
before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated hereby.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including
those of the Securities and Exchange Commission and of state Blue Sky
and securities authorities) deemed necessary by the Trust or the
Acquiring Trust to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except
where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties
of the Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement referred to in paragraph 5.3 shall have
become effective under the 1933 Act and no stop order suspending the
effectiveness thereof shall have been issued and, to the best knowledge
of the parties hereto, no investigation or proceeding for that purpose
shall have been instituted or be pending, threatened or contemplated
under the 1933 Act.
8.5 The Trust shall have received a favorable opinion of Ropes & Gray
satisfactory to the Trust and the Acquiring Trust shall have received a
favorable opinion of Ropes & Gray satisfactory to the Acquiring Trust,
each substantially to the effect that, for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of the assets of the
Acquired Fund in exchange for the Acquiring Fund's assumption of
the Obligations of the Acquired Fund and issuance of the
Acquiring Shares, followed by the distribution by the Acquired
Fund of such the Acquiring Shares to the shareholders of the
Acquired Fund in exchange for their shares of the Acquired Fund,
all as provided in paragraph 1 hereof, will constitute a
reorganization within the meaning of Section 368(a) of the Code,
and the Acquired Fund and the Acquiring Fund will each be "a
party to a reorganization" within the meaning of Section 368(b)
of the Code;
(b) No gain or loss will be recognized by the Acquired Fund (i) upon the
transfer of its assets to the Acquiring Fund in exchange for the
Acquiring Shares or (ii) upon the distribution of the Acquiring
Shares to the shareholders of the Acquired Fund as contemplated in
paragraph 1 hereof;
A-11
<PAGE> 32
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the
assumption of the Obligations and issuance of the Acquiring Shares
as contemplated in paragraph 1 hereof;
(d) The tax basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be the same as the basis of those assets in
the hands of the Acquired Fund immediately prior to the transfer,
and the holding period of the assets of the Acquired Fund in the
hands of the Acquiring Fund will include the period during which
those assets were held by the Acquired Fund;
(e) The shareholders of the Acquired Fund will recognize no gain or
loss upon the exchange of their shares of the Acquired Fund for
the Acquiring Shares;
(f) The tax basis of the Acquiring Shares to be received by each
shareholder of the Acquired Fund will be the same in the aggregate
as the aggregate tax basis of the shares of the Acquired Fund
surrendered in exchange therefor;
(g) The holding period of the Acquiring Shares to be received by each
shareholder of the Acquired Fund will include the period during
which the shares of the Acquired Fund surrendered in exchange
therefor were held by such shareholder, provided such shares of
the Acquired Fund were held as a capital asset on the date of the
exchange; and
(h) The Acquiring Fund will succeed to and take into account the items
of Acquired Fund described in Section 381(c) of the Code, subject
to the conditions and limitations specified in Sections 381, 382,
383 and 384 of the Code and the regulations thereunder.
8.6 At any time prior to the Closing, any of the foregoing conditions of
this Agreement may be waived jointly by the Board of Trustees of the
Trust and the Board of Trustees of the Acquiring Trust if, in their
judgment, such waiver will not have a material adverse effect on the
interests of the shareholders of the Acquired Fund and the Acquiring
Fund.
9. BROKERAGE FEES AND EXPENSES.
9.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Trust, on
behalf of the Acquiring Fund, each represents and warrants to the other
that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 The Acquiring Trust, on behalf of the Acquiring Fund, shall pay all
fees paid to governmental authorities for the registration or
qualification of the Acquiring Shares. All of the other out-of-pocket
expenses (other than tabulation costs which will be borne in their
entirety by Liberty Financial) of the transactions contemplated by this
Agreement shall be borne as follows: (a) as to expenses allocable to
the Trust, on behalf of the Acquired Fund, fifty percent (50%) of such
expenses shall be borne by the Trust, on behalf of the Acquired Fund,
and fifty percent (50%) of such expenses shall be borne by Liberty
Financial; and (b) as to expenses allocable to the Acquiring Trust, on
behalf of the Acquiring Fund, fifty percent (50%) of such expenses
shall be borne by the Acquiring Trust, on behalf of the Acquiring Fund,
and fifty percent (50%) of such expenses shall be borne by Liberty
Financial. The foregoing sentence shall be subject, however, to any
undertaking by Liberty Financial to Liberty Funds Trust I, II, III, IV,
V, VI, VII and IX (or any of their series) (collectively, the "Liberty
Trusts") to limit the aggregate expenses (other than fees paid to
governmental authorities for the registration or qualification of
shares of the Liberty Trusts) of the transactions contemplated by this
Agreement and other transactions involving the Liberty Trusts.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 The Trust on behalf of the Acquired Fund and the Acquiring Trust on
behalf of the Acquiring Fund agree that neither party has made any
representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
A-12
<PAGE> 33
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in
connection herewith shall not survive the consummation of the
transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5,
1.6, 5.4, 9, 10, 13 and 14.
11. TERMINATION.
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and the Trust. In addition, either the Acquiring Trust
or the Trust may at its option terminate this Agreement at or prior to
the Closing Date because:
(a) Of a material breach by the other of any representation, warranty,
covenant or agreement contained herein to be performed by the
other party at or prior to the Closing Date;
(b) A condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears
that it will not or cannot be met; or
(c) If the transactions contemplated by this Agreement have not been
substantially completed by May 31, 2001 this Agreement shall
automatically terminate on that date unless a later date is agreed
to by both the Trust and the Acquiring Trust.
11.2 If for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to any other party for any
damages resulting therefrom, including without limitation
consequential damages.
12. AMENDMENTS.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the Trust
on behalf of the Acquired Fund and the Acquiring Trust on behalf of the
Acquiring Fund; provided, however, that following the shareholders' meeting
called by the Acquired Fund pursuant to paragraph 5.2 no such amendment may have
the effect of changing the provisions for determining the number of the
Acquiring Shares to be issued to shareholders of the Acquired Fund under this
Agreement to the detriment of such shareholders without their further approval.
13. NOTICES.
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to: Liberty Funds Trust III, One
Financial Center, Boston, Massachusetts 02111, Attention: Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT NON-RECOURSE.
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of The Commonwealth of Massachusetts,
without giving effect to any choice or conflicts of law rule or
provision that would result in the application of the domestic
substantive laws of any other jurisdiction.
A-13
<PAGE> 34
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be
made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
14.5 A copy of the Declaration of Trust of the Trust and Acquiring Trust is
on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that no trustee, officer,
agent or employee of either the Trust or the Acquiring Trust shall
have any personal liability under this Agreement, and that this
Agreement is binding only upon the assets and properties of the
Acquired Fund and the Acquiring Fund.
A-14
<PAGE> 35
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as a sealed instrument by its President or Vice President and its
corporate seal to be affixed thereto and attested by its Secretary or Assistant
Secretary.
LIBERTY FUNDS TRUST III,
on behalf of Liberty Contrarian
Balanced Fund
By:
------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
---------------------------------------------------------
Name:
-------------------------------------------------
Title:
--------------------------------------------------
LIBERTY FUNDS TRUST III, on behalf of
Liberty Contrarian Equity Fund
By:
------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
---------------------------------------------------------
Name:
-------------------------------------------------
Title:
--------------------------------------------------
A-15
<PAGE> 36
Solely for purposes of Section 9.2 of
the Agreement:
LIBERTY FINANCIAL COMPANIES, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
---------------------------------------------------------
Name:
-------------------------------------------------
Title:
--------------------------------------------------
A-16
<PAGE> 37
APPENDIX B
FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE BALANCED FUND AND TRUST III AND
SHARES OUTSTANDING OF THE EQUITY FUND
For each class of the Balanced Fund's shares and Trust III's shares
entitled to vote at the Meeting, and for each class of the Equity Fund's shares,
the number of shares outstanding as of September 29, 2000 was as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OUTSTANDING AND
FUND OR TRUST CLASS ENTITLED TO VOTE
------------- ----- ----------------
<S> <C> <C>
BALANCED FUND................................ A 1,893,432
B 9,222
C 281
I 1,115,266
TRUST III.................................... 297,008,531
EQUITY FUND.................................. A 4,080,502
B 28,817
C 609
I 591,405
</TABLE>
OWNERSHIP OF SHARES
As of September 29, 2000, Trust III believes that the Trustees and officers
of the Trust, as a group, owned less than one percent of each class of shares of
each Fund and of the Trust as a whole. As of September 29, 2000, the following
shareholders of record owned 5% or more of the outstanding shares of the noted
class of shares of the noted Fund:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OUTSTANDING
OUTSTANDING SHARES SHARES OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER OF CLASS OWNED CLASS OWNED
-------------- ------------------------------- ------------------ -------------
<S> <C> <C> <C>
BALANCED FUND
CLASS B.............. Investors Bank & Trust Co. 743.446 8.06%
Patricia L. Lyons Rollover IRA
241 Gropp Avenue
Hamilton, NJ 08610
CLASS C.............. N&S Electric Inc. 40.595 14.45%
401K Retirement Plan
A/C Gery Maggi
15 Kellers Farm Road
Easton, CT 06612
Colonial Management Associates, Inc. 86.725 30.88%
Attn: Finance Department
One Financial Center
Boston, MA 02111-2621
</TABLE>
B-1
<PAGE> 38
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OUTSTANDING
OUTSTANDING SHARES SHARES OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER OF CLASS OWNED CLASS OWNED
-------------- ------------------------------- ------------------ -------------
<S> <C> <C> <C>
Investors Bank & Trust Co. 153.528 54.67%
Custodian
Leslie J. Littleton Rollover IRA
1550 Yellowstone Avenue #116
Pocatello, ID 83201
CLASS I.............. Union Bank TR Nominee* 86,138.598 7.72%
FBO Toc-Burgermeister
610001272-08
P.O. Box 85484
San Diego, CA 92186
Norma F. Cole 79,939.551 7.17%
2590 Birch Lane
Eugene, OR 97403-2135
Mary H. Stevenson 71,826.067 6.44%
P.O. Box 375
White Salmon, WA 98672-0375
Investors Bank & Trust Co. 68,833.045 6.17%
Custodian
Joanne Panian Rollover IRA
16112 NW Claremont Drive
Portland, OR 97229-7836
Northwestern Trust Company 631,365.355 56.61%
Custodian
FBO IBEW Local 76
Supplemental Income Fund
1201 3rd Avenue, Ste. 2010
Seattle, WA 98101
Enele Co. 103,007.900 9.24%
FBO Wealthtrack Operations
601 SW 2nd Avenue
Portland, OR 97204-3154
EQUITY FUND
CLASS B.............. Investors Bank & Trust Co 1,479.255 5.13%
Custodian
Morris E. Kinghorn Rollover
IRA
P.O. Box 83
Pocatello, ID 83204
Investors Bank & Trust Co 1,616.486 5.61%
Trustee
Arms Inc.
401(K) Plan
A/C Patrick J. Hanigan
2447 E. Sunshine Drive
Boise, ID 83712
</TABLE>
B-2
<PAGE> 39
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OUTSTANDING
OUTSTANDING SHARES SHARES OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER OF CLASS OWNED CLASS OWNED
-------------- ------------------------------- ------------------ -------------
<S> <C> <C> <C>
CLASS C.............. Colonial Management Associates, Inc. 62.691 10.30%
Attn: Finance Department
One Financial Center
Boston, MA 02111-2621
Investors Bank & Trust Co. 75.327 12.38%
Trustee
Morgan Franklin Corporation
401K Retirement Plan
A/C Robert Franklin
47042 Dixon Court
Lexington Park, MD 20653
Investors Bank & Trust Co. 31.998 5.26%
Trustee
Morgan Franklin Corporation
401K Retirement Plan
A/C Angela Dawn Foret
45803 Spruce Drive
Lexington Park, MD 20653
Don A. McKee 89.993 14.79%
Molly McKee
3917 Oakwood Drive N.
Pearland, TX 77581
Investors Bank & Trust Co. 284.402 46.74%
Custodian
Clyde Williams SARSEP Plan
Burnt Ranch Road
Cherry Creek Ranch
Mitchell, OR 97750
Investors Bank & Trust Co. 41.083 6.75%
Custodian
Susan C. Williams SARSEP Plan
43861 Burnt Ranch Road
Mitchell, OR 97750
CLASS I.............. Northwestern Trust Company 470,458,694 79.55%
Custodian
FBO IBEW Local 76
Supplemental Income Fund
1201 3rd Avenue, Ste. 2010
Seattle, WA 98101
Bidwell & Company 113,624.910 19.21%
Bruce N. Hildreth
209 SW Oak Street
Portland, OR 97204-2791
</TABLE>
---------------
* Shares are believed to be held only as nominee.
B-3
<PAGE> 40
OWNERSHIP OF SHARES UPON CONSUMMATION OF ACQUISITION
As of September 29, 2000, the shareholders of record that owned 5% or more
of the outstanding shares of the noted class of shares of the noted Fund would
own the following percentage of the Equity Fund upon consummation of the
Acquisition:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES OF
CLASS OWNED UPON
CONSUMMATION OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER ACQUISITION
-------------- ------------------------------- ---------------------
<S> <C> <C>
BALANCED FUND
CLASS B...................... Investors Bank & Trust Co. 1.45%
Patricia L. Lyons Rollover IRA
241 Gropp Avenue
Hamilton, NJ 08610
CLASS C...................... N&S Electric Inc. 3.47%
401K Retirement Plan
A/C Gery Maggi
15 Kellers Farm Road
Easton, CT 06612
Colonial Management Associates, Inc. 7.41%
Attn: Finance Department
One Financial Center
Boston, MA 02111-2621
Investors Bank & Trust Co. 13.12%
Custodian
Leslie J. Littleton Rollover IRA
1550 Yellowstone Avenue #116
Pocatello, ID 83201
CLASS I...................... Union Bank TR Nominee* 4.31%
FBO TOC-Burgermeister
610001272-08
P.O. Box 85484
San Diego, CA 92186
Norma F. Cole 4.00%
2590 Birch Lane
Eugene, OR 97403-2135
Mary H. Stevenson 3.59%
P.O. Box 375
White Salmon, WA 98672-0375
Investors Bank & Trust Co. 3.44%
Custodian
Joanne Panian Rollover IRA
16112 NW Claremont Drive
Portland, OR 97229-7836
</TABLE>
B-4
<PAGE> 41
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES OF
CLASS OWNED UPON
CONSUMMATION OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER ACQUISITION
-------------- ------------------------------- ---------------------
<S> <C> <C>
Northwestern Trust Company 31.58%
Custodian
FBO IBEW Local 76
Supplemental Income Fund
1201 3rd Avenue, Ste. 2010
Seattle, WA 98101
Enele Co. 5.15%
FBO Wealthtrack Operations
601 SW 2nd Avenue
Portland, OR 97204-3154
EQUITY FUND
CLASS B...................... Investors Bank & Trust Co 4.21%
Custodian
Morris E. Kinghorn Rollover IRA
P.O. Box 83
Pocatello, ID 83204
Investors Bank & Trust Co Trustee 4.60%
Arms Inc.
401(K) Plan
A/C Patrick J. Hanigan
2447 E. Sunshine Drive
Boise, ID 83712
CLASS C...................... Colonial Management Associates, Inc. 7.84%
Attn: Finance Department
One Financial Center
Boston, MA 02111-2621
Investors Bank & Trust Co. 9.42%
Trustee
Morgan Franklin Corporation
401K Retirement Plan
A/C Robert Franklin
47042 Dixon Court
Lexington Park, MD 20653
Investors Bank & Trust Co. 4.00%
Trustee
Morgan Franklin Corporation
401K Retirement Plan
A/C Angela Dawn Foret
45803 Spruce Drive
Lexington Park, MD 20653
Don A. McKee 11.25%
Molly McKee
3917 Oakwood Drive N.
Pearlanad, TX 77581
</TABLE>
B-5
<PAGE> 42
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES OF
CLASS OWNED UPON
CONSUMMATION OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER ACQUISITION
-------------- ------------------------------- ---------------------
<S> <C> <C>
Investors Bank & Trust Co. 35.55%
Custodian
Clyde Williams SARSEP Plan
Burnt Ranch Road
Cherry Creek Ranch
Mitchell, OR 97750
Investors Bank & Trust Co. 5.14%
Custodian
Susan C. Williams SARSEP Plan
43861 Burnt Ranch Road
Mitchell, OR 97750
CLASS I...................... Northwestern Trust Company 35.21%
Custodian
FBO IBEW Local 76
Supplemental Income Fund
1201 3th Avenue, Ste. 2010
Seattle, WA 98101
Bidwell & Company 8.50%
Bruce N. Hildreth
209 SW Oak Street
Portland, OR 97204-2791
</TABLE>
---------------
* Shares are believed to be held only as nominee.
B-6
<PAGE> 43
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth certain information about the executive
officers of each Fund:
<TABLE>
<CAPTION>
YEAR OF
ELECTION
EXECUTIVE OFFICER AS EXECUTIVE
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION* OFFICER
----------------- ------------------------------------- ------------
<S> <C> <C>
Stephen E. Gibson.................... President of the Stein Roe Mutual 1998
(46) Funds since November 1999; President
of the Liberty Mutual Funds since
June 1998; Chairman of the Board
since July 1998, Chief Executive
Officer and President since December
1996, and Director since July 1996 of
Colonial (formerly Executive Vice
President of Colonial from July 1996
to December 1996); Chairman of the
Board, 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. from
December 1996 to December 1998);
Director since September 2000,
President since January 2000, and
Vice Chairman since August 1998 of
Stein Roe & Farnham Incorporated
("Stein Roe") (formerly Assistant
Chairman and Executive Vice President
of Stein Roe from August 1998 to
January 2000). (Formerly Managing
Director of Marketing of Putnam
Investments (investment advisor) from
June 1992 to July 1996.)
William J. Ballou.................... Assistant Secretary of the Stein Roe 2000
(35) Mutual Funds since May 2000;
Secretary of the Liberty Mutual Funds
since October 2000 (formerly
Assistant Secretary of the Liberty
Mutual Funds from October 1997 to
October 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 (financial services
provider) prior thereto.
</TABLE>
B-7
<PAGE> 44
<TABLE>
<CAPTION>
YEAR OF
ELECTION
EXECUTIVE OFFICER AS EXECUTIVE
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION* OFFICER
----------------- ------------------------------------- ------------
<S> <C> <C>
Kevin M. Carome...................... Executive Vice President of the 1999
(44) Liberty Mutual Funds since October
2000; Executive Vice President of the
Stein Roe Mutual Funds since May 1999
(formerly Vice President from April
1998 to May 1999, Secretary from
February 2000 to May 2000 and
Assistant Secretary from April 1998
to February 2000 of the Stein Roe
Mutual Funds); Chief Legal Officer of
Liberty Financial since August 2000;
Senior Vice President, Legal, of LFG
since January 1999; General Counsel
and Secretary of Stein Roe since
January 1998; Associate General
Counsel and Vice President of Liberty
Financial prior thereto.
</TABLE>
---------------
** Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
ADDITIONAL INFORMATION CONCERNING TRUSTEE COMPENSATION
The current Board of Trustees received the following compensation from each
Fund as of each Fund's fiscal year end(1):
<TABLE>
<CAPTION>
BALANCED FUND EQUITY FUND
TRUSTEE 10/31/99 10/31/99
------- ------------- -----------
<S> <C> <C>
Mr. Bleasdale.............................................. $797(2) $1,146(3)
Ms. Collins................................................ 749 1,077
Mr. Grinnell............................................... 781 1,123
Mr. Lowry.................................................. 757 1,088
Mr. Macera................................................. 750 1,078
Mr. Mayer.................................................. 770 1,105
Mr. Moody.................................................. 694(4) 993(5)
Mr. Neuhauser.............................................. 793 1,139
Mr. Stitzel................................................ 750 1,078
Ms. Verville............................................... 741(6) 1,066(7)
</TABLE>
B-8
<PAGE> 45
The following table sets forth the total compensation paid to each Trustee
by the Liberty Mutual Funds for the calendar year ended December 31, 1999.
<TABLE>
<CAPTION>
TRUSTEE TOTAL COMPENSATION
------- ------------------
<S> <C>
Mr. Bleasdale............................................... $103,000(8)
Ms. Collins................................................. 96,000
Mr. Grinnell................................................ 100,000
Mr. Lowry................................................... 97,000
Mr. Macera.................................................. 95,000
Mr. Mayer................................................... 101,000
Mr. Moody................................................... 91,000(9)
Mr. Neuhauser............................................... 101,252
Mr. Stitzel................................................. 95,000
Ms. Verville................................................ 96,000(10)
</TABLE>
For the calendar year ended December 31, 1999, certain of the Trustees
received the following compensation in their capacities as Trustees or Directors
of the Liberty All-Star Equity Fund, the Liberty All-Star Growth Fund, Inc. and
Liberty Funds Trust IX (together, the "Liberty All-Star Funds").
<TABLE>
<CAPTION>
TRUSTEE TOTAL COMPENSATION(11)
------- ----------------------
<S> <C>
Mr. Grinnell............................................. $25,000
Mr. Lowry................................................ 25,000
Mr. Mayer................................................ 25,000
Mr. Neuhauser............................................ 25,000
</TABLE>
---------------
(1) The Liberty Mutual Funds do not currently provide pension or retirement
plan benefits to the Trustees.
(2) Includes $410 payable in later years as deferred compensation.
(3) Includes $593 payable in later years as deferred compensation.
(4) Total compensation of $694 for the fiscal year ended October 31, 1999 will
be payable in later years as deferred compensation.
(5) Total compensation of $993 for the fiscal year ended October 31, 1999 will
be payable in later years as deferred compensation.
(6) Total compensation of $741 for the fiscal year ended October 31, 1999 will
be payable in later years as deferred compensation.
(7) Total compensation of $1,066 for the fiscal year ended October 31, 1999
will be payable in later years as deferred compensation.
(8) Includes $52,000 payable in later years as deferred compensation.
(9) Total compensation of $91,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(10) Total compensation of $96,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(11) The Liberty All-Star Funds are advised by Liberty Asset Management Company
("LAMCO"). LAMCO is an indirect wholly-owned subsidiary of Liberty
Financial.
B-9
<PAGE> 46
APPENDIX C
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of the
Balanced Fund and the Equity Fund as of April 30, 2000, and on a pro forma
combined basis, giving effect to the acquisition of the assets and liabilities
of the Balanced Fund by the Equity Fund at net asset value as of that date:
<TABLE>
<CAPTION>
EQUITY FUND
BALANCED EQUITY FUND PRO FORMA PRO FORMA
FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
----------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Class A
Net asset value...................... $27,781,136 $89,923,387 $ (32,866) $117,671,657
Shares outstanding................... 2,168,730 4,803,141 (685,992) 6,285,879
Net asset value per share............ $ 12.81 $ 18.72 $ 18.72
Class B
Net asset value...................... $ 29,756 $ 481,057 $ (119) $ 510,694
Shares outstanding................... 2,326 25,986 (725) 27,587
Net asset value per share............ $ 12.79 $ 18.51 $ 18.51
Class C
Net asset value...................... $ 3,215 $ 11,102 $ (4) $ 14,313
Shares outstanding................... 251 600 (78) 773
Net asset value per share............ $ 12.79 $ 18.52 $ 18.52
Class I
Net asset value...................... $14,141,083 $10,875,954 $ (9,165) $ 25,007,872
Shares outstanding................... 1,105,633 578,080 (354,492) 1,329,221
Net asset value per share............ $ 12.79 $ 18.81 $ 18.81
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $20,198 and $21,956 to be borne by the
Balanced Fund and the Equity Fund, respectively.
(2) Assumes the Acquisition was consummated on April 30, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the Equity Fund will be received by the shareholders of the Balanced Fund
on the date the Acquisition takes place, and the foregoing should not be
relied upon to reflect the number of shares of the Equity Fund that actually
will be received on or after such date.
C-1
<PAGE> 47
APPENDIX D
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AS OF OCTOBER 31, 1999
LIBERTY CONTRARIAN EQUITY FUND
PORTFOLIO MANAGERS' REPORT
Fund underperformed in a difficult market environment
For the 12 months ended October 31, 1999, the Fund had a total return of
5.29%, based on Class A shares without a sales charge. The Fund's performance
was held back primarily by the increasing volatility and preference for
large-cap growth stocks during much of the period, but also by disappointing
returns from holdings in the non-pharmaceutical health care sector. This
industry has been ravaged by cuts in Medicare, legal problems and competition,
and stocks of many health providers have dropped to extremely low levels. Our
belief is that these companies will have to raise premiums to survive, which
will help them return to profitability. The prices of these stocks have been
driven to levels that are incredibly low, making them good candidates for our
contrarian management style. The Fund has a mid-cap bias in its weighting, which
is a reflection of where we have found opportunities in the past few years. The
Fund is not restricted by prospectus to certain capitalization size.
Energy and basic materials performed well at varying times during the year
One of the Fund's largest weightings is in the energy sector, which
performed well in the latter half of the period, when energy prices rose
dramatically. In the first half of the period, we had a large weighting in basic
materials stocks, including companies in the metals, paper and chemicals
industries. These stocks did extremely well when the market broadened in the
second quarter and basic materials stocks soared. For example, we had a large
holding of Alcoa (2.0% of net assets) -- the nation's largest aluminum
company -- which rose 50% in the month of April alone. We have since tapered our
basic materials holdings but still maintain positions in solid companies like
Alcoa.
In technology, a focus on companies, not industries
In the technology sector, as in our general management strategy, we look
for companies rather than industries. Our technology holdings are a diverse
group. They include Hewlett Packard (1.4% of net assets), a diversified computer
hardware firm; PeopleSoft (1.4%), which makes integrated corporate software
systems, or "enterprise" software; Seagate (1.0%), a data storage manufacturer;
3Com (1.5%), a networking systems manufacturer; and Oracle (1.6%), a leader in
large-scale database software. As contrarians, we look for catalysts that can
change investor perception. For example, PeopleSoft is coming out with a new
version of their enterprise software package that we anticipate will have strong
potential in the Year 2000. Seagate, a computer data storage company that has
very strong financials and cutting-edge technology, has been subject to intense
pricing pressure throughout the industry. We expect this competition to sort
itself out over the next year and are optimistic about Seagate's prospects once
that occurs.
Outlook: anticipation of market broadening
We believe the stock market may broaden to include stocks of small- and
mid-cap companies. One indicator is the continued recovery in several important
global economies-especially Southeast Asia and Japan. The Asian economic crisis
and corresponding global deflation have significantly impacted the profitability
of small- and mid-sized companies, and the earnings of large blue chip companies
have been much stronger on a relative basis. If the global economy continues to
improve, we anticipate that an improvement in the earnings of small- and
mid-sized companies will also occur because many of these firms do a great deal
of business overseas. In addition, the earnings growth rates of large-cap
companies have been slowing, and the earnings growth rates of smaller companies
generally have been improving. Since investors
D-1
<PAGE> 48
tend to recognize these factors when valuing stocks, we believe that small- and
mid-cap companies that show strong earnings growth have excellent long-term
potential.
/s/ Robert E. Anton
/s/ Marian L. Kessler
PERFORMANCE INFORMATION
Equity Fund Investment Performance vs. Standard & Poor's 500 Index
CHANGE IN VALUE OF $10,000 FROM 10/31/1989 - 10/31/99
CLASS A SHARES, WITH AND WITHOUT SALES CHARGE
[LINE GRAPH]
<TABLE>
<CAPTION>
FUND WITHOUT SALES CHARGE FUND WITH SALES CHARGE S & P 500 INDEX
------------------------- ---------------------- ---------------
<S> <C> <C> <C>
1989 10000.00 9425.00 10000.00
1990 8502.00 8013.00 9252.00
1991 12960.00 12215.00 12344.00
1992 14578.00 13740.00 13572.00
1993 19027.00 17933.00 15596.00
1994 20528.00 19348.00 16198.00
1995 23273.00 21935.00 20476.00
1996 26480.00 24957.00 25406.00
1997 34390.00 32412.00 33562.00
1998 30923.00 29145.00 40949.00
1999 32409.00 30545.00 51454.00
</TABLE>
The Standard & Poor's 500 Index is an unmanaged index that tracks the
performance of 500 widely held, large-capitalization U.S. stocks. Unlike mutual
funds, indexes are not investments and do not incur fees or expenses. It is not
possible to invest directly in an index.
CHANGE IN VALUE OF A $10,000 INVESTMENT IN ALL SHARE CLASSES FROM 10/31/1989 TO
10/31/1999
<TABLE>
<CAPTION>
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
<S> <C> <C>
Class A............................. $32,409 $30,545
Class B............................. $32,177 $32,177
Class C............................. $32,197 $32,197
Class I............................. $32,815 --
</TABLE>
D-2
<PAGE> 49
AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/99
<TABLE>
<CAPTION>
SHARE CLASS A B C I
INCEPTION DATE 1/31/1989 1/27/1999 1/27/1999 10/31/1999
-------------- ----------------- ----------------- ----------------- ----------
WITHOUT WITH WITHOUT WITH WITHOUT WITH
SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
<S> <C> <C> <C> <C> <C> <C> <C>
1 year........................ 5.29% (0.76)% 4.54% (0.41)% 4.60% 3.61% 5.75%
5 years....................... 9.67% 8.37% 9.51% 9.23% 9.52% 9.52% 9.94%
10 years...................... 12.48% 11.81% 12.40% 12.40% 12.40% 12.40% 12.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/99
<TABLE>
<CAPTION>
SHARE CLASS A B C I
----------- ----------------- ----------------- ----------------- ----------
WITHOUT WITH WITHOUT WITH WITHOUT WITH
SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
<S> <C> <C> <C> <C> <C> <C> <C>
1 year........................ 16.88% 10.16% 16.13% 11.13% 16.13% 15.13% 17.36%
5 years....................... 10.12% 8.82% 9.98% 9.70% 9.98% 9.98% 10.38%
10 years...................... 12.21% 11.55% 12.14% 12.14% 12.14% 12.14% 12.34%
</TABLE>
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "With sales charge" returns include
the maximum 5.75% charge for Class A shares and the maximum contingent deferred
sales charge (CDSC) of 5% for one year and 2% for five years for Class B shares
and 1% for one year for Class C shares. Class I shares (institutional shares)
are offered without sales charges or contingent deferred sales charges.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class.
Performance results reflect any voluntary waivers or reimbursement of Fund
expenses by the Advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Class B, C and I share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to its inception date. These Class A share returns are not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
Class A shares and the newer class shares. Had the expense differential been
reflected, the returns for the periods prior to the inception of Class B and
Class C shares would have been lower.
D-3
<PAGE> 50
LIBERTY FUNDS TRUST III
LIBERTY CONTRARIAN EQUITY FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 17, 2000
This Statement of Additional Information (the "SAI") relates to the
proposed Acquisition (the "Acquisition") of the Liberty Contrarian Balanced Fund
(the "Acquired Fund"), a series of Liberty Funds Trust III, by the Liberty
Contrarian Equity Fund (the "Acquiring Fund"), a series of Liberty Funds Trust
III.
This SAI contains information which may be of interest to shareholders
but which is not included in the Prospectus/Proxy Statement dated November 17,
2000 (the "Prospectus/Proxy Statement") of the Acquiring Fund which relates to
the Acquisition. As described in the Prospectus/Proxy Statement, the Acquisition
would involve the transfer of all the assets of the Acquired Fund in exchange
for shares of the Acquiring Fund and the assumption of all the liabilities of
the Acquired Fund. The Acquired Fund would distribute the Acquiring Fund shares
it receives to its shareholders in complete liquidation of the Acquired Fund.
This SAI is not a prospectus and should be read in conjunction with the
Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with
the Securities and Exchange Commission and is available upon request and without
charge by writing to your Fund at One Financial Center, Boston, Massachusetts
02111-2621, or by calling 1-800-426-3750.
Table of Contents
I. Additional Information about the Acquiring Fund and the Acquired Fund.... 2
II. Financial Statements..................................................... 2
<PAGE> 51
I. Additional Information about the Acquiring Fund and the Acquired Fund.
Incorporated by reference to Post-Effective Amendment No.114 to the
Registrant's Registration Statement Form N-1A (filed on February 16, 2000)
(Registration Nos. 2-15184 and 811-881).
II. Financial Statements.
This SAI is accompanied by the Semi-Annual Report for the six months ended
April 30, 2000 and the Annual Report for the year ended October 31, 1999 of the
Acquiring Fund and the Acquired Fund, which contain historical financial
information regarding such Funds. Such reports have been filed with the
Securities and Exchange Commission and are incorporated herein by reference.
Pro forma financial statements of the Acquiring Fund for the Acquisition
are provided on the following pages.
-2-
<PAGE> 52
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS LIBERTY CONTRARIAN LIBERTY CONTRARIAN PRO-FORMA
APRIL 30, 2000 BALANCED FUND EQUITY FUND COMBINED FUND
---------------------- ---------------------- ------------------------
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 82.5%
FINANCE, INSURANCE & REAL ESTATE - 13.1%
DEPOSITORY INSTITUTIONS - 2.5%
First Union Corp. 10,700 $ 341,063 45,400 $ 1,447,125 56,100 $ 1,788,188
U.S. Bancorp 17,200 349,375 71,400 1,450,313 88,600 1,799,688
----------- ----------- -----------
690,438 2,897,438 3,587,876
INSURANCE CARRIERS - 9.3%
Ace, Ltd. 28,200 675,038 116,800 2,795,900 145,000 3,470,938
Chubb Corp. 7,200 458,100 30,200 1,921,475 37,400 2,379,575
MGIC Investment Corp. 5,600 267,750 23,100 1,104,469 28,700 1,372,219
United Healthcare Corp. 12,400 826,832 49,000 3,267,320 61,400 4,094,152
Wellpoint Health Networks, Inc. 5,300 390,875 22,000 1,622,500 27,300 2,013,375
----------- ----------- -----------
2,618,595 10,711,664 13,330,259
NONDEPOSITORY CREDIT INSTITUTIONS - 1.3%
Countrywide Credit Industries, Inc. 13,200 364,650 52,200 1,442,025 65,400 1,806,675
MANUFACTURING - 34.1%
APPAREL - 1.1%
Liz Claiborne, Inc. 6,400 296,400 26,500 1,227,281 32,900 1,523,681
CHEMICALS & ALLIED PRODUCTS - 4.3%
Biogen Inc.(a) 4,500 264,656 18,600 1,093,913 23,100 1,358,569
Goodrich (B.F.) Co. 9,900 315,563 41,300 1,316,437 51,200 1,632,000
Smith International, Inc. 2,300 174,800 9,400 714,400 11,700 889,200
Watson Pharmaceuticals, Inc.(a) 9,100 408,931 37,700 1,694,144 46,800 2,103,075
----------- ----------- -----------
1,163,950 4,818,894 5,982,844
COMMUNICATIONS EQUIPMENT - 1.5%
Lucent Technologies, Inc. 6,700 416,656 27,900 1,735,031 34,600 2,151,687
ELECTRONIC & ELECTRICAL EQUIPMENT - 2.3%
Advanced Micro Devices, Inc. 7,100 623,025 29,600 2,597,400 36,700 3,220,425
FOOD & KINDRED PRODUCTS - 4.9%
IBP, Inc. 30,900 509,850 122,200 2,016,300 153,100 2,526,150
Keebler Foods Co. 6,100 191,769 25,200 792,225 31,300 983,994
Philip Morris Companies, Inc. 17,000 371,875 70,600 1,544,375 87,600 1,916,250
Sara Lee Corp. 21,000 315,000 87,000 1,305,000 108,000 1,620,000
----------- ----------- -----------
1,388,494 5,657,900 7,046,394
MACHINERY & COMPUTER EQUIPMENT - 6.5%
Baker Hughes, Inc. 22,600 718,962 93,800 2,984,012 116,400 3,702,974
Compaq Computer Corp. 9,200 269,100 38,300 1,120,275 47,500 1,389,375
McDermott International, Inc. 31,500 255,937 130,600 1,061,125 162,100 1,317,062
Seagate Technology, Inc.(a) 3,400 172,763 14,300 726,619 17,700 899,382
Silicon Graphics, Inc. (a) 52,100 374,469 216,100 1,553,219 268,200 1,927,688
----------- ----------- -----------
1,791,231 7,445,250 9,236,481
MEASURING & ANALYZING INSTRUMENTS - 4.5%
Becton, Dickinson & Co. 12,500 320,313 51,900 1,329,937 64,400 1,650,250
Eastman Kodak Co. 10,700 598,531 44,600 2,494,813 55,300 3,093,344
Healtheon/WebMD Corp.(a) 18,400 387,550 74,900 1,577,581 93,300 1,965,131
----------- ----------- -----------
1,306,394 5,402,331 6,708,725
MISCELLANEOUS MANUFACTURING - 2.0%
Tyco International Ltd. 12,300 565,031 50,300 2,310,656 62,600 2,875,687
PETROLEUM REFINING - 0.9%
USX-Marathon Group 10,700 249,444 44,400 1,035,075 55,100 1,284,519
PRIMARY METAL - 2.2%
Alcoa, Inc. 9,500 616,313 39,300 2,549,588 48,800 3,165,901
TRANSPORTATION EQUIPMENT - 3.9%
Daimler Chrysler AG 4,000 230,250 16,700 961,294 20,700 1,191,544
Dephi Automotive Systems Corp. 15,500 296,437 64,200 1,227,825 79,700 1,524,262
Ford Motor Co. 10,400 568,750 43,000 2,351,562 53,400 2,920,312
----------- ----------- -----------
1,095,437 4,540,681 5,636,118
MINING & ENERGY - 5.1%
CRUDE, PETROLEUM & NATURAL GAS - 1.6%
Burlington Resources, Inc. 11,500 452,094 47,800 1,879,138 59,300 2,331,232
OIL & GAS EXTRACTION - 2.0%
Union Pacific Resources Group, Inc. 28,400 544,925 118,100 2,266,044 146,500 2,810,969
OIL & GAS FIELD SERVICES - 1.5%
Schlumberger Ltd. 5,600 428,750 23,300 1,783,906 28,900 2,212,656
RETAIL TRADE - 4.3%
FOOD STORES - 1.3%
Albertson's, Inc. 11,400 371,213 47,500 1,546,719 58,900 1,917,932
GENERAL MERCHANDISE STORES - 0.8%
Federated Department Stores, Inc.(a) 6,700 227,800 27,900 948,600 34,600 1,176,400
</TABLE>
<PAGE> 53
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RESTAURANTS - 2.2%
Darden Restaurants, Inc. 32,100 591,844 133,200 2,455,875
SERVICES - 15.3%
AUTO REPAIR, RENTAL & PARKING - 1.4%
Hertz Corp., Class A 12,600 392,963 52,400 1,634,225
COMPUTER RELATED SERVICES - 6.7%
Ariba, Inc. 8,100 600,918 32,900 2,440,769
At Home Corp. Series A(a) 5,700 106,163 23,800 443,275
Commerce One, Inc.(a) 3,100 189,294 12,900 787,706
Convergys Corp.(a) 10,400 457,600 43,100 1,896,400
Deluxe Corp. 19,900 501,231 82,400 2,075,450
----------- -----------
1,855,206 7,643,600
COMPUTER SOFTWARE - 1.8%
Microsoft Corp.(a) 4,400 306,900 18,400 1,283,400
PeopleSoft, Inc.(a) 14,300 199,305 59,100 823,706
----------- -----------
506,205 2,107,106
HEALTH SERVICES - 5.4%
Health Management Associates, Inc.(a) 40,000 637,500 166,100 2,647,218
Healthsouth Corp.(a) 50,900 410,381 211,200 1,702,800
Tenet Healthcare Corp.(a) 18,200 464,100 75,700 1,930,350
----------- -----------
1,511,981 6,280,368
TRANSPORTATION, COMMUNICATION,
ELECTRICITY, GAS, & SANITARY SERVICES - 9.5%
AIR TRANSPORTATION - 1.2%
British Airways PLC ADR 6,300 331,538 26,200 1,378,775
ELECTRIC SERVICES - 2.4%
Duke Power Co. 9,700 557,750 40,200 2,311,500
P G & E Corp. 4,100 106,343 17,200 446,124
----------- -----------
664,093 2,757,624
GAS SERVICES - 2.5%
Columbia Energy Group 7,200 451,800 30,000 1,882,500
El Paso Energy Corp. 5,800 246,500 23,900 1,015,750
----------- -----------
698,300 2,898,250
SANITARY SERVICES - 0.3%
Waste Management, Inc. 5,200 82,550 21,500 341,313
TELECOMMUNICATION - 2.2%
MediaOne Group(a) 8,250 623,906 34,100 2,578,813
WATER TRANSPORTATION - 0.9%
Carnival Corp. 10,100 251,238 42,500 1,057,188
WHOLESALE TRADE - 1.1%
DURABLE GOODS - 1.1%
Grainger (W.W.) Inc. 6,700 290,613 27,800 1,205,825
----------- -----------
TOTAL COMMON STOCKS (COST $19,641,676,
$82,455,803 AND $102,097,479) 23,011,276 95,134,583
----------- -----------
CORPORATE FIXED INCOME BONDS - 5.2% RATE MATURITY PAR PAR
FINANCE, INSURANCE & REAL ESTATE - 1.5%
INSURANCE CARRIERS - 0.6%
Conesco, Inc. 7.875% 12/15/00 400,000 304,000
Lincoln National Corp. 6.500% 3/15/08 630,000 566,131
------------
870,131
NONDEPOSITORY CREDIT INSTITUTIONS - 0.5%
General Motors Acceptance Corp. 9.000% 10/15/02 655,000 676,792
SECURITY BROKERS & DEALERS - 0.4%
Bear Sterns Cos. Inc. 6.875% 10/1/05 580,000 552,108
MANUFACTURING - 1.7%
CHEMICALS & ALLIED PRODUCTS - 0.4%
E.I. DuPont de Nemours & Co. 8.250% 9/15/06 20,000 20,603
Eli Lilly & Co. 8.375% 12/1/06 550,000 574,745
------------
595,348
FABRICATED METAL - 0.4%
Snap-on, Inc. 6.625% 10/1/05 550,000 526,405
FOOD & KINDRED PRODUCTS - 0.4%
Anheuser Busch Cos. Inc. 7.000% 9/1/05 550,000 529,765
RUBBER & PLASTIC - 0.2%
Premark International, Inc. 6.875% 11/15/08 300,000 286,752
STONE, CLAY, GLASS & CONCRETE - 0.3%
Ownes-Illinois, Inc. 7.350% 5/15/08 400,000 354,724
RETAIL TRADE - 0.3%
</TABLE>
<TABLE>
<S> <C> <C>
RESTAURANTS - 2.2%
Darden Restaurants, Inc. 165,300 3,047,719
SERVICES - 15.3%
AUTO REPAIR, RENTAL & PARKING - 1.4%
Hertz Corp., Class A 65,000 2,027,188
COMPUTER RELATED SERVICES - 6.7%
Ariba, Inc. 41,000 3,041,687
At Home Corp. Series A(a) 29,500 549,438
Commerce One, Inc.(a) 16,000 977,000
Convergys Corp.(a) 53,500 2,354,000
Deluxe Corp. 102,300 2,576,681
-----------
9,498,806
COMPUTER SOFTWARE - 1.8%
Microsoft Corp.(a) 22,800 1,590,300
PeopleSoft, Inc.(a) 73,400 1,023,011
-----------
2,613,311
HEALTH SERVICES - 5.4%
Health Management Associates, Inc.(a) 206,100 3,284,718
Healthsouth Corp.(a) 262,100 2,113,181
Tenet Healthcare Corp.(a) 93,900 2,394,450
-----------
7,792,349
TRANSPORTATION, COMMUNICATION,
ELECTRICITY, GAS, & SANITARY SERVICES - 9.5%
AIR TRANSPORTATION - 1.2%
British Airways PLC ADR 32,500 1,710,313
ELECTRIC SERVICES - 2.4%
Duke Power Co. 49,900 2,869,250
P G & E Corp. 21,300 552,467
-----------
3,421,717
GAS SERVICES - 2.5%
Columbia Energy Group 37,200 2,334,300
El Paso Energy Corp. 29,700 1,262,250
-----------
3,596,550
SANITARY SERVICES - 0.3%
Waste Management, Inc. 26,700 423,863
TELECOMMUNICATION - 2.2%
MediaOne Group(a) 42,350 3,202,719
WATER TRANSPORTATION - 0.9%
Carnival Corp. 52,600 1,308,426
WHOLESALE TRADE - 1.1%
DURABLE GOODS - 1.1%
Grainger (W.W.) Inc. 34,500 1,496,438
-----------
TOTAL COMMON STOCKS (COST $19,641,676,
$82,455,803 AND $102,097,479) 118,145,859
-----------
CORPORATE FIXED INCOME BONDS - 5.2% PAR
FINANCE, INSURANCE & REAL ESTATE - 1.5%
INSURANCE CARRIERS - 0.6%
Conesco, Inc. 400,000 304,000
Lincoln National Corp. 630,000 566,131
------------
870,131
NONDEPOSITORY CREDIT INSTITUTIONS - 0.5%
General Motors Acceptance Corp. 655,000 676,792
SECURITY BROKERS & DEALERS - 0.4%
Bear Sterns Cos. Inc. 580,000 552,108
MANUFACTURING - 1.7%
CHEMICALS & ALLIED PRODUCTS - 0.4%
E.I. DuPont de Nemours & Co. 20,000 20,603
Eli Lilly & Co. 550,000 574,745
------------
595,348
FABRICATED METAL - 0.4%
Snap-on, Inc. 550,000 526,405
FOOD & KINDRED PRODUCTS - 0.4%
Anheuser Busch Cos. Inc. 550,000 529,765
RUBBER & PLASTIC - 0.2%
Premark International, Inc. 300,000 286,752
STONE, CLAY, GLASS & CONCRETE - 0.3%
Ownes-Illinois, Inc. 400,000 354,724
RETAIL TRADE - 0.3%
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
LIBERTY CONTRARIAN LIBERTY CONTRARIAN
BALANCED FUND EQUITY FUND
----------------------------- -----------------------
RATE MATURITY PAR PAR
<S> <C> <C> <C> <C> <C> <C>
FOOD STORES - 0.3%
Kroger Co. 7.000% 5/1/18 550,000 467,594
GENERAL MERCHANDISE STORES - 0.0%
Wal-Mart Stores, Inc. 8.000% 9/15/06 30,000 30,738
TRANSPORTATION, COMMUNICATION, ELECTRICITY,
GAS, & SANITARY SERVICES - 1.7%
ELECTRIC SERVICES - 0.1%
PacifiCorp 6.375% 5/15/08 200,000 182,916
TELECOMMUNICATION - 1.6%
CBS Corp. 7.150% 5/20/05 650,000 628,348
GTE South, Inc. 6.000% 2/15/08 590,000 526,386
SBC Communications, Inc. 6.250% 3/1/05 550,000 519,772
US West Communications 6.625% 9/15/05 660,000 625,337
------------
2,299,843
WHOLESALE TRADE - 0.0%
NONDURABLE GOODS - 0.0%
Sysco Corp. 7.000% 5/1/06 30,000 29,111
------------
TOTAL CORPORATE FIXED INCOME BONDS
(COST $10,856,404) 7,402,227
------------
US GOVERNMENT & AGENCIES OBLIGATIONS - 6.4%
GOVERNMENT AGENCIES - 4.5%
Federal Home Loan Mortgage Corp.:
7.0% 01/01/27 1,055,766 1,014,189
7.0% 11/01/25 786,112 755,155
7.5% 09/01/25 503,950 492,611
8.0% 06/01/26 634,019 631,838
9.0% 04/01/17 320,628 327,240
9.25% 11/01/16 21,710 22,212
------------
3,243,245
Federal National Mortgage Association:
8.25% 12/18/00 200,000 201,844
Government National Mortgage Association:
7% 12/15/27 753,913 725,641
7.0% 10/15/27 914,859 879,692
7.0% 6/15/28 800,542 769,769
6.5% 11/15/28 620,274 581,122
------------
2,956,224
GOVERNMENT OBLIGATIONS - 1.9%
U.S. Treasury Bonds:
5.50% 8/15/28 15,000 13,624
6.375% 8/15/27 125,000 127,636
6.75% 8/15/26 150,000 160,218
------------
301,478
U.S. Treasury Notes:
5.875% 11/15/04 700,000 681,513
6.125% 8/15/29 1,795,000 1,799,200
------------
2,480,713
TOTAL US GOVERNMENT & AGENCIES OBLIGATIONS
(COST $6,474,393) 9,183,504
------------
ASSET BACKED SECURITIES - 0.3%
Green Tree Financial Corp.,
Series 1997-7, Class A-5
(COST $499,874) 6.540% 7/15/19 500,000 495,005
------------
SHORT-TERM OBLIGATIONS - 5.1%
Repurchase agreement with SBC Warburg Ltd.,
dated 04/28/00, due at 05/01/00 at 5.71%,
collateralized by U.S. Treasury notes with
various maturities to 2025, market value
$1,532,538, $5,938,839, and $7,471,377,
respectively, (repurchase proceeds
$1,498,713, $5,807,762 and $7,306,475,
respectively) 1,498,000 1,498,000 5,805,000 5,805,000
------------ ------------
TOTAL INVESTMENTS - 99.5% 41,590,012 100,939,583
------------ ------------
OTHER ASSETS & LIABILITIES, NET - 0.5% 365,178 351,917
------------ ------------
NET ASSETS - 100.0% $ 41,955,190 $101,291,500
============ ============
</TABLE>
<TABLE>
<CAPTION>
PRO-FORMA COMBINED
------------------------
PAR
<S> <C> <C>
FOOD STORES - 0.3%
Kroger Co. 550,000 467,594
GENERAL MERCHANDISE STORES - 0.0%
Wal-Mart Stores, Inc. 30,000 30,738
TRANSPORTATION, COMMUNICATION, ELECTRICITY,
GAS, & SANITARY SERVICES - 1.7%
ELECTRIC SERVICES - 0.1%
PacifiCorp 200,000 182,916
TELECOMMUNICATION - 1.6%
CBS Corp. 650,000 628,348
GTE South, Inc. 590,000 526,386
SBC Communications, Inc. 550,000 519,772
US West Communications 660,000 625,337
------------
2,299,843
WHOLESALE TRADE - 0.0%
NONDURABLE GOODS - 0.0%
Sysco Corp. 30,000 29,111
------------
TOTAL CORPORATE FIXED INCOME BONDS
(COST $10,856,404) 7,402,227
------------
US GOVERNMENT & AGENCIES OBLIGATIONS - 6.4%
GOVERNMENT AGENCIES - 4.5%
Federal Home Loan Mortgage Corp.:
7.0% 01/01/27 1,055,766 1,014,189
7.0% 11/01/25 786,112 755,155
7.5% 09/01/25 503,950 492,611
8.0% 06/01/26 634,019 631,838
9.0% 04/01/17 320,628 327,240
9.25% 11/01/16 21,710 22,212
------------
3,243,245
Federal National Mortgage Association:
8.25% 12/18/00 200,000 201,844
Government National Mortgage Association:
7% 12/15/27 753,913 725,641
7.0% 10/15/27 914,859 879,692
7.0% 6/15/28 800,542 769,769
6.5% 11/15/28 620,274 581,122
------------
2,956,224
GOVERNMENT OBLIGATIONS - 1.9%
U.S. Treasury Bonds:
5.50% 8/15/28 15,000 13,624
6.375% 8/15/27 125,000 127,636
6.75% 8/15/26 150,000 160,218
------------
301,478
U.S. Treasury Notes:
5.875% 11/15/04 700,000 681,513
6.125% 8/15/29 1,795,000 1,799,200
------------
2,480,713
TOTAL US GOVERNMENT & AGENCIES OBLIGATIONS
(COST $6,474,393) 9,183,504
------------
ASSET BACKED SECURITIES - 0.3%
Green Tree Financial Corp.,
Series 1997-7, Class A-5
(COST $499,874) 500,000 495,005
------------
SHORT-TERM OBLIGATIONS - 5.1%
Repurchase agreement with SBC Warburg Ltd.,
dated 04/28/00, due at 05/01/00 at 5.71%,
collateralized by U.S. Treasury notes with
various maturities to 2025, market value
$1,532,538, $5,938,839, and $7,471,377,
respectively, (repurchase proceeds
$1,498,713, $5,807,762 and $7,306,475,
respectively) 7,303,000 7,303,000
------------
TOTAL INVESTMENTS - 99.5% 142,529,595
------------
OTHER ASSETS & LIABILITIES, NET - 0.5% 674,941(b)
------------
NET ASSETS - 100.0% $143,204,536(b)
============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Adjusted for one time proxy, accounting, legal and other costs of the
reorganization of $20,198 and $21,956 to be borne by the Balanced Fund and the
Equity Fund, respectively.
(c) No adjustments are shown to the unaudited pro forma combined portfolio of
investments due to the fact that upon consummation of the Acquisitions, no
securities would need to be sold in order for the Acquiring Fund to comply with
its Prospectus and SEC and IRS guidelines and restrictions. However, the
foregoing sentence shall not be deemed to restrict in any way the ability of the
investment advisor of any of the funds from buying or selling securities in the
normal course of such Fund's business and operations.
ADR American Depositary Receipts
<PAGE> 55
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
As of April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
CONTRARIAN CONTRARIAN
BALANCED EQUITY PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investments, at market value $ 41,590,012 $ 100,939,583 142,529,595
Cash -- -- --
Receivable for investments sold -- -- --
Payable for investments purchased -- -- --
Other assets less other liabilities 365,178 351,917 (42,154)(a) 674,941
Net assets $ 41,955,190 $ 101,291,500 $ 143,204,536
Net Assets - Class A $ 27,781,136 $ 89,923,387 $ (32,866) 117,671,657
Shares - Class A 2,168,730 4,803,141 (685,992) 6,285,279
Net asset value per share - Class A $ 12.81 $ 18.72 $ 18.72
Net Assets - Class B $ 29,756 $ 481,057 $ (119) 510,694
Shares - Class B 2,326 25,986 (725) 27,587
Net asset value per share - Class B $ 12.79 $ 18.51 $ 18.51
Net Assets - Class C $ 3,215 $ 11,102 $ (4) 14,313
Shares - Class C 251 600 (78) 773
Net asset value per share - Class C $ 12.79 $ 18.52 $ 18.52
Net Assets - Class I $ 14,141,083 $ 10,875,954 $ (9,165) 25,007,872
Shares - Class I 1,105,633 578,080 (354,492) 1,329,499
Net asset value per share - Class I $ 12.79 $ 18.81 $ 18.81
</TABLE>
(a) Adjustments reflect one time proxy, accounting, legal and other costs of the
reorganization of $20,198 and $21,956 to be borne by the Balanced Fund and the
Equity Fund, respectively. These costs reflect each fund's share of the total
costs of the reorganization that will be shared between Liberty Financial and
the Funds, subject to the terms of each Agreement and Plan of Reorganization, as
follows:
<TABLE>
<CAPTION>
Liberty
Financial Fund
--------- ----
<S> <C> <C>
Liberty Contrarian Small Cap Fund 50% 50%
Liberty Special Fund 50% 50%
</TABLE>
The Funds will bear their full portion of the one time costs of the
reorganization only if the expense reduction experienced as a result of the
Acquisition in the first year after Acquisition Date exceeds the one time costs.
If the one time costs exceed the expense reduction, the Fund will only bear the
share of its portion up to the amount of the expense reduction.
<PAGE> 56
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTH
PERIOD ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
CONTRARIAN CONTRARIAN
BALANCED EQUITY PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends 482,858 1,753,497 -- 2,236,355
Interest 1,729,516 392,636 -- 2,122,152
---------- ---------- ------------- ----------
Total investment income 2,212,374 2,146,133 -- 4,358,507
EXPENSES
Management fee 584,824 1,217,528 (87,723) (a) 1,714,629
Administration fee 29,241 62,796 -- (a) 92,037
Service fee - Class A, B, C 95,376 277,828 -- (a) 373,204
Distribution fee - B 156 2,632 -- (a) 2,788
Distribution fee - C 20 45 -- (a) 65
Transfer agent fee - Class A, B, C 78,684 226,589 (129,793) (b) 175,480
Transfer agent fee - Class I 508 362 -- (a) 870
Bookkeeping fee 29,969 53,457 (9,500) (a) 73,926
Trustees fee 8,584 11,407 (9,524) (c) 10,467
Interest expense 1,757 1,506 (3,263) (d) --
All other expenses 155,651 254,289 (178,940) (e) 231,000
---------- ---------- ------------- ----------
Total operating expenses 984,770 2,108,439 (418,743) 2,674,466
---------- ---------- ------------- ----------
Expense reimbursement (239,538) (383,095) 418,743 (a) (203,890)
---------- ---------- ------------- ----------
Net Expenses 745,232 1,725,344 -- 2,470,576
NET INVESTMENT INCOME 1,467,142 420,789 -- 1,887,931
NET REALIZED & UNREALIZED GAIN (LOSS)
Net realized gain on investments 2,278,299 4,730,845 -- 7,009,145
Change in net unrealized depreciation
during the period on investments (3,638,682) (4,511,495) -- (8,150,177)
---------- ---------- ------------- ----------
Net Gain (Loss) (1,360,382) 219,350 -- (1,141,033)
---------- ---------- ------------- ----------
Increase in Net Assets from Operations 106,760 640,139 -- 746,899
</TABLE>
(a) Based on the contract in effect for the surviving fund.
(b) Based on the contract in effect for the surviving Fund. Note that a new
transfer agent fee structure was implemented for Liberty Contrarian Equity
Fund effective January 1, 2000. The pro forma combined transfer agent fee
shown assumes this new arrangement was in effect for the entire
twelve-month period ended April 30, 2000.
(c) Based on trustee compensation plan for the surviving fund.
(d) Based on the assumption that there will be no loans.
(e) Decrease due to the elimination of duplicative expenses achieved by merging
the Funds.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 2000
1. These financial statements set forth the unaudited pro forma condensed
statement of assets and liabilities, including the portfolio of investments, as
of April 30, 2000, and the unaudited pro forma condensed statement of operations
for the twelve month period ended April 30, 2000 for Liberty Contrarian Balanced
Fund and Liberty Contrarian Equity Fund as adjusted giving effect to the
Acquisition as if it had occurred as of the beginning of the period. These
statements have been derived from the books and records utilized in calculating
daily net asset value for each fund.
<PAGE> 57
[Liberty Logo] LIBERTY
LIBERTY FUNDS SERVICES, INC.
LIBERTY CONTRARIAN BALANCED FUND
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN AND, ABSENT DIRECTION, WILL BE VOTED FOR EACH ITEM
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 ITEMS:
1. To approve or disapprove the Agreement and Plan of Reorganization
with respect to the acquisition of Liberty Contrarian Balanced Fund
by Liberty Contrarian Equity Fund (Item 1 of the Notice).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
[ ] [ ] [ ]
</TABLE>
2. To elect eleven Trustees (Item 2 of the Notice).
(01) Douglas A. Hacker
(02) Janet Langford Kelly
(03) Richard W. Lowry
(04) Salvatore Macera
(05) William E. Mayer
(06) Charles R. Nelson
(07) John J. Neuhauser
(08) Joseph R. Palombo
(09) Thomas E. Stitzel
(10) Thomas C. Theobald
(11) Anne-Lee Verville
<TABLE>
<CAPTION>
For
All For All
Nominees Withheld Except
<S> <C> <C>
[ ] [ ] [ ]
</TABLE>
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).
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 title as
such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Date______________________
_________________________ ______________________
Shareholder sign here Co-owner sign here
Detach Card
<PAGE> 58
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> 59
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:
* Read the proxy statement and have your proxy card available.
* When you are ready to vote, call toll free 1-877-518-9416
between 9:00 a.m. and 11:00 p.m. EST.
* Follow the instructions provided to cast your vote. A
representative will be available to answer questions.
Vote by Fax:
* Read the proxy statement.
* Complete the enclosed proxy card.
* Fax your proxy card to 1-800-733-1885.
YOUR PROXY VOTE IS IMPORTANT!
SHM-43/623D-1000 (11/00) 00/2027
