As filed with the Securities and Exchange Commission on October 5, 2000
Registration No. 33-
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM N-14
- -
|_|Pre-Effective Amendment No.__ |_| Post-Effective Amendment No.__
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
LIBERTY FUNDS TRUST III*
(Exact Name of Registrant as Specified in Charter)
617-426-3750
(Area Code and Telephone Number)
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
(Address of Principal Executive Offices)
-------------------------
WILLIAM J. BALLOU
Liberty Funds Group LLC
One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agents for Service)
-------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
-------------------------
It is proposed that this filing will become effective on November 4, 2000
pursuant to Rule 488.
-------------------------
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. Pursuant to Rule 429 under the Securities Act of 1933, this
Registration Statement relates to shares previously registered on the aforesaid
Registration Statement.
*On behalf of its Liberty Select Value Fund, The Liberty Fund, Liberty Special
Fund and Liberty Contrarian Equity Fund
series.
<PAGE>
LIBERTY MUTUAL FUNDS
STEIN ROE MUTUAL FUNDS
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
Dear Shareholder:
Your Fund will hold a special meeting on December 19, 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 few
pages, 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 and rationalizing the product offerings of the
Liberty and Stein Roe Funds, reducing fund expense ratios by creating larger,
more efficient funds and permitting the Liberty organization to focus 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 AT OUR WEB SITE, BY MAIL, BY FAX (NOT AVAILABLE FOR ALL
SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT), BY PHONE OR IN PERSON. TO VOTE
THROUGH OUR WEB SITE, JUST FOLLOW THE SIMPLE INSTRUCTIONS THAT APPEAR ON THE
ENCLOSED PROXY INSERT. 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 8, 2000
[Job Code]
<PAGE>
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS TO BE HELD
DECEMBER 19, 2000
LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
STEIN ROE DISCIPLINED STOCK FUND
LIBERTY FUNDS TRUST VI
LIBERTY SMALL-CAP VALUE FUND
NOTICE IS HEREBY GIVEN that Special Meetings of the shareholders of the
Stein Roe Disciplined Stock Fund and the Liberty Small-Cap Value Fund (together,
the "Acquired Funds") will be held at 10:00 a.m. on Tuesday, December 19, 2000
at the offices of Colonial Management Associates, Inc., One Financial Center,
Boston, Massachusetts 02111 for these purposes:
1. SHAREHOLDERS OF THE STEIN ROE DISCIPLINED STOCK FUND VOTE: To
approve an Agreement and Plan of Reorganization providing for
the sale of all of the assets of the Stein Roe Disciplined
Stock Fund to, and the assumption of all of the liabilities of
the Stein Roe Disciplined Stock Fund by, the Liberty Select
Value Fund in exchange for shares of the Liberty Select Value
Fund and the distribution of such shares to the shareholders
of the Stein Roe Disciplined Stock Fund in complete
liquidation of the Stein Roe Disciplined Stock Fund.
2. SHAREHOLDERS OF THE LIBERTY SMALL-CAP VALUE FUND VOTE: To
approve an Agreement and Plan of Reorganization providing for
the sale of all of the assets of the Liberty Small-Cap Value
Fund to the Liberty Select Value Fund in exchange for shares
of the Liberty Select Value Fund and the assumption of all of
the liabilities of the Liberty Small-Cap Value Fund and the
distribution of such shares to the shareholders of the Liberty
Small-Cap Value Fund in complete liquidation of the Liberty
Small-Cap Value Fund.
3. SHAREHOLDERS OF THE STEIN ROE DISCIPLINED STOCK FUND VOTE: To
elect eleven Trustees.
4. SHAREHOLDERS OF THE LIBERTY SMALL-CAP VALUE FUND VOTE: To
elect eleven Trustees.
5. To consider and act upon any other matters that properly come
before the meeting and any adjourned session of the meeting.
<PAGE>
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, Assistant Secretary
November 8, 2000
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU
OWN. YOU CAN VOTE EASILY AND QUICKLY AT OUR WEB SITE, BY
PHONE, BY MAIL, BY FAX (NOT AVAILABLE FOR ALL SHAREHOLDERS;
REFER TO ENCLOSED PROXY INSERT) OR IN PERSON. TO VOTE THROUGH
OUR WEB SITE, JUST FOLLOW THE SIMPLE INSTRUCTIONS THAT APPEAR
ON THE ENCLOSED PROXY INSERT. PLEASE HELP YOUR FUND AVOID THE
EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
-2-
<PAGE>
COMBINED PROSPECTUS AND PROXY STATEMENT
NOVEMBER 8, 2000
ACQUISITION OF THE ASSETS AND LIABILITIES OF EACH OF
STEIN ROE DISCIPLINED STOCK FUND
c/o Liberty-Stein Roe Funds Investment Trust
One Financial Center
Boston, Massachusetts 02111
1-800-338-2550
AND
LIBERTY SMALL-CAP VALUE FUND
c/o Liberty Funds Trust VI
One Financial Center
Boston, Massachusetts 02111
1-800-426-3750
BY AND IN EXCHANGE FOR SHARES OF
LIBERTY SELECT VALUE FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111
1-800-426-3750
TABLE OF CONTENTS
<TABLE>
<S> <C>
Synopsis.........................................................................................
Proposal 1 - Acquisition of the Stein Roe Disciplined Stock Fund by
the Liberty Select Value Fund....................................................
Principal Investment Risks..................................................................
Information about the Acquisition...........................................................
Proposal 2 - Acquisition of the Liberty Small-Cap Value Fund by
the Liberty Select Value Fund....................................................
Principal Investment Risks..................................................................
Information about the Acquisition...........................................................
Information Applicable to Proposals 1 and 2......................................................
Proposal 3 - Election of Trustees by Stein Roe Disciplined Stock Fund
Shareholders.....................................................................
Proposal 4 - Election of Trustees by Liberty Small-Cap Value Fund
Shareholders.....................................................................
General..........................................................................................
Voting Information..........................................................................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Appendix A - Form of Agreement and Plan of Reorganization........................................
Appendix B - Fund Information....................................................................
Appendix C - Capitalization......................................................................
Appendix D - Management's Discussion of Fund Performance for the Liberty Select Value Fund.......
</TABLE>
This combined Prospectus/Proxy Statement contains information you
should know before voting on the proposed acquisition of the Stein Roe
Disciplined Stock Fund (the "Disciplined Stock Fund") and the Liberty Small-Cap
Value Fund (the "Small Cap Fund") (together, the "Acquired Funds") by Liberty
Select Value Fund (the "Select Value Fund") (each, an "Acquisition," and
together, the "Acquisitions") or voting on the other proposals to be considered
at a Special Meeting of Shareholders of each Acquired Fund (the "Meetings"),
which will be held at 10:00 a.m. Eastern Time on December 19, 2000 at the
offices of Colonial Management Associates, Inc. ("Colonial"), One Financial
Center, Boston, Massachusetts 02111. 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 Disciplined Stock Fund by the Select Value Fund. Proposal 2
in this Prospectus/Proxy Statement relates to the proposed acquisition of the
Small Cap Fund by the Select Value Fund. If the Acquisition of your Fund occurs,
you will become a shareholder of the Select Value Fund. The Select Value Fund
seeks long-term growth. If the Agreement and Plan of Reorganization for your
Fund is approved by the shareholders of your Fund and the Acquisition occurs,
your Fund will transfer all of the assets and liabilities attributable to each
class of its shares to the Select Value Fund in exchange for shares of the same
class with the same aggregate net asset value as the assets and liabilities
transferred. After that exchange, shares of each class received by each Acquired
Fund will be distributed pro rata to such Acquired Fund's shareholders of the
same class.
Proposal 3 in this Prospectus/Proxy Statement relates to the election
of Trustees of Liberty-Stein Roe Funds Investment Trust (the "Stein Roe Trust"),
of which the Disciplined Stock Fund is a series. Proposal 4 in this
Prospectus/Proxy Statement relates to the election of Trustees of Liberty Funds
Trust VI ("Trust VI"), of which the Small Cap Fund is a series.
If you are a shareholder of the Disciplined Stock Fund, you are being
asked to vote on Proposals 1 and 3 in this Prospectus/Proxy Statement. Please
review these Proposals carefully, as well as the section "Information Applicable
to Proposals 1 and 2." If you are a shareholder of the Small Cap Fund, you are
being asked to vote on Proposals 2 and 4 in this Prospectus/Proxy Statement.
Please review these Proposals carefully, as well as the section "Information
Applicable to Proposals 1 and 2."
Please review the enclosed Prospectuses of the Select Value Fund. Each
of these documents 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:
-2-
<PAGE>
- The Prospectus of the Disciplined Stock Fund dated February 1,
2000, as supplemented on February 11, 2000, April 20, 2000,
June 5, 2000, June 23, 2000, July 14, 2000, August 2, 2000,
August 11, 2000, August 28, 2000 and September 1, 2000.
- The Prospectuses of the Small Cap Fund dated November 1, 1999,
as supplemented on December 28, 1999, August 2, 2000 and
August 15, 2000.
- The Statement of Additional Information of the Disciplined
Stock Fund dated February 1, 2000, as supplemented on June 23,
2000.
- The Statement of Additional Information of the Small Cap Fund
dated November 1, 1999, as supplemented on June 23, 2000 and
August 21, 2000.
- The Statement of Additional Information of the Select Value
Fund dated March 1, 2000, as supplemented on June 23, 2000 and
August 21, 2000.
- The Report of Independent Accountants and financial statements
included in the Annual Report to Shareholders of the
Disciplined Stock Fund dated September 30, 1999.
- The financial statements included in the Disciplined Stock
Fund's Semi-Annual Report to Shareholders dated March 31,
2000.
- The Report of Independent Accountants and financial statements
included in the Annual Report to Shareholders of the Small Cap
Fund dated June 30, 2000.
- The Statement of Additional Information of the Select Value
Fund dated November 8, 2000 relating to the Acquisitions.
Each Acquired 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, Small Cap Fund and Select Value Fund shareholders may
call 1-800-426-3750 and Disciplined Stock Fund shareholders may call
1-800-338-2550, or you may write to your Fund at the address listed on the cover
of this Prospectus/Proxy Statement. You may also obtain many of these documents
by accessing the web site of your Fund at www.libertyfunds.com or
www.steinroe.com. Our hearing impaired Small Cap Fund and Select Value Fund
shareholders may call Liberty Funds Services, Inc. at 1-800-528-6979 if you have
special TTD equipment. Text-only versions of all the Disciplined Stock Fund,
Small Cap Fund and Select Value 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
writing the Public Reference Room, U.S. Securities and Exchange Commission,
Washington, DC 20549-
-3-
<PAGE>
0102. Information on the operation of the Public Reference Room may be obtained
by calling 202-942-8090.
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF THE SELECT VALUE
FUND OR DETERMINED WHETHER THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-4-
<PAGE>
SYNOPSIS
THE FOLLOWING QUESTIONS AND RESPONSES PROVIDE AN OVERVIEW OF KEY
FEATURES OF THE ACQUISITIONS AND OF THE OTHER MATTERS TO BE CONSIDERED
AT THE MEETINGS AND OF THE INFORMATION CONTAINED IN THIS COMBINED
PROSPECTUS/PROXY STATEMENT. PLEASE REVIEW THE FULL PROSPECTUS/PROXY
STATEMENT PRIOR TO CASTING YOUR VOTE, AS THIS SECTION IS ONLY A
SYNOPSIS OF THE COMPLETE DOCUMENT.
1. WHAT IS BEING PROPOSED?
First, the Trustees of each of the Funds are recommending in Proposal 1
that the Select Value Fund acquire the Disciplined Stock Fund and in
Proposal 2 that the Select Value Fund acquire the Small Cap Fund. This
means that the Select Value Fund would acquire all of the assets and
liabilities of the Disciplined Stock Fund and the Small Cap Fund in
exchange for shares of the Select Value Fund representing the aggregate
net asset value of each Acquired Fund's assets and liabilities. If
Proposals 1 and 2 are approved, you will receive shares of the Select
Value Fund with an aggregate net asset value equal to the aggregate net
asset value of your Acquired Fund shares as of the day before the
closing of the Acquisitions. The Acquisitions are currently scheduled
to take place on or around January 16, 2001. Note that the closing of
each Acquisition is not conditioned on the closing of the other
Acquisition proposed in this Prospectus/Proxy Statement. Accordingly,
in the event that the shareholders of one of the Acquired Funds
approve their Fund's Acquisition, it is expected that the approved
Acquisition will, subject to the terms of the Agreement and Plan of
Reorganization, take place as described in this Prospectus/Proxy, even
if the shareholders of the other Acquired Fund have not approved their
Fund's Acquisition.
In addition, the Trustees of the Disciplined Stock Fund and the
Trustees of the Small Cap Fund are recommending in Proposal 3 and
Proposal 4, respectively, that you vote in favor of eleven nominees for
Trustees.
2. WHY ARE THE ACQUISITIONS BEING PROPOSED?
The Trustees of each of the Disciplined Stock Fund and the Small Cap
Fund recommend approval of the Acquisitions because they offer
shareholders of each Acquired Fund an investment in a fund with similar
investment goals and the economies of scale of a larger fund including
a reduction in the fees and expenses of both the Disciplined Stock Fund
and the Small Cap Fund. In reviewing the Acquisitions, the Trustees
also considered:
- that it is unlikely the Acquired Funds will achieve scale
through sales growth;
- the expected addition of a management fee breakpoint for the
combined fund, which should decrease the overall fee payable
by the combined fund;
-5-
<PAGE>
- the ability of the Funds' investment advisors to create a more
focused value-style investment management team; and
- the tax-free nature of the Acquisitions as opposed to other
alternatives for the Funds and for shareholders and other tax
considerations.
Please review "Reasons for the Acquisition" in Proposal 1 and Proposal
2 of this Prospectus/Proxy Statement for a full description of the
factors considered by the Trustees.
SHAREHOLDERS OF THE SMALL CAP FUND SHOULD NOTE THAT THE SELECT VALUE
FUND IS PRIMARILY A "MID CAP" FUND, NOT A SMALL CAP FUND.
3. WHAT CLASS OF SHARES WILL YOU RECEIVE IN THE SELECT VALUE FUND IF THE
ACQUISITIONS OCCUR?
You will receive the same class of shares that you currently own in the
Disciplined Stock Fund or the Small Cap 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.
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF YOUR ACQUIRED
FUND AND THE SELECT VALUE FUND COMPARE?
This table shows the investment goals and primary investment strategies
of each Fund:
<TABLE>
<CAPTION>
DISCIPLINED STOCK FUND SMALL CAP FUND
---------------------- --------------
<S> <C>
INVESTMENT GOAL: The Disciplined Stock INVESTMENT GOAL: The Small Cap Fund seeks
Fund seeks long-term growth. long-term growth by investing primarily in
smaller capitalization equities.
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Disciplined Stock Fund seeks to achieve The Small Cap Fund seeks to achieve its
its goal as follows: goal as follows:
- The Fund invests primarily in common - The Fund invests at least 65% of its
stocks of midcapitalization companies total assets in small capitalization
(defined as stocks with market caps stocks (defined as stocks with market
between $2.2 and $9.0 billion at the caps between $20 million and the
time of purchase). largest market capitalization in the
- The Fund may also invest in companies Russell 2000 Index or any stock in the
having large market capitalizations S&P Small Cap 600 Index at the time of
(defined as stocks with market caps purchase).
greater than $9.0 billion at the time
of purchase) and up to 25% of its
assets in foreign stocks.
</TABLE>
-6-
<PAGE>
<TABLE>
<S> <C>
- The Fund uses a "blend" strategy by
investing in both "growth" and/or
"value" companies.
</TABLE>
-7-
<PAGE>
SELECT VALUE FUND
INVESTMENT GOAL: The Select Value Fund seeks
long-term growth.
PRIMARY INVESTMENT STRATEGIES:
The Select Value Fund seeks to achieve its goal as
follows:
- The Fund invests primarily in middle
capitalization stocks (defined as stocks
with market caps between $400 million and
the largest stock in the Russell Midcap
Index or any stock in the S&P MidCap 400
index at the time of purchase).
The investment policies of each of the Disciplined Stock Fund and the
Small Cap Fund, on the one hand, and the Select Value Fund, on the
other hand, are similar, except as follows:
- The Select Value Fund may, but the Disciplined Stock Fund may
not, invest more than 25% of its total assets (valued at time
of purchase) in securities of foreign issuers (with certain
exceptions for American Depository Receipts "ADRs");
- The Select Value Fund, may, but the Disciplined Stock Fund may
not, invest more than 5% of its total assets in restricted
securities, other than so-called "Rule 144A securities";
- The Select Value Fund is not permitted to have more than 5% of
its total assets invested in real estate acquired as the
result of owning securities, while there is no such
restriction on the Acquired Funds; and
- In addition to the foregoing significant considerations, the
Disciplined Stock Fund has a number of investment restrictions
that the Select Value Fund is not subject to. Many of these
restrictions were imposed by regulations of state securities
laws which are no longer applicable to mutual funds.
In addition, the Disciplined Stock Fund currently pursues its
investment program by investing all of its assets in another investment
company, the Stein Roe & Farnham Disciplined Stock Portfolio (the
"Master Fund"), although a small interest in the Master Fund is also
owned by Liberty Financial Companies, Inc. ("Liberty Financial"). The
Master Fund is advised by Stein Roe and invests in a diversified
portfolio of securities. This arrangement is known as a "master-feeder"
structure. The Disciplined Stock Fund currently owns substantially all
of the shares of the Master Fund. If Proposal 1 is approved, prior to
the Acquisition, the Master Fund is expected to liquidate the interests
of Liberty Financial in the Master Fund and distribute all of its
remaining assets to the Disciplined Stock Fund in exchange for all of
the shares of the Master Fund owned by the Disciplined Stock Fund in
complete liquidation of the Master Fund. As a result, the Disciplined
Stock Fund will cease, immediately before the Acquisition, to operate
under a "master-feeder" structure.
For a complete list of the Funds' investment restrictions, see the
Statement of Additional Information of each Fund, each of which is
incorporated by reference into this Prospectus/Proxy Statement.
5. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE AND WHAT
ARE THEY ESTIMATED TO BE FOLLOWING THE ACQUISITIONS?
The following tables allow you to compare the sales charges and
management fees and expenses of the Disciplined Stock Fund, the Small
Cap Fund and the
-8-
<PAGE>
Select Value Fund and to analyze the estimated expenses that Colonial
expects the combined fund to bear in the first year following the
Acquisitions. Sales charges, if applicable, are paid directly by
shareholders to Liberty Funds Distributor, Inc., each Fund's
distributor. Annual Fund Operating Expenses are deducted from the Fund.
They include management fees, 12b-1 fees (if applicable) and
administrative costs, including pricing and custody services. The
Annual Fund Operating Expenses shown in the table below represent
expenses incurred by the Disciplined Stock Fund for its last fiscal
year ended September 30, 1999, by the Small Cap Fund for its last
fiscal year ended June 30, 2000, and by the Select Value Fund for its
last fiscal year ended October 31, 1999.
Detailed pro forma combined expense information presented in the Annual
Fund Operating Expenses table below for the combined fund is provided
based on the assumption that the Select Value Fund acquires both
Acquired Funds. In addition, following the presentation of that
detailed information, the total Annual Fund Operating Expenses are
presented on a pro forma combined basis for each possible scenario in
which the Select Value Fund acquires one, but not the other, Acquired
Fund.
SHAREHOLDER FEES
(paid directly from your investment)
<TABLE>
<CAPTION>
DISCIPLINED STOCK FUND SMALL CAP FUND(1)
---------------------- -----------------
CLASS S CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C> <C>
Maximum sales charge (load) on
purchases (%) (as a percentage of the
offering price) 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) 0.00 1.00(2) 5.00 1.00 0.00
Redemption fee (%) (as a percentage of
amount redeemed, if applicable) (3) (4) (4) (4) (4)
</TABLE>
<TABLE>
<CAPTION>
SELECT VALUE FUND(1)
--------------------
CLASS A CLASS B CLASS C CLASS S CLASS Z
<S> <C> <C> <C> <C> <C>
Maximum sales charge (load) on
purchases (%) (as a percentage
of the offering price) 5.75 0.00 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 0.00
Redemption fee (%) (as a
percentage of amount redeemed,
if applicable) (4) (4) (4) (3) (4)
</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 $7.00 charge for wiring sale proceeds to your bank. A fee of
$5 per quarter may be charged to accounts that fall below the required
minimum balance.
-9-
<PAGE>
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES
(deducted directly from Fund assets)
<TABLE>
<CAPTION>
DISCIPLINED
STOCK FUND SMALL CAP FUND
----------- --------------
CLASS S CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C> <C>
Management fee (%) 0.87(5) 0.80 0.80 0.80 0.80
Distribution and service (12b-1)
fees (%) 0.00 0.25 1.00 1.00 0.00
Other expenses (%) 0.29 0.44 0.44 0.44 0.44
Total annual fund operating
expenses (%) 1.16 1.49 2.24 2.24 1.24
</TABLE>
<TABLE>
<CAPTION>
SELECT VALUE FUND
-----------------
CLASS A CLASS B CLASS C CLASS S CLASS Z
<S> <C> <C> <C> <C> <C>
Management fee (%) 0.70 0.70 0.70 0.70 0.70
Distribution and service (12b-1)
fees (%) 0.25 1.00 1.00 0.00 0.00
Other expenses (%) 0.38 0.38 0.38 0.38 0.38
Total annual fund operating
expenses (%) 1.33 2.08 2.08 1.08 1.08
</TABLE>
<TABLE>
<CAPTION>
SELECT VALUE FUND (PRO FORMA COMBINED)
-----------------
CLASS A CLASS B CLASS C CLASS S CLASS Z
<S> <C> <C> <C> <C> <C>
Management fee (%) 0.68 0.68 0.68 0.68 0.68
Distribution and service (12b-1)
fees (%) 0.25 1.00 1.00 0.00 0.00
Other expenses (%) 0.29 0.29 0.29 0.29 0.29
Total annual fund operating
expenses (%) 1.22 1.97 1.97 0.97 0.97
</TABLE>
--------
(5) Management fees include both the management fee and the administration fee
charged to the Disciplined Stock Fund.
(6) The total annual fund operating expenses detailed above assume that each
Acquired Fund approves the Acquisition. If only Small Cap Fund shareholders
were to approve the Acquisition, the total annual fund operating expenses
would be as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS S CLASS Z
<S> <C> <C> <C> <C> <C>
Management fee (%) 0.69 0.69 0.69 N/A 0.69
Distribution & Service (12b-1) fees (%) 0.25 1.00 1.00 N/A 0.00
Other Expenses (%) 0.32 0.32 0.32 N/A 0.32
-----------------------------------------------------------------
Total annual fund operating expenses (%) 1.26 2.01 2.01 N/A 1.01
PRO FORMA COMBINED 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $696 $951 $1,225 $2,006
Class B: did not sell your shares $204 $629 $1,081 $2,140
sold all your shares at end of period $704 $929 $1,281 $2,140
Class C: did not sell your shares $204 $629 $1,081 $2,334
sold all your shares at end of period $304 $629 $1,081 $2,334
Class S N/A N/A N/A N/A
Class Z $103 $320 $ 556 $1,232
</TABLE>
If only Disciplined Stock Fund shareholders were to approve the
Acquisition, the total annual fund operating expenses shareholders would
be as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS S CLASS Z
<S> <C> <C> <C> <C> <C>
Management fee (&) 0.69 0.69 0.69 0.69 0.69
Distribution & Service (12b-1) fees (%) 0.25 1.00 1.00 0.00 0.00
Other Expenses (%) 0.31 0.31 0.31 0.31 0.31
-----------------------------------------------------------------
Total annual fund operating expenses (%) 1.25 2.00 2.00 1.00 1.00
PRO FORMA COMBINED 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $695 $949 $1,223 $2,002
Class B: did not sell your shares $203 $628 $1,079 $2,136
sold all your shares at end of period $703 $928 $1,279 $2,136
Class C: did not sell your shares $203 $628 $1,079 $2,329
sold all your shares at end of period $303 $628 $1,079 $2,329
Class S $102 $319 $ 554 $1,227
Class Z $102 $319 $ 554 $1,227
</TABLE>
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in either the
Disciplined Stock Fund or the Small Cap Fund and the Select Value 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. It
uses the following hypothetical conditions:
-10-
<PAGE>
- $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>
DISCIPLINED STOCK FUND
Class S $ 118 $ 368 $ 638 $1,409
SMALL CAP FUND
Class A $ 718 $1,019 $1,341 $2,252
Class B: did not sell your shares $ 227 $ 700 $1,200 $2,386
sold all your
shares at end of period $ 727 $1,000 $1,400 $2,386
Class C: did not sell your shares $ 227 $ 700 $1,200 $2,575
sold all your
shares at end of period $ 327 $ 700 $1,200 $2,575
Class Z $ 127 $ 393 $ 681 $1,500
SELECT VALUE FUND
Class A $ 703 $ 972 $1,262 $2,084
Class B: did not sell your shares $ 211 $ 652 $1,119 $2,219
sold all your
shares at end of period $ 711 $ 952 $1,319 $2,219
Class C: did not sell your shares $ 211 $ 652 $1,119 $2,410
sold all your
shares at end of period $ 311 $ 652 $1,119 $2,410
Class S $ 110 $ 343 $ 595 $1,317
Class Z $ 110 $ 343 $ 595 $1,317
SELECT VALUE FUND
(pro forma combined)
Class A $ 692 $ 939 $1,205 $1,963
Class B: did not sell your shares $ 200 $ 617 $1,060 $2,098
sold all your
shares at end of period $ 700 $ 917 $1,260 $2,098
</TABLE>
-11-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Class C: did not sell your shares $ 200 $ 617 $1,060 $2,292
sold all your
shares at end of period $ 300 $ 617 $1,060 $2,292
Class S $ 99 $ 308 $ 534 $1,185
Class Z $ 99 $ 308 $ 534 $1,185
</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) any fee reductions proposed in this Prospectus/Proxy
Statement are approved; (3) the elimination of certain fixed costs involved in
operating the Acquired Funds; and (4) expense ratios are based on pro forma net
assets for the year ended June 30, 2000.
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITIONS?
Each 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
Disciplined Stock Fund or the Small Cap Fund or either Fund's
shareholders as a result of the Acquisitions.
The cost basis and holding period of your Disciplined Stock Fund or
Small Cap Fund shares are expected to carry over to your new shares in
the Select Value Fund.
-12-
<PAGE>
PROPOSAL 1 - ACQUISITION OF THE STEIN ROE DISCIPLINED STOCK FUND BY THE LIBERTY
SELECT VALUE FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of Agreement and Plan of Reorganization is
attached as Appendix A to the Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Disciplined Stock Fund by the Select Value Fund under the Agreement and Plan
of Reorganization.
PRINCIPAL INVESTMENT RISKS
WHAT ARE THE PRINCIPAL INVESTMENT RISKS OF THE SELECT VALUE FUND, AND HOW DO
THEY COMPARE WITH THE DISCIPLINED STOCK FUND?
Because the Funds have a similar goal and strategies, the potential
risks associated with each Fund are similar. The actual risks of investing in
each Fund depend on the securities held in each Fund's portfolio and on market
conditions, both of which change over time. Please see the enclosed Prospectuses
of the Select Value Fund for a description of the principal investment risks of
the Fund.
INFORMATION ABOUT THE ACQUISITION
Please see the section "Information Applicable to Proposals 1 and 2" of
this combined Prospectus/Proxy Statement.
SHARES YOU WILL RECEIVE
If the Acquisition occurs, you will receive shares in the Select Value
Fund of the same class as the shares that you currently own in the Disciplined
Stock Fund. In comparison to the shares you currently own, the shares you
receive will have the following characteristics:
- They will have an aggregate net asset value equal to the
aggregate net asset value of your current shares as of the
business day before the closing of the Acquisition.
- 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 Select Value Fund and of Liberty
Funds Trust III ("Trust III").
-13-
<PAGE>
REASONS FOR THE ACQUISITION
The Trustees of each Trust, 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's shareholders. The Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the form of Agreement and Plan of Reorganization attached as
Appendix A to this Prospectus/Proxy Statement.
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 and rationalizing the product offerings of the
Liberty and Stein Roe Funds, reducing fund expense ratios by creating larger,
more efficient funds and permitting the Liberty Financial organization to focus
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 Disciplined Stock Fund to enter into the
Acquisition:
- The Acquisition is expected to create a larger fund with similar
investment goals and strategies to the Disciplined Stock Fund, but with
lower operating expenses as a percentage of fund assets. This expense
ratio reduction would benefit Disciplined Stock Fund shareholders,
since operating expenses are paid by the fund and reduce the investment
return to fund shareholders. 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 Disciplined Stock and Select Value Funds on July 31,
2000 and the Funds' current expense structures, the Select Value Fund's
annualized expense ratio (exclusive of 12b-1 fees) immediately after
the Acquisitions would be about 0.19% lower than the Disciplined Stock
Fund's current expense ratio (for example, a 1.03% expense ratio for
Select Value Fund Class A shares, as compared to 1.22% currently for
Disciplined Stock Fund Class S shares). Note that the 12b-1 fees on
Classes A, B and C on each fund are 0.25%, 1.00%, and 1.00%,
respectively. The are no 12b-1 fees on Class S.
- The Disciplined Stock Fund is not likely to achieve the scale necessary
to reduce Fund expenses through sales growth.
- The Acquisition is expected to reduce expenses for all shareholders in
the Select Value Fund after the Acquisitions because Colonial has
agreed to a new breakpoint in the management fee of 0.65% of average
daily net assets in excess of $1 billion (as of July 31, 2000, The
Select Value Fund would have had $1,604,472,826 in net assets on a pro
forma combined basis, giving effect to the Acquisition) to lower the
annual fee from 0.70% to 0.68%.
-14-
<PAGE>
- The Acquisition will also permit a more focused value-style investment
management team to concentrate its efforts on a single value equity
approach rather than manage multiple portfolios with somewhat different
investment approaches.
- The Acquisition is intended to permit the Disciplined Stock Fund's
shareholders to exchange their investment for an investment in the
Select Value Fund without recognizing gain or loss for federal income
tax purposes. By contrast, if a Disciplined Stock Fund shareholder
redeemed his or her shares to invest in another fund, like the Select
Value Fund, or if the Disciplined Stock Fund were liquidated or
reorganized in a taxable transaction, the transaction would likely be a
taxable event for its shareholders. After the Acquisition, shareholders
may redeem any or all of their Select Value 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.
The projected post-Acquisition expense reductions presented above are
based upon numerous material assumptions, including that: (1) the current
contractual agreements will remain in place; (2) certain fixed costs involved in
operating the Acquired Funds are eliminated; and (3) the Select Value Fund
acquires both of the Acquired Funds. See the table "Annual Fund Operating
Expenses" under Question 5 in the Synopsis above for the expenses that would be
applicable if one of the Acquisitions did not take place. 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 Select Value Fund or
Liberty Financial.
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 Select Value Fund
will achieve any particular level of performance after the Acquisition.
Although the Funds' Trustees are proposing that the Select Value Fund
acquire both of the Acquired Funds, the acquisition of the Disciplined Stock
Fund is not conditioned upon the acquisition of the Small Cap Fund. Accordingly,
if the Disciplined Stock Fund's shareholders approve the acquisition of the
Disciplined Stock Fund, but the Small Cap Fund's shareholders do not approve the
acquisition of the Small Cap Fund, it is expected that, subject to the terms of
the Agreement and Plan of Reorganization, the Acquisition proposed in this
Proposal 1 will take place as described in this Prospectus/Proxy Statement.
-15-
<PAGE>
PERFORMANCE INFORMATION
The charts below show the percentage gain or loss in each calendar year
for the 10-year period ending December 31, 1999 or, if shorter, since inception,
for the Class S shares of the Disciplined Stock Fund and the Class A shares of
the Select Value Fund. They should give you a general idea of how each Fund's
return has varied from year-to-year. The graphs include the effects of Fund
expenses, but not sales charges (if applicable to the Fund's shares). Returns
would be lower if any 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.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, which are incorporated by reference in this Prospectus/Proxy
Statement.
DISCIPLINED STOCK FUND
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
45%
40%
35%
34.04%
30%
25.94%
25%
20.42%
20%
18.73% 18.81%
15%
14.05% 10.51%
10%
5%
0%
-3.35%
-5%
-5.81%
-10%
-11.25%
-15%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was 11.35%.
For period shown in bar chart:
Best quarter: Second quarter 1999, +20.87%
Worst quarter: Third quarter 1998, -18.13%
SELECT VALUE FUND
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50%
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40%
34.09% 38.00% 33.20%
30%
20.47%
20%
11.00% 14.36%
10%
9.99% 9.11%
0%
-2.66%
-10%
-10.66%
-20%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was 13.01%.
For period shown in bar chart:
Best quarter: First quarter 1991, +20.19%
Worst quarter: Third quarter 1990, -19.69%
The next table lists 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, or for the life of the Fund through December 31, 1999, if
shorter, as the case may be, including the applicable sales charge for Class A,
B and C shares of the Select Value Fund. This table is 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.
DISCIPLINED STOCK FUND*
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class S (%) 10.51 11.74 11.31
S&P Index (%) 14.72 23.05 17.32
</TABLE>
SELECT VALUE FUND*
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 2.84 21.10 14.00
Class B (%) 3.46 21.42 14.03(1)
Class C (%) 7.30 22.13(1) 14.48(1)
Class Z (%) 9.29(1) 22.58(1) 14.70(1)
S&P Index (%) 14.72 23.05 17.32
Lipper Average (%) 39.35 23.31 16.04
</TABLE>
* Each Fund's return is compared to the Standard & Poor's Midcap 400 Index
("S&P Index"), an unmanaged index that tracks the performance of
middle-capitalization U.S. stock. Unlike the Funds, 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 Select Value
Fund's return is also compared to the average return of the funds included
in the Lipper, Inc. Mid Cap Average Fund category average ("Lipper
Average"). This Lipper Average, which is calculated by Lipper, Inc., is
composed of funds with similar investment objectives to the Fund. Sales
charges are not reflected in the Lipper Average.
(1) Class B, Class C and Class Z are newer classes of shares. Their performance
information includes returns of the Select Value 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
-17-
<PAGE>
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 Class B and
Class C shares would be lower and Class Z shares would be higher. Class A
shares were initially offered on July 21, 1949, Class B shares were
initially offered on June 8, 1992, Class C shares were initially offered on
August 1, 1997 and Class Z shares were initially offered on January 11,
1999.
THE TRUSTEES OF THE DISCIPLINED STOCK FUND UNANIMOUSLY RECOMMEND APPROVAL OF THE
AGREEMENT AND PLAN OF REORGANIZATION.
REQUIRED VOTE FOR PROPOSAL 1
Approval of the form of Agreement and Plan of Reorganization will
require the affirmative vote of a majority of the shares of the Disciplined
Stock Fund outstanding at the record date for the Meetings.
PROPOSAL 2 - ACQUISITION OF THE LIBERTY SMALL-CAP VALUE FUND BY THE LIBERTY
SELECT VALUE FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of Agreement and Plan of Reorganization is
attached as Appendix A to the Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Small Cap Fund by the Select Value Fund under the Agreement and Plan of
Reorganization.
PRINCIPAL INVESTMENT RISKS
WHAT ARE THE PRINCIPAL INVESTMENT RISKS OF THE SELECT VALUE FUND, AND HOW DO
THEY COMPARE WITH THE SMALL CAP FUND?
Because the Funds have similar goals and strategies, the potential
risks associated with each Fund are similar. The actual risks of investing in
each Fund depend on the securities held in each Fund's portfolio and on market
conditions, both of which change over time. Please see the enclosed Prospectuses
of the Select Value Fund for a description of the principal investment risks of
the Fund.
SHAREHOLDERS OF THE SMALL CAP FUND SHOULD NOTE THAT THE SELECT VALUE FUND IS
PRIMARILY A "MID CAP" FUND, NOT A SMALL CAP FUND.
INFORMATION ABOUT THE ACQUISITION
Please see the section "Information Applicable to Proposals 1 and 2" of
this combined Prospectus/Proxy Statement.
SHARES YOU WILL RECEIVE
If the Acquisition occurs, you will receive shares in the Select Value
Fund of the same class as the shares that you currently own in the Small Cap
Fund. In
-18-
<PAGE>
comparison to the shares you currently own, the shares you receive will have the
following characteristics:
- They will have an aggregate net asset value equal to the
aggregate net asset value of your current shares as of the
business day before the closing of the Acquisition.
- Your Select Value 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, if applicable, the new shares will continue to age
from the date you purchased your Small Cap Fund 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 Select Value Fund and of Liberty
Funds Trust III ("Trust III").
REASONS FOR THE ACQUISITION
The Trustees of each Trust, 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's shareholders. The Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the form of Agreement and Plan of Reorganization attached as
Appendix A to this Prospectus/Proxy Statement.
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 and rationalizing the product offerings of the
Liberty and Stein Roe Funds, reducing fund expense ratios by creating larger,
more efficient funds and permitting the Liberty Financial organization to focus
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 Small Cap Fund to enter into the
Acquisition:
- The Acquisition is expected to create a larger fund with similar
investment goals and strategies to the Small Cap Fund, but with lower
operating expenses as a percentage of fund assets. This expense ratio
reduction would benefit Small
-19-
<PAGE>
Cap Fund shareholders, since operating expenses are paid by the fund
and reduce the investment return to fund shareholders. 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 Small Cap and
Select Value Funds on July 31, 2000 and the Funds' current expense
structures, the Select Value Fund's annualized expense ratio (exclusive
of 12b-1 fees) immediately after the Acquisitions would be about 0.21%
lower than the Small Cap Fund's current expense ratio (for example, for
Class A shares, a 1.03% expense ratio for the Select Value Fund, as
compared to 1.24% currently for the Small Cap Fund). Note that the
12b-1 fees on Classes A, B and C on each fund are 0.25%, 1.00%, and
1.00%, respectively.
- The Acquisition is expected to reduce expenses for all shareholders in
the Select Value Fund after the Acquisitions because Colonial has
agreed to a new breakpoint in the management fee of 0.65% of average
daily net assets in excess of $1 billion (as of July 31, 2000, the
Select Value Fund would have had $1,604,472,826 in net assets on a pro
forma combined basis, giving effect to the Acquisitions) to lower the
annual fee from 0.70% to 0.68%.
- The Small Cap Fund is not likely to achieve the scale necessary to
reduce Fund expenses through sales growth.
- The Select Value Fund has a superior performance record to the Small
Cap Fund for each of the one, five and ten-year periods ending July 31,
2000, with the Class A shares (without giving effect to applicable
sales charges) of the Select Value Fund achieving average annual total
returns for such periods of 13.56%, 18.09% and 15.24%, respectively,
and the Class A shares of the Small Cap Fund achieving average annual
total returns of 8.53%, 8.91% and 11.36%, respectively. See "Proposal
2--Information about the Acquisition--Performance Information" for a
discussion of how these returns were calculated.
- The Acquisition will also permit a more focused value-style investment
management team to concentrate its efforts on a single value equity
approach rather than manage multiple portfolios with somewhat different
investment approaches.
- The Acquisition is intended to permit the Small Cap Fund's shareholders
to exchange their investment for an investment in the Select Value Fund
without recognizing gain or loss for federal income tax purposes. By
contrast, if a Small Cap Fund shareholder redeemed his or her shares to
invest in another fund, like the Select Value Fund, the transaction
would likely be a taxable event for such shareholders. Similarly, if
the Small Cap 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 Select Value 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.
-20-
<PAGE>
In reviewing the Acquisition, the Trustees also recognized the fact
that the unrealized gain exposure in the Small Cap Fund's portfolio will
increase as a result of the Acquisition, thus increasing and accelerating a
Small Cap Fund shareholder's potential exposure to federal income taxes. The
Trustees also considered the fact that a shareholder of the Small Cap Fund will
become a shareholder of a fund that invests primarily in both small cap and mid
cap securities, rather than primarily in small cap securities.
The projected post-Acquisition expense reductions presented above are
based upon numerous material assumptions, including: (1) the current contractual
agreements will remain in place; (2) any fee reductions proposed in this
Combined Prospectus/Proxy Statement are approved; (3) the elimination of certain
fixed costs involved in operating the Acquired Funds; and (4) the Select Value
Fund acquires both of the Acquired Funds. See the table "Annual Fund Operating
Expenses" under Question 5 in the Synopsis above for the expenses that would be
applicable if one of the Acquisitions did not take place. 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 Select Value Fund or
Liberty Financial.
In addition, the relative performance results for the Select Value Fund
set forth below are based on the factors and assumptions set forth in "Proposal
2 - Information about the Acquisition--Performance Information." No assurance
can be given that the Select Value Fund will achieve any particular level of
performance after the Acquisition.
Although the Funds' Trustees are proposing that the Select Value Fund
acquire both of the Acquired Funds, the acquisition of the Small Cap Fund is not
conditioned upon the acquisition of the Disciplined Stock Fund. Accordingly, if
the Small Cap Fund's shareholders approve the acquisition of the Small Cap Fund,
but the Disciplined Stock Fund's shareholders do not approve the acquisition of
the Disciplined Stock Fund, it is expected that, subject to the terms of the
Agreement and Plan of Reorganization, the Acquisition proposed in this Proposal
2 will take place as described in this Prospectus/Proxy Statement.
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 each
of the Small Cap Fund and the Select Value Fund. They should give you a general
idea of how each Fund's return has varied from year-to-year. The graphs include
the effects of Fund expenses, but not sales charges (if applicable to the Fund's
shares). Returns would be lower if any applicable sales charges were included.
The calculations of total return
-21-
<PAGE>
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.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, which are incorporated by reference in this Prospectus/Proxy
Statement.
SMALL CAP FUND
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50%
40%
37.55%
30%
20.65% 23.88%
20%
18.96% 18.83% 18.35%
10%
6.30% 4.13%
0%
-6.16%
-10%
-20%
-23.65%
-30%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was 14.44%.
For period shown in bar chart:
Best quarter: First quarter 1991, +19.88%
Worst quarter: Third quarter 1998, -26.10%
SELECT VALUE FUND
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50%
40%
34.09% 38.00% 33.20%
30%
20.47%
20%
11.00% 14.36%
10%
9.99% 9.11%
0%
-2.66%
-10%
-10.66%
-20%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was 13.01%.
For period shown in bar chart:
Best quarter: First quarter 1991, +20.19%
-22-
<PAGE>
Worst quarter: Third quarter 1990, -19.69%
The next table lists 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, or for the life of the Fund through December 31, 1999, if
shorter, as the case may be, including the applicable sales charge for Class A,
B, C and Z shares of the Small Cap Fund and Select Value Fund. This table is
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.
SMALL CAP FUND*
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) (1.85) 13.18 9.90
Class B (%) (1.64) 13.45 9.98(1)
Class C (%) 2.41 13.89(1) 10.24(1)
Class Z (%) 4.42 14.78(1) 10.68(1)
Russell Index (%) 21.26 16.69 13.40(2)
</TABLE>
SELECT VALUE FUND+
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 2.84 21.10 14.00
Class B (%) 3.46 21.42 14.03(3)
Class C (%) 7.30 22.13(3) 14.48(3)
Class Z (%) 9.29(3) 22.58(3) 14.70(3)
S&P Index (%) 14.72 23.05 17.32
Lipper Average (%) 39.35 23.31 16.04
</TABLE>
* The Small Cap Fund's return is compared to the Russell 2000 Index ("Russell
Index"), an unmanaged index that tracks the performance of small
capitalization stocks. 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 Small Cap Fund's return is also
compared to the average return of the funds included in the Lipper Small
Cap Fund category average ("Lipper Average"). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper
Average.
+ The Select Value Fund's return is compared to the Standard & Poor's Midcap
400 Index ("S&P Index"), an unmanaged index that tracks the performance of
middle-capitalization U.S. stock. 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 Select Value
Fund's return is also compared to the average return of the funds includes
in the Lipper, Inc. Mid Cap Average Fund category average ("Lipper
Average"). This Lipper Average, which is calculated by Lipper, Inc., is
composed of funds with similar investment objectives to the Fund. Sales
charges are not reflected in the Lipper Average.
(1) Class B, Class C and Class Z are newer classes of shares. Their performance
information includes returns of the Small Cap Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. The 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 Class B and C
shares would be lower and Class Z shares would be higher. Class A shares
were
-23-
<PAGE>
initially offered on July 25, 1986, Class B shares were initially offered
on November 9, 1992, Class C shares were initially offered on January 15,
1996 and Class Z shares were initially offered on July 31, 1995.
(2) Performance information is from July 31, 1986.
(3) Class B, Class C and Class Z are newer classes of shares. Their performance
information includes returns of the Select Value 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 Class B and
Class C shares would be lower and Class Z shares would be higher. Class A
shares were initially offered on July 21, 1949, Class B shares were
initially offered on June 8, 1992, Class C shares were initially offered on
August 1, 1997 and Class Z shares were initially offered on January 11,
1999.
THE TRUSTEES OF THE SMALL CAP FUND UNANIMOUSLY RECOMMEND APPROVAL OF THE
AGREEMENT AND PLAN OF REORGANIZATION.
The Declaration of Trust (the "Declaration") establishing Trust VI
provides that any series of Trust VI (such as the Small Cap 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 Small Cap Fund may be terminated by majority vote of the Small
Cap Fund's shares entitled to vote (or by Trustee notice to shareholders), and
will so amend the Declaration if a majority of the Small Cap Fund's shareholders
entitled to vote on the proposal vote in favor of such proposal.
REQUIRED VOTE FOR PROPOSAL 2
Approval of the form of Agreement and Plan of Reorganization will
require the affirmative vote of a majority of the shares of the Small Cap Fund
outstanding at the record date for the Meetings.
INFORMATION APPLICABLE TO PROPOSALS 1 AND 2
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
If approved by the shareholders of each Acquired Fund, the Acquisitions
are 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:
-24-
<PAGE>
- Each Acquired Fund will transfer all of the assets and
liabilities attributable to each class of its shares to the
Select Value Fund in exchange for shares of the same class of
the Select Value Fund with an aggregate net asset value equal
to the net value of the transferred assets and liabilities.
- The Acquisitions 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 Acquisitions.
- The shares of each class of the Select Value Fund received by
each Acquired Fund will be distributed to the respective
Acquired Funds' shareholders of the same class pro rata in
accordance with their percentage ownership of each class of
such Acquired Fund in full liquidation of such Acquired Fund.
- After the Acquisitions, each Acquired Fund will be terminated,
and its affairs will be wound up in an orderly fashion.
- Each Acquisition requires approval by the Acquired Fund's
shareholders and satisfaction of a number of other conditions;
the Acquisitions may be terminated at any time with the
approval of the Trustees of all three Funds.
Although the Funds' Trustees are proposing that the Select Value Fund
acquire each of the Acquired Funds, the Acquisition proposed in each Proposal is
not conditioned upon the approval of the Acquisition proposed in the other
Proposal. Accordingly, in the event that the shareholders of the respective
Acquired Funds approve one but not the other Acquisition, it is expected that
the approved Acquisition will, subject to the terms of the Agreement and Plan of
Reorganization, take place as described above.
Shareholders who object to the Acquisitions will not be entitled under
Massachusetts law or the Declaration to demand payment for, or an appraisal of,
their shares. However, shareholders should be aware that the Acquisitions as
proposed are not expected to result in recognition of gain or loss to
shareholders for federal income tax purposes and that, if the Acquisitions are
consummated, shareholders will be free to redeem the shares which they receive
in the transaction at their then-current net asset value. In addition, shares
may be redeemed at any time prior to the consummation of the Acquisitions.
The form of Agreement and Plan of Reorganization attached as Appendix A to this
combined Prospectus/Proxy Statement is a general form which will be used for
each of the Acquisitions. There will be a separate Agreement and Plan of
Reorganization with respect to each Acquisition, between the relevant Acquired
Fund and the Select Value Fund. The form of Agreement and Plan of Reorganization
for each Acquisition has been filed with the SEC as part of the Registration
Statement of which this Prospectus/Proxy Statement forms a part. Please see page
3 of this Prospectus/Proxy Statement for information on how to obtain a copy of
the Registration Statement or the form of Agreement and Plan of Reorganization
for your Fund's Acquisition.
FEDERAL INCOME TAX CONSEQUENCES
Each Acquisition is intended to be a tax-free reorganization. The
closing of each Acquisition will be conditioned on receipt of opinions from
Ropes & Gray and Bell
-25-
<PAGE>
Boyd & Lloyd LLC 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 either Acquired Fund or the
shareholders of either Acquired Fund as a result of each
Acquisition;
- under Section 358 of the Code, the tax basis of the Select
Value Fund shares you receive will be the same, in the
aggregate, as the aggregate tax basis of your Disciplined
Stock Fund or Small Cap Fund shares;
- under Section 1223(1) of the Code, your holding period for the
Select Value Fund shares you receive will include the holding
period for your Disciplined Stock Fund or Small Cap Fund
shares if you hold your shares as a capital asset;
- under Section 1032 of the Code, no gain or loss will be
recognized by the Select Value Fund as a result of each
Acquisition;
- under Section 362(b) of the Code, the Select Value Fund's tax
basis in the assets that the Select Value Fund receives from
each Acquired Fund will be the same as such Acquired Fund's
basis in such assets; and
- under Section 1223(2) of the Code, the Select Value Fund's
holding period in such assets will include the relevant
Acquired Fund's holding period in such assets.
The opinions will be based on certain factual certifications made by
officers of each Fund's Trust. The opinions are not a guarantee that the tax
consequences of the Acquisitions will be as described above. Prior to the
closing of the Acquisitions, each Acquired Fund and the Select Value Fund will
distribute to their shareholders all of their respective investment company
taxable income and net realized capital gains, which have not previously been
distributed to shareholders. Such distributions will be taxable to each Acquired
Fund's shareholders.
This description of the federal income tax consequences of the
Acquisitions 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.
PROPOSAL 3 - ELECTION OF TRUSTEES BY STEIN ROE DISCIPLINED STOCK FUND
SHAREHOLDERS
THE PROPOSAL
-26-
<PAGE>
The purpose of this proposal is to elect six new members as well as
five of the currently serving members of the Board of Trustees of the Stein Roe
Trust, of which the Disciplined Stock Fund is a series. All of the nominees
listed below, except for the proposed six new members (Ms. Verville and Messrs.
Lowry, Macera, Mayer, Neuhauser and Stitzel), are currently members of the Board
of Trustees of the Stein Roe Trust, as well as two Stein Roe closed-end funds
and six other Stein Roe open-end trusts (collectively, the "Stein Roe 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 the Stein Roe Trust. The proposed
six new members currently serve on the Boards of Trustees of ten Liberty
closed-end funds and a number of Liberty open-end trusts, and were recommended
for election as Trustees of the Stein Roe Trust by the Board of Trustees of the
Stein Roe Trust at a special meeting held on October 17, 2000. Each of the
nominees elected will serve as a Trustee of the Stein Roe Trust until the next
meeting of shareholders of the Stein Roe Trust 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 Funds. Liberty
Financial and the Stein Roe Trust's Trustees 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
Funds. Creation of a single, consolidated board should also provide certain
administrative efficiencies and potential future cost savings for both the
Liberty and Stein Roe 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 Meetings in favor of the
election of the nominees named below as Trustees of the Stein Roe Trust (if so
instructed). If any nominee listed below becomes unavailable for election, the
enclosed proxy card may be voted for a substitute nominee in the discretion of
the proxy holder(s).
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>
</TABLE>
-27-
<PAGE>
<TABLE>
<S> <C> <C>
Douglas A. Hacker Executive Vice President and Chief 1996
(43) Financial Officer of UAL, Inc. (airline)
since July 1999; Senior Vice President
and Chief Financial Officer of UAL, Inc.
prior thereto.
Janet Langford Kelly Executive Vice President--Corporate 1996
(41) Development, General Counsel, and
Secretary of Kellogg Company since
September 1999; Senior Vice President,
Secretary and General Counsel of Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) from 1995
to August 1999; partner at Sidley &
Austin (law firm) prior thereto.
Richard W. Lowry Private Investor. (Formerly Chairman and New nominee
(64) Chief Executive Officer of U.S. Plywood
Corporation from August 1985 to August
1987.)
Salvatore Macera Private Investor. (Formerly Executive New nominee
(69) Vice President and Director of Itek
Corporation (electronics) from 1975 to
1981.)
William E. Mayer(2) Partner, Park Avenue Equity Partners New nominee
(60) (venture capital); Director, Johns
Manville; Director, Lee Enterprises;
Director, WR Hambrecht & Co. (Formerly
Dean, College of Business and Management,
University of Maryland, from October 1992
to November 1996.)
John J. Neuhauser Academic Vice President and Dean of New nominee
(57) Faculties, Boston College, since August
1999. (Formerly Dean, Boston College
School of Management, from September 1977
to September 1999.)
Charles Nelson Van Voorhis Professor of Political 1987
(57) Economy of the University of Washington.
Joseph R. Palombo(3) Vice President of the Stein Roe Mutual 2000
(47) Funds since April 1999; Executive Vice
President and Director of Colonial
Management Associates, Inc. and Stein Roe
& Farnham Incorporated since April 1999;
Executive Vice President and Chief
Administrative Officer of Liberty Funds
Group LLC since April 1999. (Formerly
Chief Operating Officer, Putnam Mutual
Funds, from 1994 to 1998.)
</TABLE>
-28-
<PAGE>
<TABLE>
<S> <C> <C>
Thomas E. Stitzel Business Consultant; Chartered Financial New nominee
(64) Analyst. (Formerly Professor of Finance,
from 1975 to 1999, and Dean, from 1977 to
1991, College of Business, Boise State
University.)
Thomas C. Theobald Managing Director, William Blair Capital 1996
(62) Partners (private equity investing) since
1994; Chief Executive Officer and
Chairman of the Board of Directors of
Continental Bank Corporation from 1987 to
1994.
Anne-Lee Verville Consultant. (Formerly General Manager, New nominee
(54) Global Education Industry, from 1994 to
1997, and 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 an "interested person," as defined in the Investment
Company Act of 1940, as amended (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.
TRUSTEES' COMPENSATION
The members of the Board of Trustees will serve as Trustees of the
Liberty and Stein Roe Funds, for which service each Trustee, except for Mr.
Palombo, will receive an annual retainer of $45,000, and attendance fees of
$8,000 for each regular joint 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 Funds based on each Fund's relative net assets,
and one-third of the fees is divided equally among the Liberty and Stein Roe
Funds.
The Stein Roe Funds do not currently provide pension or retirement plan
benefits to the Trustees. However, William J. Boyd, Jr. and John A. Bacon, two
of the Trustees currently serving on the Board of Trustees of the Stein Roe
Trust who are not continuing on the combined Board of Trustees of the Liberty
and Stein Roe Funds, will receive certain payments after completing their
service on the Board. Mr. Boyd will receive a payment of $50,000 upon his
departure. Mr. Bacon will receive payments at an annual rate equal to the 1999
compensation of the Trustees of the Liberty Funds until he would otherwise have
retired at age 74. The payments to Mr. Bacon will be made quarterly, beginning
in 2001. Liberty Financial and the Stein Roe Mutual Funds will each bear
one-half of the cost of the payments to Messrs. Boyd and Bacon; the Stein Roe
Mutual Funds' portion of the payments will be allocated among the Stein Roe
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 Stein Roe Mutual
Funds consists of six non-interested Trustees and one interested Trustee.
-29-
<PAGE>
Audit Committee. The Audit Committee of the Stein Roe Mutual Funds,
consisting of Messrs. Hacker (Chairman), Bacon, Boyd, Nelson and Theobald and
Ms. Kelly, 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 Stein Roe
Mutual Funds, consisting of Messrs. Boyd and Nelson, both of whom are
non-interested Trustees, reviews compensation of the Board of Trustees.
Nominating Committee. The Nominating Committee of the Stein Roe Mutual
Funds, consisting of Messrs. Boyd and Nelson, both of whom are non-interested
Trustees, 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 your Fund.
Executive Committee. The Executive Committee of the Stein Roe Mutual
Funds, consisting of Mr. Boyd, a non-interested Trustee, and Mr. Cook, an
interested Trustee, is authorized to take certain actions delegated to it by the
full Board of Trustees and to exercise the full powers of the Board of
Trustees, with some exceptions, between Board meetings.
Record of Board and Committee Meetings. During the fiscal year ended
September 30, 2000, the Board of Trustees of the Stein Roe Trust held five
meetings, the Audit Committee held four meetings, the Compensation Committee
held no meetings, the Nominating Committee held no meetings, and the Executive
Committee held one meeting.
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 is a member.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE STEIN ROE TRUST
VOTE FOR PROPOSAL 3.
REQUIRED VOTE FOR PROPOSAL 3
A plurality of the votes cast at the Meetings, if a quorum is
represented, is required for the election of each Trustee to the Board of
Trustees of the Stein Roe Trust. Since the number of Trustees has been fixed at
eleven, this means that the eleven persons receiving the highest number of
votes will be elected.
-30-
<PAGE>
PROPOSAL 4 - ELECTION OF TRUSTEES BY LIBERTY SMALL-CAP VALUE FUND SHAREHOLDERS
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 VI,
of which the Small Cap 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 VI, as
well as nine Liberty closed-end funds and seven (or, in the case of Messrs.
Lowry, Mayer and Neuhauser, 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 VI.
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, and were
recommended for election as Trustees of the Liberty Mutual Funds by the Board of
Trustees at a meeting held on October 25, 2000. Each of the nominees elected
will serve as a Trustee of Trust VI until the next meetings of shareholders of
Trust VI 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 Funds. Liberty
Financial and the Small Cap Fund's Trustees 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
Funds. Creation of a single, consolidated board should also provide certain
administrative efficiencies and potential future cost savings for both the
Liberty and Stein Roe 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 Meetings in favor of the
election of the nominees named below as Trustees of Trust VI (if so instructed).
If any nominee listed below becomes unavailable for election, the enclosed proxy
card may be voted for a substitute nominee in the discretion of the proxy
holder(s).
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 New nominee
(43) Financial Officer of UAL, Inc. (airline)
since July 1999; Senior Vice President
and Chief Financial Officer of UAL, Inc.
prior thereto.
</TABLE>
-31-
<PAGE>
<TABLE>
<S> <C> <C>
Janet Langford Kelly Executive Vice President--Corporate New nominee
(41) Development, General Counsel, and
Secretary of Kellogg Company since
September 1999; Senior Vice President,
Secretary and General Counsel of Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) from 1995
to August 1999; partner at Sidley &
Austin (law firm) prior thereto.
Richard W. Lowry Private Investor since August 1987. 1995
(64) (Formerly Chairman and Chief Executive
Officer of U.S. Plywood Corporation from
August 1985 to August 1987.)
Salvatore Macera Private Investor. (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 1994
(60) (venture capital); Director, Johns
Manville; Director, Lee Enterprises;
Director, WR Hambrecht & Co. (Formerly
Dean, College of Business and Management,
University of Maryland, from October 1992
to November 1996.)
John J. Neuhauser Academic Vice President and Dean of 1985
(57) Faculties, Boston College, since August
1999. (Formerly Dean, Boston College
School of Management, from September 1977
to September 1999.)
Charles Nelson Van Voorhis Professor of Political New nominee
(57) Economy of the University of Washington.
Joseph R. Palombo(3) Vice President of the Stein Roe Mutual 2000
(47) Funds since April 1999; Executive Vice
President and Director of Colonial
Management Associates, Inc. and Stein Roe
& Farnham Incorporated since April 1999;
Executive Vice President and Chief
Administrative Officer of Liberty Funds
Group LLC since April 1999. (Formerly
Chief Operating Officer, Putnam Mutual
Funds, from 1994 to 1998.)
Thomas E. Stitzel Business Consultant; Chartered Financial 1998
(64) Analyst. (Formerly Professor of Finance,
from 1975 to 1999, and Dean, from 1977 to
1991, College of Business, Boise State
University.)
</TABLE>
-32-
<PAGE>
<TABLE>
<S> <C> <C>
Thomas C. Theobald Managing Director, William Blair Capital New nominee
(62) Partners (private equity investing) since
1994; Chief Executive Officer and
Chairman of the Board of Directors of
Continental Bank Corporation from 1987 to
1994.
Anne-Lee Verville Consultant. (Formerly General Manager, 1998
(54) Global Education Industry, from 1994 to
1997, and 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 Investment Company Act of 1940,
as amended (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.
TRUSTEES' COMPENSATION
The members of the Board of Trustees will serve as Trustees of the
Liberty and Stein Roe Funds, for which service each Trustee, except for Mr.
Palombo, will receive an annual retainer of $45,000, and attendance fees of
$8,000 for each regular joint 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 Funds based on each Fund's relative net assets,
and one-third of the fees is divided equally among the Liberty and Stein Roe
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 Trust VI who are not continuing on the combined Board
of Trustees of the Liberty and Stein Roe Funds will receive payments at an
annual rate equal to their 1999 Trustee compensation for the lesser of two years
or until the date they would otherwise have retired at age 72. These payments
will be made quarterly, beginning in 2001. 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.
-33-
<PAGE>
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 affiliates, but is considered
interested as a result of his affiliation with a broker-dealer.
Audit Committee. The Audit Committee of the Liberty Mutual Funds,
consisting of Ms. Verville (Chairperson) and Tom Bleasdale, James E. Grinnell,
James L. Moody, Jr., and Messrs. Lowry and Macera, 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 Lora S. 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 and Moody and
Ms. Verville, all of whom are non-interested Trustees, except for Mr. Mayer
(Mr. Mayer is interested as a result of his affiliation with a broker-dealer,
but is not affiliated with Liberty Financial or any of its 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 the Small
Cap Fund.
Record of Board and Committee Meetings. During the fiscal year ended
June 30, 2000, the Board of Trustees of the Trust VI held six meetings, the
Audit Committee held four meetings, the Compensation Committee held one meeting,
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 is a member.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF TRUST VI VOTE FOR
PROPOSAL 4.
REQUIRED VOTE FOR PROPOSAL 4
A plurality of the votes cast at the Meetings, if a quorum is
represented, is required for the election of each Trustee to the Board of
Trustees of Trust VI. 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
-34-
<PAGE>
The Trustees of the Stein Roe Trust and Trust VI are soliciting proxies
from the shareholders of each Fund in connection with the Meetings, which have
been called to be held at 10:00 a.m. Eastern Time on December 19, 2000 at
Colonial's offices, One Financial Center, Boston, Massachusetts 02111. The
meeting notice, this combined Prospectus/Proxy Statement and proxy cards are
being mailed to shareholders beginning on or about November 8, 2000.
INFORMATION ABOUT PROXIES AND THE CONDUCT OF THE MEETINGS
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 Disciplined Stock Fund or the Small Cap Fund or by
employees or agents of Stein Roe & Farnham Incorporated or Colonial and their
affiliated companies. In addition, SCC has been engaged to assist in the
solicitation of proxies, at an estimated cost of $700,000 total for all of the
proposed acquisitions of funds in the Liberty and Stein Roe Fund groups
scheduled to take place in January 2001.
VOTING PROCESS
You can vote in any one of the following five ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, by calling 1-800-732-3683 and following the
instructions;
c. By internet, by visiting our Web site at www.libertyfunds.com
and clicking on "Proxy Voting;"
d. By fax (not available for all shareholders; refer to enclosed
proxy insert); or
e. In person at the Meetings.
Shareholders who owned shares on the record date, September 29, 2000,
are entitled to vote at the Meetings. Shareholders of the Small Cap Fund are
entitled to cast one vote for each share owned on the record date. Shareholders
of the Disciplined Stock Fund are entitled to cast a number of votes equal to
the dollar net asset value of the shares as of the record date. The net asset
value of a Class S share of the Disciplined Stock Fund on the record date was
$20.11. We encourage you to vote by internet, using the 12-digit or 14-digit
"control" number that appears on the enclosed proxy card. Voting by internet
will reduce expenses by saving postage costs. 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 of Solicitation. The costs of the Meetings, including the costs
of soliciting proxies, and the costs of the Acquisitions will be borne by the
following parties in the following percentages: the Disciplined Stock Fund __%,
the Small Cap Fund __%, the Select Value Fund __%, Liberty Financial __%.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy. 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 Assistant Secretary of
your Acquired Fund, by
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properly executing and submitting a later-dated proxy or by attending the
Meetings and voting in person.
Votes cast in person or by proxy at the Meetings will be counted by
persons appointed by each Acquired Fund as tellers for the Meetings (the
"Tellers"). Thirty percent (30%) of the shares of the Disciplined Stock Fund and
thirty percent (30%) of the shares of the Small Cap Fund outstanding on the
record date, present in person or represented by proxy, constitute a quorum for
the transaction of business by the shareholders of the respective Funds at the
Meetings. Shareholders of the Disciplined Stock Fund vote together with the
shareholders of the other series of the Stein Roe Trust for the election of
Trustees; thirty percent (30%) of the outstanding shares of the Stein Roe Trust
constitutes a quorum for voting on the election of Trustees. Shareholders of the
Small Cap Fund vote together with the shareholders of the other series of Trust
VI for the election of Trustees; thirty percent (30%) of the outstanding shares
of Trust VI 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 Proposals 1 and 2 and will have no
effect on the outcome of Proposals 3 and 4. "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.
Advisors' and Distributor's Addresses. The address of the Disciplined
Stock Fund's investment advisor, Stein Roe & Farnham Incorporated, is One South
Wacker Drive, Chicago, Illinois 60606. The address of each Fund's principal
underwriter, Liberty Funds Distributor, Inc., is One Financial Center, Boston,
Massachusetts 02111. The address of the Small Cap Fund's and the Select Value
Fund's investment advisor, Colonial Management Associates, Inc., is One
Financial Center, Boston, Massachusetts 02111.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists for the Disciplined Stock Fund and the Stein
Roe Trust and for the Small Cap Fund and Trust VI the total number of shares
outstanding as of September 29, 2000, for each class of the shares of each such
Fund and Trust entitled to vote at the Meetings. It also lists for the Select
Value 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 the Funds and their shareholdings in the
Funds.
Adjournments; Other Business. If either Acquired Fund or the Trust of
which it is a series has not received enough votes by the time of the Meetings
to approve any Proposal the persons named as proxies may propose that such
Meetings 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 such Acquired Fund
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or Trust 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 Proposals 3
and 4). 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 Proposals
3 and 4). They will not vote any proxy that directs them to abstain from voting
on the Proposal in question.
The Meetings have been called to transact any business that properly
comes before them. The only business that management of each Acquired Fund
intends to present or knows that others will present is Proposals 1 through 4.
If any other matters properly come before the Meetings, and on all matters
incidental to the conduct of the Meetings, the persons named as proxies intend
to vote the proxies in accordance with their judgment, unless the Assistant
Secretary of the relevant Acquired Fund has previously received written contrary
instructions from the shareholder entitled to vote the shares.
Shareholder Proposals at Future Meetings. The Stein Roe Trust and Trust
VI do not hold annual or other regular meetings of shareholders. Shareholder
proposals to be presented at any future meeting of shareholders of the Funds or
the Trusts must be received by the relevant Fund or Trust 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.
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Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 26, 2000 by
and among [Name of Acquired Fund Trust] (the "Trust"), a Massachusetts business
trust established under a Declaration of Trust dated _______________, as
amended, on behalf of [Name of Acquired Fund] 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 Select Value 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, Z and S] shares of
beneficial interest of the Acquiring Fund ("Acquiring Shares") and the
assumption by 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").
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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 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 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 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.
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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 of additional information 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 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
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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;
(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
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ended [___________________, ____] of the Acquired Fund, audited
by PricewaterhouseCoopers LLP [and the statement of assets, the
statement of changes in net assets and the schedule of
investments for the six months ended ___________________, 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
__________________, 2000;
(g) Since __________________, 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 of
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additional information or statements of additional information
(collectively, as amended or supplemented from time to time, the
"Acquired Fund Prospectus")),non-assessable by the 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; and
(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
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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
_______, 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.
(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,
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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 PricewaterhouseCoopers 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;
(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, Class Z shares and Class S shares each having the
characteristics described in the Acquiring Fund Prospectus. All
issued and outstanding shares of the Acquiring Fund are, and at
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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, Class Z shares and Class S] 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; and
(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.
(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-9
<PAGE>
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
A-10
<PAGE>
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.
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,
Class Z shares and Class S 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
A-11
<PAGE>
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.
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/ Bell, Boyd & Lloyd LLC], 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
A-12
<PAGE>
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.
7.3 The Acquired Fund shall have furnished to the Acquiring Fund tax
returns, signed by a partner of PricewaterhouseCoopers LLP for
the fiscal year ended _______________, 2000 and signed pro forma
tax returns for the period from _______ 1, 2000 to the Closing
Date (which pro forma tax returns shall be furnished promptly
after the Closing Date).
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 ________, 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 _________, 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.
A-13
<PAGE>
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/Bell, Boyd & Lloyd LLC]
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 to 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-14
<PAGE>
(c) No gain or loss will be recognized to 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.
(h) 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. The other expenses of the
transactions contemplated by this Agreement shall be borne by the
following parties in the percentages indicated: (a) the Trust, on
behalf of the Acquired Fund, __%, (b) the Acquiring Trust, on behalf
of the Acquiring Fund, __%, and (c) Liberty Financial Companies, Inc.
__%.
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
A-15
<PAGE>
covenant not set forth herein and that this Agreement constitutes the
entire agreement between the parties.
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; or
(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.
(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, MA 02111 attention Secretary or to [Name and
Address of Trust] attention Secretary .
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT NON-RECOURSE.
A-16
<PAGE>
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.
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 the Declaration of
Trust of the Acquiring Trust are each 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-17
<PAGE>
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.
[NAME OF TRUST],
on behalf of [Acquired Fund]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ATTEST:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
LIBERTY FUNDS TRUST III,
on behalf of Liberty Select Value Fund
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ATTEST:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
Solely for purposes of Section 9.2
of the Agreement:
LIBERTY FINANCIAL COMPANIES, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ATTEST:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
A-18
<PAGE>
APPENDIX B
FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE DISCIPLINED STOCK FUND AND THE
STEIN ROE TRUST AND THE SMALL CAP FUND AND TRUST VI AND SHARES OUTSTANDING OF
THE SELECT VALUE FUND AND TRUST III
For each class of each Acquired Fund's shares and each Trust's shares
entitled to vote at the Meetings, and for each class of the Select Value
Fund's shares and Trust III's shares, the number of shares outstanding as of
September 29, 2000 was as follows:
--------------------------------------------------------------------------------
FUND OR TRUST CLASS NUMBER OF SHARES OUTSTANDING AND
ENTITLED TO VOTE
--------------------------------------------------------------------------------
Disciplined Stock Fund S 24,316,487
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Stein Roe Trust 130,357,064
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Small Cap Fund A 3,800,194
--------------------------------------------------------------------------------
B 7,399,295
--------------------------------------------------------------------------------
C 805,606
--------------------------------------------------------------------------------
Z 323,230
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Trust VI 72,651,978
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Select Value Fund A 17,344,994
--------------------------------------------------------------------------------
B 13,474,790
--------------------------------------------------------------------------------
C 1,043,774
--------------------------------------------------------------------------------
Z 47,567
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Trust III 297,008,531
--------------------------------------------------------------------------------
OWNERSHIP OF SHARES
As of September 29, 2000, each Trust believes that the Trustees and
officers of the respective Trusts, as a group, owned less than one percent of
each class of shares of each Fund and of each 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>
--------------------------------------------------------------------------------------------------------------
NUMBER OF
OUTSTANDING
NAME AND ADDRESS OF SHARES OF PERCENTAGE OF OUTSTANDING
FUND AND CLASS SHAREHOLDER CLASS OWNED SHARES OF CLASS OWNED
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DISCIPLINED STOCK FUND
CLASS S
Charles Schwab & Co., Inc. 4,740,438.926 19.50%
FBO American Express Conversion
Attn. Mutual Fund Operations
101 Montgomery Street
San Francisco, CA 94104
SMALL CAP FUND
CLASS A
Merrill Lynch Pierce Fenner & Smith 554,418.589 14.59%
For the Sole Benefit of its Customers
Attn: Fund Administration #97B42
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
CLASS B
Merrill Lynch Pierce Fenner & Smith 856,570.477 11.58%
For the Sole Benefit of its Customers
Attn: Fund Administration #97B42
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith 225,647.473 28.01%
For the Sole Benefit of its Customers
Attn: Fund Administration #97B42
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS Z
Colonial Counselor Growth Portfolio 87,555.097 27.09%
c/o Christie McCullough
245 Summer Street
Boston, MA 02111
Colonial Counselor Select Balanced Portfolio 36,547.480 11.31%
c/o Christie McCullough
245 Summer Street
Boston, MA 02111
SELECT VALUE FUND
CLASS B
Merrill Lynch Pierce Fenner & Smith 716,672.622 5.32%
For the Sole Benefit of its Customer
Attn: Fund Administration #973D4
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith 145,989.764 13.99%
For the Sole Benefit of its Customers
Attn: Fund Administration #973D4
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Banc One Securities Corp 240,769.130 23.07%
FBO The One Select Portfolio
733 Greencrest Drive
Westerville, OH 43081
AG Edwards & Sons Cust 88,068.956 11.85%
1209 Wayne Road
Haddonfield, NJ 08033
</TABLE>
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 above noted class of shares of the above noted
Fund would own the following percentage of the Acquiring Fund upon consummation
of the Acquisition:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
PERCENTAGE OF OUTSTANDING
SHARES OF CLASS OWNED
NAMES AND ADDRESS OF UPON CONSUMMATION OF
FUND AND CLASS SHAREHOLDER ACQUISITION
-------------------------------------------------------------------------------------
<S> <C> <C>
DISCIPLINED STOCK FUND
CLASS S
Charles Schwab & Co., Inc. 18.72%
FBO American Express Conversion
Attn. Mutual Fund Operations
101 Montgomery Street
San Francisco, CA 94104
SMALL CAP FUND
CLASS A
Merrill Lynch Pierce Fenner & Smith 3.43%
For the Sole Benefit of its Customers
Attn: Fund Administration #97B42
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS B
Merrill Lynch Pierce Fenner & Smith 4.89%
For the Sole Benefit of its Customers
Attn: Fund Administration #97B42
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith 14.49%
For the Sole Benefit of its Customers
Attn: Fund Administration #97B42
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS Z
Colonial Counselor Growth Portfolio 23.18%
c/o Christie McCullough
245 Summer Street
Boston, MA 02111
Colonial Counselor Select Balanced Portfolio 9.67%
c/o Christie McCullough
245 Summer Street
Boston, MA 02111
SELECT VALUE FUND
CLASS B
Merrill Lynch Pierce Fenner & Smith 2.84%
For the Sole Benefit of its Customers
Attn: Fund Administration #973D4
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith 6.51%
For the Sole Benefit of its Customers
Attn: Fund Administration #973D4
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Banc One Securities Corp 10.73%
FBO The One Select Portfolio
733 Greencrest Drive
Westerville, OH 43081
AG Edwards & Sons Cust 18.85%
1209 Wayne Road
Haddonfield, NJ 08033
</TABLE>
B-2
<PAGE>
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth certain information about the executive officers
of each Fund:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER YEAR OF ELECTION AS
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION (1) EXECUTIVE OFFICER
---------- ----------------------------------- -----------------
<S> <C> <C>
Stephen E. Gibson President of the Liberty Funds since June, 1998; Chairman 1998
(46) of the Board since July, 1998, Chief Executive Officer and
President since December, 1996 and Director, since July,
1996 of CMA (formerly Executive Vice President 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. (TCG) from December, 1996 to
December, 1998); Director of Stein Roe & Farnham
Incorporated (SR&F) since September, 2000; President since
January, 2000 and Vice Chairman since August, 1998
(formerly Assistant Chairman and Executive Vice President
from August, 1998 to January, 2000) (formerly Managing
Director of Marketing of Putnam Investments, June, 1992 to
July, 1996.)
Pamela A. McGrath Treasurer and Chief Financial Officer of the Liberty Funds and 1999
(46) Liberty All-Star Funds since April, 2000; Treasurer, Chief
Financial Officer and Vice President of LFG since
December, 1999; Chief Financial Officer, Treasurer and
Senior Vice President of CMA since December, 1999;
Director of Offshore Accounting for Putnam Investments
from May, 1998 to October, 1999; Managing Director of
Scudder Kemper Investments from October, 1984 to December,
1997.
</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.
B-3
<PAGE>
ADDITIONAL INFORMATION CONCERNING TRUSTEE COMPENSATION
The current Board of Trustees of the Liberty Mutual Funds received the following
compensation from each Fund as of each Fund's fiscal year end(1):
<TABLE>
<CAPTION>
------------------------------------------------------------
SELECT VALUE
SMALL CAP FUND FUND
------------------------------------------------------------
6/30/00 10/31/99
------------------------------------------------------------
<S> <C> <C>
Mr. Bleasdale $2,581(2) $3,590(3)
------------------------------------------------------------
Ms. Collins 2,347 3,093
------------------------------------------------------------
Mr. Grinnell 2,449 3,224
------------------------------------------------------------
Mr. Lowry 2,414 3,126
------------------------------------------------------------
Mr. Macera 2,333 3,376
------------------------------------------------------------
Mr. Mayer 2,445 3,133
------------------------------------------------------------
Mr. Moody 2,459(4) 2,906(5)
------------------------------------------------------------
Mr. Neuhauser 2,472 3,260
------------------------------------------------------------
Mr. Stitzel 2,354 3,376
------------------------------------------------------------
Ms. Verville 2,327(6) 3,429(7)
------------------------------------------------------------
</TABLE>
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>
The current Board of Trustees of the Stein Roe Trust received the following
compensation from the Fund as of the Fund's fiscal year end:
<TABLE>
<CAPTION>
DISCIPLINED
STOCK FUND
------------------------------------------
9/30/00
------------------------------------------
<S> <C>
Mr. Bacon $1,300
------------------------------------------
Mr. Boyd 1,400
------------------------------------------
Mr. Hacker 1,300
------------------------------------------
Ms. Kelly 1,300
------------------------------------------
Mr. Nelson 1,300
------------------------------------------
Mr. Theobald 1,300
------------------------------------------
</TABLE>
The following table sets forth the total compensation paid to each Trustee by
the Stein Roe Funds for the fiscal year ended September 30, 1999.
<TABLE>
<CAPTION>
----------------------------------------------------
TRUSTEE TOTAL COMPENSATION(11)
----------------------------------------------------
<S> <C>
Mr. Bacon $117,850
----------------------------------------------------
Mr. Boyd $104,100
----------------------------------------------------
Mr. Hacker $ 93,900
----------------------------------------------------
Ms. Kelly $103,400
----------------------------------------------------
Mr. Nelson $103,900
----------------------------------------------------
Mr. Theobald $103,400
----------------------------------------------------
</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>
Total Compensation From Liberty
All-Star Funds For The Calendar
Trustee Year Ended December 31, 1999 (12)
------- ---------------------------------
<S> <C>
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
William E. Mayer 25,000
John J. Neuhauser 25,000
</TABLE>
-----------------------
(1) The Funds do not currently provide pension or retirement plan benefits to
the Trustees.
(2) Includes $1,322 payable in later years as deferred compensation.
(3) Includes $1,697 payable in later years as deferred compensation.
(4) Total compensation of $2,459 for the fiscal year ended June 30, 2000, will
be payable in later years as deferred compensation.
(5) Total compensation of $2,906 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
(6) Total compensation of $2,327 for the fiscal year ended June 30, 2000, will
be payable in later years as deferred compensation.
(7) Total compensation of $3,429 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) At September 30, 1999, the Stein Roe Fund Complex consisted of 12 series of
the Trust, one series of Liberty-Stein Roe Funds Trust, four series of
Liberty-Stein Roe Funds Municipal Trust, four series of Liberty-Stein Roe
Funds Income Trust, five series of Liberty-Stein Roe Advisor Trust, five
series of Stein Roe Variable Investment Trust, 12 portfolios of SR&F Base
Trust, Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe Floating Rate
Limited Liability Company.
(12) The Liberty All-Star Funds are advised by Liberty Asset Management
Company ("LAMCO"). LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (an intermediate parent of the
Advisor of each Fund).
B-4
<PAGE>
APPENDIX C
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of
each of the Disciplined Stock Fund, the Small Cap Fund and the Select Value Fund
as of June 30, 2000, and on a pro forma combined basis, giving effect to the
acquisition of the assets and liabilities of both Acquired Funds by the Select
Value Fund at net asset value as of that date.
<TABLE>
<CAPTION>
DISCIPLINED STOCK SMALL CAP SELECT VALUE PRO FORMA PRO FORMA
FUND FUND FUND ADJUSTMENTS COMBINED (1)
<S> <C> <C> <C> <C> <C>
Class A
Net asset value $ 138,969,129 $ 388,214,593 (239,237)(2) $ 526,944,485
Shares outstanding 4,268,643 17,372,786 1,946,059 23,587,488
Net asset value per share $ 32.56 $ 22.35 $ 22.34
Class B
Net asset value $ 238,607,222 $ 298,824,770 (235,656)(2) $ 537,196,336
Shares outstanding 7,786,282 14,029,006 3,417,043 25,232,331
Net asset value per share $ 30.64 $ 21.30 $ 21.29
Class C
Net asset value $ 27,400,025 $ 21,661,061 (21,036)(2) $ 49,040,050
Shares outstanding 869,870 991,551 384,003 2,245,424
Net asset value per share $ 31.50 $ 21.85 $ 21.84
Class Z
Net asset value $ 11,431,011 $ 1,043,631 (4,970)(2) $ 12,469,672
Shares outstanding 346,276 46,541 163,616 556,433
Net asset value per share $ 33.01 $ 22.42 $ 22.41
Class S (3)
Net asset value $ 484,253,043 (92,179)(2) $ 484,160,864
Shares outstanding 25,325,082 (3,720,403) 21,604,679
Net asset value per share $ 19.12 $ 22.41
</TABLE>
(1) Assumes the Acquisitions were consummated on June 30, 2000, and is for
information purposes only. No assurance can be given as to how many shares of
the Select Value Fund will be received by the shareholders of each Acquired Fund
on the date the Acquisitions take place, and the foregoing should not be relied
upon to reflect the number of shares of the Select Value Fund that actually will
be received on or after such date.
(2) Adjustment reflects a payable to the general partner of the Portfolio for
its remaining net assets after withdrawal of the Disciplined Stock Fund's
investment in the Portfolio of $162,362 in addition to one time proxy,
accounting, legal and other costs of the reorganization of $162,927, $92,179,
and $337,972 to be borne by the Small Cap Value Fund, the Disciplined Stock Fund
and the Select Value Fund, respectively.
(3) Disciplined Stock Fund shares are to be exchanged for new Class S shares of
the Select Value Fund upon consummation of the Acquisition. Initial per share
value of Class S shares is presumed to be equal to that of current Class Z
shares.
C-1
<PAGE>
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of
each of the Small Cap Fund and the Select Value Fund as of June 30, 2000, and on
a pro forma combined basis, giving effect to the acquisition of the assets and
liabilities of the Small Cap Fund by the Select Value Fund at net asset value as
of that date.
<TABLE>
<CAPTION>
SMALL CAP SELECT VALUE PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED (1)
<S> <C> <C> <C> <C>
Class A
Net asset value $ 138,969,129 $ 388,214,593 (239,237)(2) $ 526,944,485
Shares outstanding 4,268,643 17,372,786 1,946,059 23,587,488
Net asset value per share $ 32.56 $ 22.35 $ 22.34
Class B
Net asset value $ 238,607,222 $ 298,824,770 (235,656)(2) $ 537,196,336
Shares outstanding 7,786,282 14,029,006 3,417,043 25,232,331
Net asset value per share $ 30.64 $ 21.30 $ 21.29
Class C
Net asset value $ 27,400,025 $ 21,661,061 (21,036)(2) $ 49,040,050
Shares outstanding 869,870 991,551 384,003 2,245,424
Net asset value per share $ 31.50 $ 21.85 $ 21.84
Class Z
Net asset value $ 11,431,011 $ 1,043,631 (4,970)(2) $ 12,469,672
Shares outstanding 346,276 46,541 163,616 556,433
Net asset value per share $ 33.01 $ 22.42 $ 22.41
</TABLE>
(1) Assumes the Acquisition was consummated on June 30, 2000, and is for
information purposes only. No assurance can be given as to how many shares of
the Select Value Fund will be received by the shareholders of the Small Cap Fund
on the date the Acquisition takes place, and the foregoing should not be relied
upon to reflect the number of shares of the Select Value Fund that actually will
be received on or after such date.
(2) Adjustment reflects one time proxy, accounting, legal and other costs of the
reorganization of $162,927 and $337,972 to be borne by the Small Cap Fund and
the Select Value Fund, respectively.
C-2
<PAGE>
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of
each of the Disciplined Stock Fund and the Select Value Fund as of June 30,
2000, and on a pro forma combined basis, giving effect to the acquisition of the
assets and liabilities of the Disciplined Stock Fund by the Select Value Fund at
net asset value as of that date.
<TABLE>
<CAPTION>
DISCIPLINED STOCK SELECT VALUE PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED (1)
<S> <C> <C> <C> <C>
Class A
Net asset value $ 388,214,593 (184,863)(2) $ 388,029,730
Shares outstanding 17,372,786 (3,505) 17,369,281
Net asset value per share $ 22.35 $ 22.34
Class B
Net asset value $ 298,824,770 (142,297)(2) $ 298,682,473
Shares outstanding 14,029,006 232 14,029,238
Net asset value per share $ 21.30 $ 21.29
Class C
Net asset value $ 21,661,061 (10,315)(2) $ 21,650,746
Shares outstanding 991,551 (216) 991,335
Net asset value per share $ 21.85 $ 21.84
Class Z
Net asset value $ 1,043,631 (497)(2) $ 1,043,134
Shares outstanding 46,541 7 46,548
Net asset value per share $ 22.42 $ 22.41
Class S (3)
Net asset value $ 484,253,043 (92,179)(2) $ 484,160,864
Shares outstanding 25,325,082 (3,720,403) 21,604,679
Net asset value per share $ 19.12 $ 22.41
</TABLE>
(1) Assumes the Acquisition was consummated on June 30, 2000, and is for
information purposes only. No assurance can be given as to how many shares of
the Select Value Fund will be received by the shareholders of the Disciplined
Stock Fund on the date the Acquisition takes place, and the foregoing should not
be relied upon to reflect the number of shares of the Select Value Fund that
actually will be received on or after such date.
(2) Adjustment reflects a payable to the general partner of the Portfolio for
its remaining net assets after withdrawal of the Disciplined Stock Fund's
investment in the Portfolio of $162,362 in addition to one time proxy,
accounting, legal and other costs of the reorganization of $92,179 and $337,972
to be borne by the Disciplined Stock Fund and the Select Value Fund,
respectively.
(3) Disciplined Stock Fund shares are to be exchanged for new Class S shares of
the Select Value Fund upon consummation of the Acquisition. Initial per share
value of Class S shares is presumed to be equal to that of current Class Z
shares.
C-3
<PAGE>
APPENDIX D
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AS OF OCTOBER 31, 1999
LIBERTY SELECT VALUE FUND
HIGHLIGHTS
- LONG-RUNNING STOCK MARKET PERFORMANCE CONTINUED.
The U.S. stock market continued to show strong returns during the Fund's
fiscal year. The S&P 500 Index increased 25.7% during the 12-month period,
while the S&P MidCap 400 Index increased 21.1%.
- SECOND QUARTER BROADENING -- A HIGHLIGHT FOR MID-CAP STOCKS.
After several years in which the stock market was led by a handful of
large-cap growth stocks and select technology companies, the market
broadened in the second quarter of 1999 to include small and mid-cap
stocks. This broader participation included companies in the basic
materials, energy, chemicals and manufacturing sectors.
- MARKET NARROWED AGAIN IN THE FINAL THREE MONTHS AMID INCREASING VOLATILITY.
During the summer, the Federal Reserve Board (the "Fed") became concerned
about the potential effects on inflation of stock prices, a robust economy
and low unemployment. The Fed raised short-term interest rates twice during
the summer, causing investors to seek the stability of large-cap growth
stocks. This increased volatility for the mid-cap market.
- FUND MIRRORED MID-CAP VOLATILITY DURING PERIOD.
The Fund's performance reflected the overall volatility of the stock
market, which was especially pronounced among mid-cap stocks.
PORTFOLIO MANAGEMENT REPORT
MIXED ENVIRONMENT FOR MID-CAP STOCKS
While the market's leadership was concentrated in a relatively small group
of stocks in the first few months -- following the pattern set over the past few
years -- this leadership broadened in the second quarter of 1998 to include a
much larger group of stocks.
The Fed's rate increases during the summer hurt stock prices because higher
borrowing rates can reduce corporate profits. Mid-cap stocks were hit
particularly hard, with the S&P MidCap 400 Index dropping over 15% between its
mid-summer high and its low in mid-October. Much of the volatility that the
market experienced in the second half resulted from investors either reacting to
-- or trying to anticipate -- Federal
D-1
<PAGE>
Reserve actions on interest rates.
DOMINANCE OF INTERNET STOCKS OVERSHADOWS FUND PERFORMANCE
During the 12-month period, the Fund had a total return of 12.48%, based on
Class A shares without a sales charge. By comparison, the S&P 400 Index had a
total return of 21.08% during the same period. The Fund's underperformance of
the S&P 400 can be partially explained by the fact that two stocks not held by
the Fund -- America Online and Qualcomm -- accounted for nearly one-third of the
index's return for the period. The S&P MidCap 400 Index continued to be
dominated by high-flying Internet stocks. While we see the obvious growth in the
Internet-related and electronic commerce businesses, we still believe that there
will be a shakeout among the many "dot-com" companies. We remain convinced that
a more prudent way to reap the benefits of the Internet's rapid growth is to
invest in companies that support its infrastructure.
FUND BENEFITED FROM TECHNOLOGY, ENERGY AND CONSUMER CYCLICAL STOCKS
During the period, we emphasized holdings in the technology, energy and
consumer cyclical sectors as positive developments occurred. In the technology
sector, we acquired several holdings in the semiconductor industry, as demand
for these products has been rapidly increasing due to the phenomenal growth of
the Internet. Stocks in the energy sector have benefited from the economic
recovery in Asia and a significant increase in energy prices. Our energy
holdings include BJ Services, Inc. (0.4% of net assets), which provides pressure
pumping and other oilfield services serving the petroleum industry worldwide.
In the consumer cyclical sector, we purchased Best Buy Company (0.8% of net
assets), an electronics retail store that has developed a very successful
strategy. For lower-priced products such as VCR's, customers make their own
choices and the inventory is made readily available for purchase. This results
in low overhead costs associated with these products, allowing Best Buy to be a
price leader. For the higher-end products that are much more profitable -- such
as digital entertainment centers -- the company provides trained salespeople.
POSITIONING THE FUND TO BENEFIT WITHOUT TAKING ON EXCESSIVE RISK
During the past year, we increased the Fund's technology and energy
holdings to take advantage of the positive trends in these sectors and position
the Fund for future potential growth. Technology, in particular, has become
increasingly important to the U.S. economy, accounting for significant increases
in productivity. In recognition of the impact of technology companies on
economic growth, the Dow Jones Industrial Average recently added Intel and
Microsoft to its index of 30 stocks -- the first time in history that stocks
from the Nasdaq exchange were included in the Dow.
D-2
<PAGE>
Despite our increased weightings in certain sectors, we continue to
maintain our long-held strategy of not making major "sector bets" or having too
much invested in any one company. As the market's volatility has continued to
increase, we have further diversified, increasing our total number of holdings.
By spreading the Fund's assets over a larger base of stocks, we believe it will
be better positioned to weather market volatility.
OUTLOOK POSITIVE, BUT DEPENDENT ON ECONOMY
We continue to have a positive outlook for mid-cap stocks. Many of the
largest capitalization stocks have become overpriced, and investors are
beginning to find value and growth potential in the mid-cap arena. Our economic
outlook is for continued stable growth in the U.S. economy with low inflation.
In such an environment, we believe that mid-cap stocks can be attractive
investments for long-term investors.
Investing in medium-sized companies involves certain risks, including price
fluctuations caused by economic and business developments.
PERFORMANCE INFORMATION
THE SELECT VALUE FUND'S INVESTMENT PERFORMANCE VS. STANDARD & POOR'S MIDCAP 400
INDEX
[LINE CHART: Initial and subsequent account values at end of each of the
most recently completed ten fiscal years]
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES 10/31/89 - 10/31/99
Without Sales Charge With Sales Charge S&P MidCap 400 Index
-------------------- ----------------- --------------------
10/89 $10,000 $ 9,425 $10,000
10/90 8,190 7,719 8,660
10/91 11,622 10,954 14,155
10/92 12,582 11,859 15,46
10/93 14,821 13,969 18,788
10/94 15,233 14,357 19,236
10/95 19,565 18,44 23,315
10/96 23,729 22,364 27,361
10/97 30,441 28,691 36,299
10/98 32,861 30,972 38,735
10/99 36,960 34,835 46,897
The Standard & Poor's MidCap 400 Index is an unmanaged index that tracks the
performance of mid-capitalization U.S. stocks. Unlike mutual funds, an index
does not incur fees or charges. It is not possible to invest in an index.
AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/99
<TABLE>
<CAPTION>
Share Class A B C Z
Inception Date 1949 6/8/92 8/1/97 1/11/99
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge
1 year 12.48% 6.01% 11.66% 6.66% 11.71% 10.71% 12.63%
5 years 19.40 17.99 18.49 18.29 19.04 19.04 19.43
10 years 13.97 13.29 13.34 13.34 13.79 13.79 13.98
</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 contingent deferred sales
charge (CDSC) maximum charge of 5% for one year and 2% for five years for Class
B shares and
D-3
<PAGE>
1% for one year for Class C shares. Performance for different share classes will
vary based on differences in sales charges and fees associated with each class.
Class B, C and Z share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A share
returns were 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.
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.
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES 10/31/89 - 10/31/99
<TABLE>
<CAPTION>
WITHOUT SALES CHARGE WITH SALES CHARGE S&P MIDCAP 400 INDEX
<S> <C> <C> <C>
10/89 $10,000 $ 9,425 $10,000
10/90 8,190 7,719 8,660
10/91 11,622 10,954 14,155
10/92 12,582 11,859 15,46
10/93 14,821 13,969 18,788
10/94 15,233 14,357 19,236
10/95 19,565 18,44 23,315
10/96 23,729 22,364 27,361
10/97 30,441 28,691 36,299
10/98 32,861 30,972 38,735
10/99 36,960 34,835 46,897
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT IN ALL SHARE CLASSES FROM 10/31/89 -
10/31/99
WITHOUT WITH SALES
SALES CHARGE CHARGE
Class A $36,960 $34,835
Class B 34,983 34,983
Class C 36,405 36,405
Class Z 37,011 N/A
NET ASSET VALUE AS OF 10/31/99
Class A $21.93
Class B $21.10
Class C $21.59
Class Z $21.96
D-4
<PAGE>
DISTRIBUTIONS DECLARED PER SHARE FROM 11/1/98 - 10/31/99
Class A $0.72
Class B $0.72
Class C $0.72
Class Z (1/11/99 - 10/31/99) $0.00
HOLDINGS
TOP 10 HOLDINGS AS OF 10/31/99
1. Xilinx, Inc. 2.0%
2. Maxim Integrated Products 1.9%
3. Altera Corp. 1.6%
4. Linear Technology Corp. 1.6%
5. Citrix Systems, Inc. 1.4%
6. Vitesse Semiconductor Corp. 1.3%
7. Biogen, Inc. 1.3%
8. CNF Transportation, Inc. 1.3%
9. Teradyne, Inc. 1.2%
10. Lehman Brothers Holdings, Inc. 1.2%
Holdings are calculated as a percentage of net assets. Because the Fund is
actively managed, there can be no guarantee the Fund will continue to maintain
these holdings in the future.
SECTOR BREAKDOWNS
FUND AS OF FUND AS OF
10/31/99 VS. 10/31/98
Financial 16.2% 17.2%
Consumer cyclical 15.2% 16.5%
Technology 24.8% 14.9%
Health care 8.6% 11.6%
Utilities 8.9% 9.8%
Sector breakdowns are calculated as a percentage of total equity investments.
Because the Fund is actively managed, there is no guarantee the Fund will
maintain these sector breakdowns in the future.
D-5
<PAGE>
LIBERTY MUTUAL FUNDS
STEIN ROE MUTUAL FUNDS
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
Dear Shareholder:
Your Fund will hold a special meeting on December 19, 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 few
pages, 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 and rationalizing the product offerings of the
Liberty and Stein Roe Funds, reducing fund expense ratios by creating larger,
more efficient funds and permitting the Liberty organization to focus 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 AT OUR WEB SITE, BY MAIL, BY FAX (NOT AVAILABLE FOR ALL
SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT), BY PHONE OR IN PERSON. TO VOTE
THROUGH OUR WEB SITE, JUST FOLLOW THE SIMPLE INSTRUCTIONS THAT APPEAR ON THE
ENCLOSED PROXY INSERT. 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 8, 2000
[Job Code]
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
DECEMBER 19, 2000
LIBERTY FUNDS TRUST III
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
LIBERTY STRATEGIC BALANCED FUND
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of
the Liberty Strategic Balanced Fund will be held at 10:00 a.m. on Tuesday,
December 19, 2000, at the offices of Colonial Management Associates, Inc., the
Liberty Strategic Balanced Fund's advisor, One Financial Center, Boston,
Massachusetts 02111 for these purposes:
1. To approve an Agreement and Plan of Reorganization providing
for the sale of all of the assets of the Liberty Strategic
Balanced Fund to, and the assumption of all of the liabilities
of the Liberty Strategic Balanced Fund by, The Liberty Fund in
exchange for shares of The Liberty Fund and the distribution
of such shares to the shareholders of the Liberty Strategic
Balanced Fund in complete liquidation of the Liberty Strategic
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, Assistant Secretary
November 8, 2000
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU
CAN VOTE EASILY AND QUICKLY AT OUR WEB SITE, BY PHONE, BY MAIL, BY FAX
(NOT AVAILABLE FOR ALL SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT) OR
IN PERSON. TO VOTE THROUGH OUR WEB SITE, JUST FOLLOW THE SIMPLE
INSTRUCTIONS THAT APPEAR ON THE ENCLOSED PROXY INSERT. PLEASE HELP THE
LIBERTY STRATEGIC BALANCED FUND AVOID THE EXPENSE OF A FOLLOW-UP
MAILING BY VOTING TODAY!
<PAGE>
COMBINED PROSPECTUS AND PROXY STATEMENT
NOVEMBER 8, 2000
ACQUISITION OF THE ASSETS AND LIABILITIES OF
LIBERTY STRATEGIC BALANCED FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111
1-800-426-3750
BY AND IN EXCHANGE FOR SHARES OF
THE LIBERTY FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111
1-800-426-3750
TABLE OF CONTENTS
Synopsis........................................................................
Proposal 1 - Acquisition of the Liberty Strategic Balanced Fund by
The Liberty Fund...................................................
Principal Investment Risks...................................................
Information about the Acquisition............................................
Proposal 2 - Election of Trustees...............................................
General.........................................................................
Voting Information...........................................................
Appendix A - Agreement and Plan of Reorganization...............................
Appendix B - Fund Information...................................................
Appendix C - Capitalization ....................................................
Appendix D - Management's Discussion of Fund Performance for The Liberty Fund...
This combined Prospectus/Proxy Statement contains information you
should know before voting on the proposed acquisition of the Liberty Strategic
Balanced Fund (the "Strategic Fund") by The Liberty Fund (the "Liberty Fund") or
voting on the other proposals to be considered at a Special Meeting of
Shareholders of the Strategic Fund (the "Meeting"), which will be held at 10:00
a.m. Eastern Time on December 19, 2000 at the offices of Colonial Management
Associates, Inc. ("Colonial"), One Financial Center, Boston, Massachusetts,
02111. 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 Strategic Fund by the Liberty Fund (the "Acquisition"). If
the Acquisition occurs, you will become a shareholder of the Liberty Fund. The
Liberty Fund seeks
<PAGE>
primarily income and capital growth and, secondarily, capital preservation. If
the Agreement and Plan of Reorganization is approved by the shareholders of the
Strategic Fund and the Acquisition occurs, the Strategic Fund will transfer all
of the assets and liabilities attributable to each class of its shares to the
Liberty Fund in exchange for shares of the same class with the same aggregate
net asset value as the assets and liabilities transferred. After that exchange,
shares of each class received by the Strategic 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 Strategic
Fund is a series.
Please review the enclosed Prospectuses of the Liberty Fund. These
documents are 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 Prospectus of the Strategic Fund dated March 1, 2000, as
supplemented on June 23, 2000 and August 1, 2000.
- The Statement of Additional Information of the Strategic Fund
dated March 1, 2000, as supplemented on June 23, 2000 and
August 21, 2000.
- The Statement of Additional Information of the Liberty Fund
dated March 1, 2000, as supplemented on June 23, 2000 and
August 21, 2000.
- The Report of Independent Accountants and financial statements
included in the Annual Report to Shareholders of the Strategic
Fund dated October 31, 1999.
- The financial statements included in the Strategic Fund's
Semi-Annual Report to Shareholders dated April 30, 2000.
- The Statement of Additional Information of the Liberty Fund
dated November 8, 2000 relating to the Acquisition.
The Strategic 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 the
address listed on the cover of this Prospectus/Proxy Statement. 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 Strategic Fund and Liberty 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 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.
-2-
<PAGE>
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF THE LIBERTY FUND
OR DETERMINED WHETHER THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-3-
<PAGE>
SYNOPSIS
THE FOLLOWING QUESTIONS AND RESPONSES 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, AS THIS SECTION IS ONLY A
SYNOPSIS OF THE COMPLETE DOCUMENT.
1. WHAT IS BEING PROPOSED?
First, the Trustees of each of the Funds are recommending in Proposal 1
that the Liberty Fund acquire the Strategic Fund. This means that the
Liberty Fund would acquire all of the assets and liabilities of the
Strategic Fund in exchange for shares of the Liberty Fund representing
the aggregate net asset value of the Strategic Fund's assets and
liabilities. If Proposal 1 is approved, you will receive shares of the
Liberty Fund with an aggregate net asset value equal to the aggregate
net asset value of your Strategic Fund shares as of the day before the
closing of the Acquisition. The Acquisition is currently scheduled to
take place on or around January 29, 2001.
In addition, the Trustees of the Strategic Fund 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 the Strategic Fund recommend approval of the
Acquisition because it offers shareholders of the Fund an investment in
a fund with similar investment goals and the economies of scale of a
larger fund including a reduction in the fees and expenses of the
Strategic Fund. In reviewing the Acquisition, the Trustees also
considered:
o that it is unlikely the Strategic Fund will achieve scale
through sales growth;
o the ability of the Funds' investment advisor to create a more
focused value-style investment management team; and
o the tax-free nature of the Acquisition as opposed to other
alternatives for the Fund and for shareholders.
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.
3. WHAT CLASS OF SHARES WILL YOU RECEIVE IN THE LIBERTY FUND IF THE ACQUISITION
OCCURS?
You will receive the same class of shares that you currently own in the
Strategic Fund. The shares will have the same exchange rights and will
bear the same
-4-
<PAGE>
contingent deferred sales charges ("CDSCs"), if applicable, as your current
shares.
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE STRATEGIC
FUND AND THE LIBERTY FUND COMPARE?
This table shows the investment goals and primary investment strategies
of each Fund:
THE STRATEGIC FUND THE LIBERTY FUND
INVESTMENT GOALS: The Strategic INVESTMENT GOALS: The Liberty
Fund seeks both current income Fund seeks primarily income and
and long-term growth, consistent capital growth and, secondarily,
with prudent risk. capital preservation.
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Strategic Fund seeks to The Liberty Fund seeks to achieve
achieve its goals as follows: its goals as follows:
- The Fund invests at least 25% - The Fund invests in both stocks
of total assets in debt and bonds.
securities and at least 40% in - The Fund invests at least 25%
equity securities. The Fund of total assets in bonds or other
will invest in both U.S. and fixed income securities (which
foreign issuers. consist primarily of U.S.
- The Fund utilizes futures and government and investment-
options. grade bonds).
- The Fund uses a "value"
investment approach for its
stock holdings.
The investment policies of the Strategic Fund and the Liberty
Fund are substantially similar. After the Acquisition, the Liberty Fund
expects to change its investment strategies so that it may invest in
foreign securities and in futures and options.
5. 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, if
applicable, and management fees and expenses of the Strategic Fund and
the Liberty Fund and to analyze the estimated expenses that Colonial
expects the combined fund to bear in the first year following the
Acquisition. Sales charges are paid directly by shareholders to Liberty
Funds Distributor, Inc., each Fund's distributor. Annual Fund Operating
Expenses are deducted from the Fund. They include management fees,
12b-1 fees (if applicable) 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 last
fiscal year ended October 31, 1999.
-5-
<PAGE>
SHAREHOLDER FEES(1)
(paid directly from your investment)
<TABLE>
<CAPTION>
STRATEGIC FUND LIBERTY FUND
-------------- ------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS Z
<S> <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 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 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)
</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>
STRATEGIC FUND LIBERTY FUND
-------------- ------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B C A B C Z
<S> <C> <C> <C> <C> <C> <C> <C>
Management fee (%) 0.70 0.70 0.70 0.53 0.53 0.53 0.53
Distribution and service (12b-1)
fees(4) (%) 0.35(5) 1.00 1.00 0.25 1.00 1.00 0.00
Other expenses (%) 0.47 0.47 0.47 0.35 0.35 0.35 0.35
Total annual fund operating
expenses (%) 1.52(5) 2.17 2.17 1.13 1.88 1.88 0.88
</TABLE>
<TABLE>
<CAPTION>
LIBERTY FUND (PRO FORMA COMBINED)
CLASS CLASS CLASS CLASS
A B C Z
<S> <C> <C> <C> <C>
Management fee (%) 0.53 0.53 0.53 0.53
Distribution and service (12b-1)
fees (%)(4) 0.24 0.99 0.99 0.00
Other expenses (%) 0.29 0.29 0.29 0.29
Total annual fund operating
expenses (%) 1.06 1.81 1.81 0.82
</TABLE>
(4) For the Liberty Fund, the annual service fee portion of the 12b-1 fee may
equal up to 0.15% on net assets attributable to shares issued prior to
April 1, 1989 and 0.25% on net assets attributable to shares issued
thereafter. This arrangement results in a blend between the 0.15% and 0.25%
rates.
(5) The Strategic Fund's distributor has voluntarily agreed to waive a portion
of the 12b-1 fee for Class A shares. As a result, the actual 12b-1 fee for
Class A shares would be 0.30% and the total annual fund operating expenses
for Class A shares would be 1.47%. This arrangement may be modified or
terminated by the distributor at any time.
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in the Strategic Fund
and the Liberty 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
-6-
<PAGE>
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>
STRATEGIC FUND
Class A $622 $932 $1,265 $2,201
Class B: did not sell your shares $220 $679 $1,164 $2,339
sold all your
shares at end of period $720 $979 $1,364 $2,339
Class C: did not sell your shares $220 $679 $1,164 $2,503
sold all your
shares at end of period $320 $679 $1,164 $2,503
LIBERTY FUND
Class A $683 $911 $1,156 $1,871
Class B: did not sell your shares $190 $588 $1,011 $2,005
sold all your
shares at end of period $690 $888 $1,211 $2,005
Class C: did not sell your shares $190 $588 $1,011 $2,201
sold all your
shares at end of period $290 $588 $1,011 $2,201
Class Z $ 90 $281 $ 488 $1,084
LIBERTY FUND
(pro forma combined)
Class A $677 $894 $1,128 $1,799
Class B: did not sell your shares $184 $571 $ 982 $1,934
sold all your
shares at end of period $684 $871 $1,182 $1,934
Class C: did not sell your shares $184 $571 $ 982 $2,131
sold all your
shares at end of period $284 $571 $ 982 $2,131
Class Z $ 84 $263 $ 457 $1,018
</TABLE>
-7-
<PAGE>
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 fixed costs involved in operating the Strategic
Fund are eliminated; and (3) expenses ratios are based on pro forma combined
average net assets for the period ended July 31, 2000.
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
Strategic Fund or its shareholders as a result of the Acquisition.
The cost basis and holding period of your Strategic Fund shares are
expected to carry over to your new shares in the Liberty Fund.
PROPOSAL 1 - ACQUISITION OF THE LIBERTY STRATEGIC BALANCED FUND BY THE LIBERTY
FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of Agreement and Plan of Reorganization is
attached as Appendix A to the Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Strategic Fund by the Liberty Fund under the Agreement and Plan of
Reorganization.
PRINCIPAL INVESTMENT RISKS
WHAT ARE THE PRINCIPAL INVESTMENT RISKS OF THE LIBERTY FUND, AND HOW DO THEY
COMPARE WITH THE STRATEGIC FUND?
Because the Funds have similar goals and strategies, the potential
risks associated with each Fund are similar. The actual risks of investing in
each Fund depend on the securities held in each Fund's portfolio and on market
conditions, both of which change over time. Please see the enclosed Prospectuses
of the Liberty Fund for a description of the principal investment risks of the
Fund.
INFORMATION ABOUT THE ACQUISITION
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
If approved by the shareholders of the Strategic Fund, the Acquisition
is expected to occur on or around January 29, 2001, under the Agreement and Plan
of Reorganization attached as Appendix A to this combined Prospectus/Proxy
Statement.
-8-
<PAGE>
Please review Appendix A. The following is a brief summary of the principal
terms of the Agreement and Plan of Reorganization:
- The Strategic Fund will transfer all of the assets and
liabilities attributable to each class of shares of the
Strategic Fund to the Liberty Fund in exchange for shares of
the same class of the Liberty Fund with an aggregate net asset
value equal to the net 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 26, 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 Liberty Fund received by the
Strategic Fund will be distributed to the shareholders of the
same class of the Strategic Fund pro rata in accordance with
their percentage ownership of each class of the Strategic Fund
in full liquidation of the Strategic Fund.
- After the Acquisition, the Strategic Fund will be terminated,
and its affairs will be wound up in an orderly fashion.
- The Acquisition requires approval by the Strategic 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 both Funds.
A shareholder who objects to the Acquisition will not be entitled under
Massachusetts law or the Declaration of Trust (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. In addition, shares may be redeemed at any time prior to the consummation
of the Acquisition.
SHARES YOU WILL RECEIVE
If the Acquisition occurs, you will receive shares in the Liberty Fund
of the same class as the shares that you currently own in the Strategic Fund. In
comparison to the shares you currently own, the shares you receive will have the
following characteristics:
- They will have an aggregate net asset value equal to the
aggregate net asset value of your current shares as of the
business day before the closing of the Acquisition.
-9-
<PAGE>
- If applicable, your Liberty 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 Strategic Fund 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 Liberty Fund.
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's shareholders. 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 attached as Appendix A to
this Prospectus/Proxy Statement.
The Acquisition is one of several proposed acquisitions and
liquidations of funds in the Liberty and Stein Roe Fund groups proposed by
Liberty Financial Companies, Inc. ("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 and
rationalizing the product offerings of the Liberty and Stein Roe Funds, reducing
fund expense ratios by creating larger, more efficient funds and permitting the
Liberty Financial organization to focus 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 Strategic Fund to enter into the
Acquisition:
- The Acquisition is expected to create a larger fund with similar
investment goals and strategies to the Strategic Fund, but with lower
operating expenses as a percentage of fund assets. This expense ratio
reduction would benefit Strategic Fund shareholders, since operating
expenses are paid by the fund and reduce the investment return to fund
shareholders. 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 Strategic and Liberty Funds on July 31, 2000 and the Funds'
current expense structures, the Liberty Fund's annualized expense ratio
(excluding 12b-1 fees) immediately after the Acquisition would be about
0.33% lower than the Strategic Fund's current expense ratio (for
example, for Class A shares, a 0.82% expense ratio for the Liberty
Fund, as compared to 1.14% currently for
-10-
<PAGE>
the Strategic Fund). Note that the 12b-1 fees on Classes A, B and C of
the Strategic Fund are 0.35%, 1.00%, and 1.00%, respectively. The 12b-1
fee on Classes A, B and C of the Liberty Fund are 0.24%, 0.99%, and
0.99%, respectively.
- The Strategic Fund is not likely to achieve the scale necessary to
reduce Fund expenses through sales growth. In this connection,
Liberty Financial indicated to the Trustees that it was not willing to
continue subsidizing the Fund's operations (through fee waiver or
expense reimbursements) over the long term.
- The Acquisition will also permit a more focused value-style investment
management team to concentrate its efforts on a single value equity
approach rather than manage multiple portfolios with somewhat different
investment approaches.
- The Acquisition is intended to permit the Strategic Fund's shareholders
to exchange their investment for an investment in the Liberty Fund
without recognizing gain or loss for federal income tax purposes. By
contrast, if a Strategic Fund shareholder redeemed his or her shares to
invest in another fund, like the Liberty Fund, the transaction would
likely be a taxable event for such shareholder. Similarly, if the
Strategic 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 Liberty 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.
The projected post-Acquisition expense reductions presented above are
based upon numerous material assumptions, including that: (1) the current
contractual agreements will remain in place; and (2) certain fixed costs
involved in operating the Strategic 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 Liberty Fund or
Liberty Financial.
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 Liberty Fund will
achieve any particular level of performance after the Acquisition.
-11-
<PAGE>
INFORMATION ABOUT PROPOSED NEW SUB-ADVISOR
Subject to the approval of the existing shareholders of the Liberty
Fund, which will be sought in a separate proxy statement, Colonial will enter
into a sub-advisory agreement with Unibank Securities, Inc., an SEC-registered
investment advisor that does business in the U.S. as Unibank Investment
Management ("Unibank"). The sub-advisory agreement will take effect on or about
the date of the Acquisition.
Under the sub-advisory agreement, Unibank will manage a portion of the
assets of the Liberty Fund, as determined by Colonial, purchase and sell
securities and other investments on behalf of the Liberty Fund, and report
results to the Board of Trustees of Trust III. It is expected that Unibank will
manage large capitalization, non-U.S. equity securities for the Liberty Fund.
For the services to be rendered by Unibank under the sub-advisory agreement,
Colonial will pay Unibank a monthly fee at an annual rate of 0.40% of the
average daily net asset value of the portion of the Liberty Fund's assets
managed by Unibank. Any liability of Unibank to Trust III, the Liberty Fund
and/or its shareholders is limited to situations involving Unibank's own willful
misfeasance, bad faith or gross negligence in the performance of its duties.
The sub-advisory agreement will continue in effect for an initial term
of two years from its date of execution and thereafter so long as it is approved
annually in accordance with the Investment Company Act of 1940, as amended
("1940 Act"). The sub-advisory agreement may be terminated at any time without
penalty on sixty days' written notice to Unibank by vote of the Board of
Trustees of Trust III, by vote of a majority of the outstanding voting
securities of the Liberty Fund, or by Colonial, and by Unibank on ninety days'
written notice to Colonial and Trust III. The sub-advisory agreement also will
terminate automatically in the event of its assignment or in the event that the
management agreement between Trust III, on behalf of the Liberty Fund, and
Colonial is terminated for any reason. The sub-advisory agreement may be amended
only in accordance with the 1940 Act.
-12-
<PAGE>
Unibank, which is located at 13-15 West 54th Street, New York, New
York, 10019, offers investment management services to institutional clients,
including private and public retirement funds, unions, endowments, foundations,
and insurance companies, as well as to mutual fund sponsors on a sub-advisory
basis. Unibank often structures portfolios to meet benchmarks established by the
client, or tailored to standard Morgan Stanley Capital International ("MSCI")
benchmarks such as the MSCI EAFE Index, which is an index that includes stocks
from Europe, Australia and the Far East and is commonly used as a measure of
international stock performance. Unibank is an indirect wholly owned subsidiary
of Unibank A/S, which in turn is a direct wholly owned subsidiary of Unidanmark
A/S, which in turn is a direct wholly owned subsidiary of Nordic Baltic Holding.
Unibank A/S is located at Torvegade 2 DK-1786 Copenhagen V., Denmark. Unidanmark
A/S is located at Strandgrade 3 DK-1786 Copenhagen V., Denmark. Nordic Baltic
Holding is located at Hamngatan 10, SE-105 71 Stockholm, Sweden.
PERFORMANCE INFORMATION
The charts below show the percentage gain or loss in each calendar year
for the 10-year period ending December 31, 1999 or, if shorter, since inception,
for the Class A shares of the Liberty Fund and the Class A shares of the
Strategic Fund. They should give you a general idea of how each Fund's return
has varied from year to year. The graphs include the effects of Fund expenses,
but not sales charges (if applicable to the Fund's shares). Returns would be
lower if any 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, which are incorporated by reference in this Prospectus/Proxy
Statement.
STRATEGIC FUND
<TABLE>
<CAPTION>
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
1995 1996 1997 1998 1999
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
30%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
27.40%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
25%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
20%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
15.68% 15.51%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
15%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
14.64%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
10%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
5.13%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
5%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
0%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>
-13-
<PAGE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 2.04%. Best quarter: Fourth quarter 1998, +12.01%
Worst quarter: Third quarter 1998, -6.99%
</TABLE>
LIBERTY FUND
<TABLE>
<CAPTION>
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
30%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
26.13% 28.60% 26.05%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
25%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
20%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
16.77% 13.13%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
15%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
12.96% 14.46%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
10%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
8.70%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
5%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
0%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-2.10%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-5%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-7.50%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-10%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
</TABLE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 2.67%. Best quarter: Second quarter 1997, +15.60%
Worst quarter: Third quarter 1990, -11.99%
</TABLE>
The next table lists 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, or for the life of the Fund through December 31, 1999 if
shorter, as the case may be, including the applicable sales charges. This table
is 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.
STRATEGIC FUND*
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS LIFE OF FUND
<S> <C> <C> <C> <C> <C>
Class A (%) 9/19/94 0.14 14.34 N/A 12.82
----------------------------- --------------- -------------- ------------- --------------- ------------------
Class B (%) 9/19/94 (0.10) 14.67 N/A 13.19
----------------------------- --------------- -------------- ------------- --------------- ------------------
Class C (%) 9/19/94 3.52 14.89 N/A 13.31
----------------------------- --------------- -------------- ------------- --------------- ------------------
S&P 500 Index (%) N/A 21.03 28.54 N/A 27.01(1)
----------------------------- --------------- -------------- ------------- --------------- ------------------
Lehman Index (%) N/A (2.15) 7.61 N/A 7.31(1)
----------------------------- --------------- -------------- ------------- --------------- ------------------
Lipper Average (%) N/A 8.98 16.33 N/A 15.25(1)
</TABLE>
LIBERTY FUND+
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 2.45 17.01 12.47
----------------------------- -------------- -------------- --------------
Class B (%) 3.20 17.33 12.50(2)
----------------------------- -------------- -------------- --------------
Class C (%) 7.05 17.99(2) 12.94(2)
----------------------------- -------------- -------------- --------------
Class Z (%) 13.72 19.67(2) 13.74(2)
----------------------------- -------------- -------------- --------------
Russell Index (%) 20.91 28.04(2) 18.13(2)
</TABLE>
-14-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
----------------------------- ------------- -------------- -------------- -------------- -------------------
S&P Mid-Cap Index (%) N/A 14.72 23.05 17.32
----------------------------- ------------- -------------- -------------- -------------- -------------------
Lipper Average (%) N/A 8.98 16.33 12.26
</TABLE>
* The Strategic Fund's return is compared to the Standard & Poor's 500 Index
("S&P 500 Index"), an unmanaged index that tracks the performance of U.S.
stock market securities, and the Lehman Government/Corporate Bond Index
("Lehman Index"), an unmanaged index that tracks the performance of U.S.
government and 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 Strategic
Fund's return is also compared to the average return of the funds included
in the Lipper Balanced Funds category average ("Lipper Average"). This
Lipper Average, which is calculated by Lipper, Inc., is composed of funds
with similar investment objectives to the Fund. Sales charges are not
reflected in the Lipper Average.
+ The Liberty Fund's return is compared to the Russell 1000 Index ("Russell
Index"), an unmanaged index that tracks the performance of large
capitalization stocks traded on the New York Stock Exchange, the American
Stock Exchange and NASDAQ. The Liberty Fund's return was compared formerly
to the Standard & Poor's Midcap 400 Index ("S&P Mid-Cap Index"), an
unmanaged index that tracks the performance of middle-capitalization U.S.
stocks. In the past, the Fund had a medium market capitalization and used
the S&P Mid-Cap Index as an appropriate benchmark. However, the Liberty
Fund's current market capitalization more closely resembles a large
capitalization fund. Therefore, the Liberty Fund is changing its benchmark
to the Russell Index. Unlike the Liberty 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 Liberty Fund's return is also
compared to the average return of the funds included in the Lipper Balanced
Fund category average ("Lipper Average"). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper
Average.
(1) Performance information is from September 30, 1994.
(2) Class B, Class C and Class Z are newer classes of shares. Their performance
information includes returns of the Liberty Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. The 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 Class B and
Class C shares would be lower and Class Z shares would be higher. Class A
shares were initially offered on April 30, 1982, Class B shares were
initially offered on May 5, 1992, Class C shares were initially offered on
August 1, 1997 and Class Z shares were initially offered on July 28, 1995.
FEDERAL INCOME TAX CONSEQUENCES
The Acquisition is intended to be a tax-free reorganization. The
closing of the Acquisition will be conditioned on receipt of an opinion from
Ropes & Gray 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 Strategic Fund or the
shareholders of the Strategic Fund as a result of the
Acquisition;
- under Section 358 of the Code, the tax basis of the Liberty
Fund shares you receive will be the same, in the aggregate, as
the aggregate tax basis of your Strategic Fund shares;
-15-
<PAGE>
- under Section 1223(1) of the Code, your holding period for the
Liberty Fund shares you receive will include the holding
period for your Strategic Fund shares if you hold Strategic
Fund shares as a capital asset;
- under Section 1032 of the Code, no gain or loss will be
recognized by the Liberty Fund as a result of the Acquisition;
- under Section 362(b) of the Code, the Liberty Fund's tax basis
in the assets that the Liberty Fund receives from the
Strategic Fund will be the same as the Strategic Fund's basis
in such assets; and
- under Section 1223(2) of the Code, the Liberty Fund's holding
period in such assets will include the Strategic Fund's
holding period in such assets.
The opinion 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 Strategic Fund and the Liberty Fund will each distribute to
their shareholders all of their respective investment company taxable income and
net realized capital gains which have not previously been distributed to
shareholders. Such distributions will be taxable to the Strategic Fund's
shareholders.
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 THE STRATEGIC FUND 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 Strategic 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 Strategic Fund may be
terminated by majority vote of the Strategic Fund's shares entitled to vote (or
by Trustee notice to shareholders), and will so amend the Declaration if a
majority of the Strategic Fund's shareholders entitled to vote on the proposal
vote in favor of such proposal.
REQUIRED VOTE FOR PROPOSAL 1
-16-
<PAGE>
Approval of the Agreement and Plan of Reorganization dated October 26,
2000 between Trust III on behalf of the Strategic Fund and Trust III on behalf
of the Liberty Fund will require the affirmative vote of a majority of the
shares of the Strategic 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 Strategic 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 (or, in the case of Messrs.
Lowry, Mayer and Neuhauser, 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, and were
recommended for election as Trustees of the Liberty Mutual Funds by the Board of
Trustees at a meeting held on October 25, 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 Funds. Liberty
Financial and Trust III's Trustees 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 Funds. Creation of a
single, consolidated board should also provide certain administrative
efficiencies and potential future cost savings for both the Liberty and Stein
Roe 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 enclosed proxy card may be
voted for a substitute nominee in the discretion of the proxy holder(s).
-17-
<PAGE>
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 New nominee
(43) Financial Officer of UAL, Inc. (airline)
since July 1999; Senior Vice President and
Chief Financial Officer of UAL, Inc. prior
thereto.
Janet Langford Kelly Executive Vice President--Corporate New nominee
(41) Development, General Counsel, and
Secretary of Kellogg Company since
September 1999; Senior Vice President,
Secretary and General Counsel of Sara
Lee Corporation (branded, packaged,
consumer-products manufacturer) from
1995 to August 1999; partner at Sidley &
Austin (law firm) prior thereto.
Richard W. Lowry Private Investor since August 1987. 1995
(64) (Formerly Chairman and Chief Executive
Officer of U.S. Plywood Corporation
from August 1985 to August 1987.)
Salvatore Macera Private Investor. (Formerly Executive Vice 1998
(69) President and Director of Itek Corporation
(electronics) from 1975 to 1981.)
William E. Mayer(2) Partner, Park Avenue Equity Partners 1994
(60) (venture capital); Director, Johns
Manville; Director, Lee Enterprises;
Director, WR Hambrecht & Co. (Formerly
Dean, College of Business and Management,
University of Maryland, from October 1992
to November 1996.)
John J. Neuhauser Academic Vice President and Dean of 1985
(57) Faculties, Boston College, since August
1999. (Formerly Dean, Boston College
School of Management, from September
1977 to September 1999.)
Charles Nelson Van Voorhis Professor of Political Economy New nominee
(57) of the University of Washington.
</TABLE>
-18-
<PAGE>
<TABLE>
<S> <C> <C>
Joseph R. Palombo(3) Vice President of the Stein Roe Mutual 2000
(47) Funds since April 1999; Executive Vice
President and Director of Colonial
Management Associates, Inc. and Stein Roe
& Farnham Incorporated since April 1999;
Executive Vice President and Chief
Administrative Officer of Liberty Funds
Group LLC since April 1999. (Formerly
Chief Operating Officer, Putnam Mutual
Funds, from 1994 to 1998.)
Thomas E. Stitzel Business Consultant; Chartered Financial 1998
(64) Analyst. (Formerly Professor of Finance,
from 1975 to 1999, and Dean, from 1977 to
1991, College of Business, Boise State
University.)
Thomas C. Theobald Managing Director, William Blair Capital New nominee
(62) Partners (private equity investing) since
1994; Chief Executive Officer and
Chairman of the Board of Directors of
Continental Bank Corporation from 1987
to 1994.
Anne-Lee Verville Consultant. (Formerly General Manager, 1998
(54) Global Education Industry, from 1994 to
1997, and 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.
TRUSTEES' COMPENSATION
The members of the Board of Trustees will serve as Trustees of the
Liberty and Stein Roe Funds, for which service each Trustee, except for Mr.
Palombo, will receive an annual retainer of $45,000, and attendance fees of
$8,000 for each regular joint 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 Funds based on each Fund's relative net assets,
and one-third of the fees is divided equally among the Liberty and Stein Roe
Funds.
-19-
<PAGE>
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 Trusts who are not continuing on the
combined Board of Trustees of the Liberty and Stein Roe Funds will receive
payments at an annual rate equal to their 1999 Trustee compensation for the
lesser of two years or until the date they would otherwise have retired at age
72. These payments will be made quarterly, beginning in 2001. 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 affiliates, but is considered
interested as a result of his affiliation with a broker-dealer.
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 and Moody and
Ms. Verville, all of whom are non-interested Trustees, except for Mr. Mayer
(Mr. Mayer is interested as a result of his affiliation with a broker-dealer,
but is not affiliated with Liberty Financial or any of its 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 the
Strategic Fund.
Record of Board and Committee Meetings. During the fiscal year ended
October 31, 2000, the Board of Trustees of Trust III (excluding Liberty Federal
Securities Fund which has a different fiscal year end) held six meetings, the
Audit Committee held four meetings, the Compensation Committee held one meeting,
and the Governance Committee held five meetings.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF TRUST III VOTE FOR
PROPOSAL 2.
-20-
<PAGE>
REQUIRED VOTE FOR PROPOSAL 2
A plurality of the votes cast at the Meeting, 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 Strategic Fund in connection with the Meeting, which has been called to
be held at 10:00 a.m. Eastern Time on December 19, 2000 at Colonial's offices,
One Financial Center, Boston, Massachusetts. The meeting notice, this combined
Prospectus/Proxy Statement and proxy cards are being mailed to shareholders
beginning on or about November 8, 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 Strategic Fund or by employees or agents of
Colonial and its affiliated companies. In addition, SCC has been engaged to
assist in the solicitation of proxies, at an estimated cost of $700,000 total
for all of the proposed acquisitions of funds in the Liberty and Stein Roe Fund
groups scheduled to take place in January 2001.
VOTING PROCESS
You can vote in any one of the following five ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, by calling 1-800-732-3683 and following the
instructions;
c. By internet, by visiting our Web site at www.libertyfunds.com
and clicking on "Proxy Voting;"
d. By fax (not available for all shareholders; refer to enclosed
proxy insert); or
e. 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. We encourage you to vote by internet,
using the 12-digit or 14-digit "control" number that appears on the enclosed
proxy card. Voting by internet will reduce expenses by saving postage costs. 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.
-21-
<PAGE>
Costs of Solicitation. The costs of the Meeting, including the costs of
soliciting proxies, and the costs of the Acquisition will be borne by the
following parties in the following percentages: the Liberty Fund __%, the
Strategic Fund __%, Liberty Financial __%.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy. 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 Assistant Secretary of the
Strategic Fund, by properly executing and submitting a later-dated proxy or by
attending the Meeting and voting in person.
Votes cast in person or by proxy at the Meeting will be counted by
persons appointed by the Strategic Fund as tellers for the Meeting (the
"Tellers"). Thirty percent (30%) of the shares of the Strategic 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 Strategic Fund
at the Meeting. Shareholders of the Strategic 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 and Distributor's Addresses. The address of each Fund's
investment advisor, Colonial Management Associates, Inc., is One Financial
Center, Boston, Massachusetts 02111. The address of each Fund's principal
underwriter, Liberty Funds Distributor, Inc., is One Financial Center, Boston,
Massachusetts 02111.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists for the Strategic Fund and Trust III the total
number of shares outstanding as of September 29, 2000 for each class of the
shares of the Fund and Trust III entitled to vote at the Meeting. It also lists
for the Liberty 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 the Funds and their shareholdings
in the Funds.
Adjournments; Other Business. If the Strategic Fund 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
-22-
<PAGE>
the total number of shares of the Strategic Fund 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 Strategic Fund intends
to present or knows that others will present is Proposal 1 and Proposal 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 Assistant
Secretary of the Strategic 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
Strategic 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 Fund or Trust III must be received by the Strategic 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.
-23-
<PAGE>
Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 26, 2000
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 Strategic 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 The Liberty 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 and C shares
of beneficial interest of the Acquiring Fund ("Acquiring Shares") and the
assumption by 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").
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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 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 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 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.
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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 of additional information 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 29, 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 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 The Liberty
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
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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;
(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
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<PAGE>
ended October 31, 1999 of the Acquired Fund, audited by
PricewaterhouseCoopers 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 of
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<PAGE>
additional information or statements of additional
information (collectively, as amended or supplemented
from time to time, the "Acquired Fund
Prospectus")), non-assessable by the 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; and
(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
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<PAGE>
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.
(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,
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<PAGE>
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;
(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 Z shares each having the
characteristics described in the Acquiring Fund
Prospectus. All
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<PAGE>
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 and Class C
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; and
(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.
(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).
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<PAGE>
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
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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.
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 Acquired 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 and Class C 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
A-11
<PAGE>
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.
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
A-12
<PAGE>
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.
7.3 The Acquired Fund shall have furnished to the Acquiring Fund
tax returns, signed by a partner of PricewaterhouseCoopers LLP
for the fiscal year ended October 31, 1999 and signed pro
forma tax returns for the period from November 1, 1999 to the
Closing Date (which pro forma tax returns shall be furnished
promptly after the Closing Date).
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.
A-13
<PAGE>
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 to the Acquired Fund
(i) upon the transfer of its assets to the Acquiring
Fund in exchange for the Acquiring Shares or (ii) upon
the
A-14
<PAGE>
distribution of the Acquiring Shares to the
shareholders of the Acquired Fund as contemplated in
paragraph 1 hereof;
(c) No gain or loss will be recognized to 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.
(h) 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. The
other expenses of the transactions contemplated by this
Agreement shall be borne by the following parties in the
percentages indicated: (a) the Trust, on behalf of the
Acquired Fund, __%, (b) the Acquiring Trust, on behalf of the
Acquiring Fund, __%, and (c) Liberty Financial Companies, Inc.
__%.
A-15
<PAGE>
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.
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; or
(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.
(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, MA 02111 attention Secretary.
A-16
<PAGE>
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.
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-17
<PAGE>
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 Strategic
Balanced Fund
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ATTEST:
Name:
---------------------------------
Title:
--------------------------------
LIBERTY FUNDS TRUST III,
on behalf of The Liberty Fund
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ATTEST:
Name:
---------------------------------
Title:
--------------------------------
Solely for purposes of Section 9.2
of the Agreement:
LIBERTY FINANCIAL COMPANIES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ATTEST:
Name:
-----------------------------
Title:
----------------------------
A-18
<PAGE>
APPENDIX B
FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE STRATEGIC FUND AND TRUST III AND
SHARES OUTSTANDING OF THE LIBERTY FUND
For each class of the Strategic Fund's shares and Trust III's shares
entitled to vote at the Meeting, and for each class of the Liberty Fund's
shares, the number of shares outstanding as of September 29, 2000 was as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
FUND OR TRUST CLASS NUMBER OF SHARES OUTSTANDING AND
ENTITLED TO VOTE
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Strategic Fund A 3,394,951
------------------------------------------------------------------------------------------------------------
B 6,578,437
------------------------------------------------------------------------------------------------------------
C 509,540
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Trust III 297,008,531
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Liberty Fund A 85,501,506
------------------------------------------------------------------------------------------------------------
B 60,443,271
------------------------------------------------------------------------------------------------------------
C 640,428
------------------------------------------------------------------------------------------------------------
Z 314
------------------------------------------------------------------------------------------------------------
</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>
----------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF NUMBER OF OUTSTANDING PERCENTAGE OF OUTSTANDING
FUND AND CLASS SHAREHOLDER SHARES OF CLASS OWNED SHARES OF CLASS OWNED
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STRATEGIC FUND
CLASS A
Sales Marketing Services LLC 276,328.719 8.14%
P.O. Box 516
Metairie, LA 70004-0516
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
CLASS Z
Louis A. Volante Jr. 313.574 100.00%
Rosemarie A. Volante
32 Sheparo Avenue
North Providence, RI 02904
</TABLE>
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 above noted class of shares of the above noted
Fund would own the following percentage of the Acquiring Fund upon consummation
of the Acquisition:
PERCENTAGE OF OUTSTANDING
SHARES OF CLASS OWNED
NAME AND ADDRESS OF UPON CONSUMMATION OF
FUND AND CLASS SHAREHOLDER ACQUISITION
---------------------------------------------------------------------------
STRATEGIC FUND
CLASS A
-------
Sales Marketing Services LLC 0.41%
P.O. Box 516
Metairie, LA 70004-0516
LIBERTY FUND
CLASS Z
-------
Louis A. Volante Jr. 100.00%
Rosemarie A. Volante
32 Sheparo Avenue
North Providence, RI 02904
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth certain information about the executive officers
of each Fund:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER YEAR OF ELECTION AS
NAME & AGE OFFICE PRINCIPAL OCCUPATION (1) EXECUTIVE OFFICER
----------------- ------------------------------- -------------------
<S> <C> <C>
Stephen E. Gibson President of the Liberty Funds since June, 1998; Chairman of 1998
(46) the Board since July, 1998, Chief Executive Officer and
President since December, 1996 and Director, since July,
1996 of CMA (formerly Executive Vice President 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. (TCG) from December, 1996 to December, 1998);
Director of Stein Roe & Farnham Incorporated (SR&F) since
September, 2000, President since January, 2000 and Vice
Chairman since August, 1998 (formerly Assistant Chairman
and Executive Vice President from August, 1998 to January,
2000) (formerly Managing Director of Marketing of Putnam
Investments, June, 1992 to July, 1996.)
Pamela A. McGrath Treasurer and Chief Financial Officer of the Liberty Funds and 1999
(46) Liberty All-Star Funds since April, 2000; Treasurer, Chief
Financial Officer and Vice President of LFG since
December, 1999; Chief Financial Officer, Treasurer and
Senior Vice President of CMA since December, 1999;
Director of Offshore Accounting for Putnam Investments
from May, 1998 to October, 1999; Managing Director of
Scudder Kemper Investments from October, 1984 to December,
1997.
</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.
B-2
<PAGE>
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 and for the calendar year ended December 31,
1999(1):
<TABLE>
<CAPTION>
-------------------------------------------------------
STRATEGIC FUND LIBERTY FUND
-------------------------------------------------------
10/31/99 10/31/99
-------------------------------------------------------
<S> <C> <C>
Mr. Bleasdale $1,361(2) $7,468(3)
-------------------------------------------------------
Ms. Collins 1,157 6,387
-------------------------------------------------------
Mr. Grinnell 1,205 6,657
-------------------------------------------------------
Mr. Lowry 1,169 6,453
-------------------------------------------------------
Mr. Macera 1,280 6,971
-------------------------------------------------------
Mr. Mayer 1,168 6,460
-------------------------------------------------------
Mr. Moody 1,087(4) 6,007(5)
-------------------------------------------------------
Mr. Neuhauser 1,221 6,728
-------------------------------------------------------
Mr. Stitzel 1,280 6,971
-------------------------------------------------------
Ms. Verville 1,301(6) 7,088(7)
-------------------------------------------------------
</TABLE>
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>
Total Compensation From Liberty
All-Star Funds For The Calendar
Trustee Year Ended December 31, 1999 (11)
------- ---------------------------------
<S> <C>
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
William E. Mayer 25,000
John J. Neuhauser 25,000
</TABLE>
-------------------------------
(1) The Funds do not currently provide pension or retirement plan benefits to
the Trustees.
(2) Includes $632 payable in later years as deferred compensation.
(3) Includes $3,508 payable in later years as deferred compensation.
(4) Total compensation of $1,087 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
(5) Total compensation of $6,007 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
(6) Total compensation of $1,301 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
(7) Total compensation of $7,088 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 Companies, Inc. (an intermediate parent of the Advisor of each
Fund).
B-3
<PAGE>
APPENDIX C
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of each of
the Strategic Fund and the Liberty 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 Strategic Fund by the Liberty Fund at net asset value as of that date
(all amounts shown in thousands except per share information):
<TABLE>
<CAPTION>
STRATEGIC LIBERTY PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED (1)
<S> <C> <C> <C> <C>
Class A
Net asset value $ 49,728 $900,553 $ (175)(2) $950,106
Shares outstanding 3,533 87,871 1,289 92,693
Net asset value per share $ 14.08 $ 10.25 $ 10.25
Class B
Net asset value $ 99,300 $672,468 $ (154)(2) $771,614
Shares outstanding 7,071 65,666 2,616 75,353
Net asset value per share $ 14.04 $ 10.24 $ 10.24
Class C
Net asset value $ 7,363 $ 7,299 $ (4)(2) $ 14,658
Shares outstanding 523 714 196 1,433
Net asset value per share $ 14.07 $ 10.23 $ 10.23
Class Z
Net asset value $ 3 $ 0(2) $ 3
Shares outstanding (a) 0 (a)
Net asset value per share $ 10.75 $ 10.75
</TABLE>
(1) 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 Liberty Fund will be received by the shareholders of the Strategic
Fund on the date the Acquisition takes place, and the foregoing should not
be relied upon to reflect the number of shares of the Liberty Fund that
actually will be received on or after such date.
(2) Adjustments reflect one time proxy, accounting, legal and other costs of
the reorganization of $60,464, and $272,615 to be borne by the Strategic
Fund and the Liberty Fund, respectively.
(a) Rounds to less than one.
C-1
<PAGE>
APPENDIX D
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AS OF OCTOBER 31, 1999
THE LIBERTY FUND
HIGHLIGHTS
- MIXED RESULTS FOR STOCK MARKET INVESTORS
Although many of the major equity
indexes delivered another year of 20% plus performance; the average stock
on the New York Stock Exchange fell 20%.
- BONDS HURT BY INTEREST-RATE INCREASES
The Federal Reserve Board lowered rates at the beginning of the period, but
then came back and raised rates twice in the middle of the year, wiping out
any positive gains for bonds.
- FUND WAS A COMPETITIVE PERFORMER IN ITS CATEGORY
A greater emphasis on stocks and good sector selection helped the Fund's
Class A shares, without a sales charge, perform similarly to its Lipper
category.
PORTFOLIO MANAGEMENT REPORT
POSITIVE RETURNS FOR THE YEAR
An emphasis on stocks and careful selection among industries helped the
Liberty Fund achieve performance that tracked its Lipper category during the
12-month period ended October 31, 1999. The Fund's Class A shares, without a
sales charge, rose 10.94%. That compares similarly to the Lipper Balanced Fund
Average, which was up 11.30% for the period.
A TALE OF TWO MARKETS
During the first half of the year, investors began to focus their attention
on areas of the stock market beyond large-company growth stocks. Value-oriented
sectors such as energy, basic materials and consumer cyclicals did well.
However, the shift was short-lived. Two successive interest rate increases and
an economy that looked like it was heating up made investors nervous.
Unfortunately, value stocks gave back their gains. A narrow band of large
technology companies continued to climb, but most of the stock market had a poor
showing in the second half of the year.
FUND'S TECHNOLOGY EXPOSURE INCREASED
During the period, we raised the Fund's exposure to the technology sector
to 24.2%, which made a positive contribution to the Fund's performance. Applied
D-1
<PAGE>
Materials, Apple Computer, Texas Instruments and Sun Microsystems (1.1%, 1.0%,
1.4% and 1.0% of net assets, respectively) were among the best technology
performers in the portfolio. The group benefited from a strong economy, which
allowed companies to continue to direct capital spending toward technology, and
increased semiconductor demand, for use in computers and communications
products.
We also experienced disappointments in the technology area. We invested in
Hewlett-Packard, which we sold during the period, and Unisys (0.5% of net
assets) on expectations of rising earnings. However, earnings failed to live up
to our expectations.
MIXED RESULTS FROM FINANCIAL AND HEALTH CARE STOCKS
Financial Services and health care are two of the largest sectors in the
Fund. Although financial stocks did well over the 12-month period, rising
interest rates negatively impacted the sector during the second half of the
year. In the health care sector, concern about a reduction in Medicare benefits
hurt drug company stocks. A move to endorse a patient's bill of rights also
unsettled the HMO and hospital segment. As a result, we eliminated our
investments in Universal Health Services, Tenet Health Care and Healthsouth.
And, we cut back on our investment in Merck (1.0% of net assets).
A CHALLENGING ENVIRONMENT FOR BONDS
The year began on a positive note for bonds as the Fed cut short-term
interest rates and the world began to lower its expectations for growth as a
result of turmoil in the foreign markets. However, the U.S. economy continued
its strong growth. That led the Fed to reverse its course and raise interest
rates twice during the summer. As a result, bond prices declined over fears of
rekindled inflation and continued monetary tightening. Corporate and mortgage
bonds were hurt as investors seemed reluctant to take on any amount of risk. The
portfolio's relatively low weighting to the bond sector help shield investors in
this challenging environment.
LOOKING AHEAD
What's the next move for interest rates? Signs that inflation could have
the potential to pick up are evident in the commodities market as well as the
tight labor market. That suggests that the Fed could raise interest rates again.
However, inflation has remained relatively low, and there are some signs that
the domestic economy is starting to slow-both positive factors. We continue to
think that growth stocks have potential, but we believe that value stocks also
offer attractive opportunities. As a result, we will keep a mix of both in the
portfolio.
/s/ John Lennon
/s/ Peter Wiley
D-2
<PAGE>
/s/ Leslie Finnemore
/s/ Ann Peterson
October 31, 1999
Investing in stocks and bonds involves certain risks, including price
fluctuations caused by economic and business developments and changes in
interest rates.
PERFORMANCE INFORMATION
THE LIBERTY FUND'S INVESTMENT PERFORMANCE VS. STANDARD & POOR'S MIDCAP 400
INDEX, RUSSELL 1000 INDEX AND SALOMON BROTHERS BROAD INVESTMENT GRADE INDEX
[LINE CHART: Initial and subsequent account values at end of each of the most
recently completed ten fiscal years]
Performance of a $10,000 Investment in Class A Shares 10/31/89 - 10/31/99
<TABLE>
<CAPTION>
Russell 1000 Salomon Brothers
With Sales Broad Investment S&P MidCap Without Sales With Sales
Index Charge Grade Index 400 Index Charge Charge
<S> <C> <C> <C> <C> <C>
10/89 10,000 10,000 10,000 10,000 9,425
10/90 8,741 10,638 8,660 8,878 8,367
10/91 11,551 12,315 14,155 11,653 10,983
10/92 12,427 13,557 15,460 12,771 12,037
10/93 14,007 15,182 18,788 15,352 14,469
10/94 14,044 14,636 19,236 15,465 14,576
10/95 17,378 16,932 23,315 18,825 17,742
10/96 20,895 17,929 27,361 21,858 20,601
10/97 27,006 19,514 36,299 27,723 26,129
10/98 31,849 21,346 38,735 30,240 28,502
10/99 39,470 21,451 46,897 33,574 31,643
</TABLE>
The Standard & Poor's MidCap 400 Index is an unmanaged index that tracks the
performance of mid-capitalization U.S. stocks. The Russell 1000 Index is an
unmanaged index that tracks the performance of small-capitalization stocks
traded on the New York Stock Exchange, the American Stock Exchange and the
NASDAQ. The Salomon Brothers Broad Investment Grade Index is an unmanaged index
that tracks the performance of corporate, mortgage, agency and treasury bonds.
Unlike mutual funds, indexes are not investments and do not incur fees or
charges. It is not possible to invest in an index.
AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/99
<TABLE>
<CAPTION>
Share Class A B C Z
Inception Date 1904 5/5/92 8/1/97 7/31/95
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
D-3
<PAGE>
<TABLE>
<CAPTION>
Without With Without With Without With Without
sales sales sales sales sales sales sales
charge charge charge charge charge charge charge
<S> <C> <C> <C> <C> <C> <C> <C>
1 year 10.94% 4.56% 10.11% 5.11% 10.15% 9.15% 15.92%
5 years 16.75% 15.38% 15.88% 15.65% 16.36% 16.36% 18.03%
10 years 12.88% 12.21% 12.24% 12.24% 12.69% 12.69% 13.49%
</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 contingent deferred sales
charge (CDSC) maximum charge of 5% for one year and 2% for five years for Class
B shares and 1% for one year for Class C shares. Performance for different share
classes will vary based on differences in sales charges and fees associated with
each class.
Class B, C and Z share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A share
returns were 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.
PERFORMANCE OF A $10,000 INVESTMENT IN ALL SHARE CLASSES 10/31/89 - 10/31/99
<TABLE>
<CAPTION>
WITHOUT WITH SALES
SALES CHARGE CHARGE
<S> <C> <C>
Class A $33,574 $31,643
Class B 31,739 31,739
Class C 33,021 33,021
Class Z 35,453 N/A
</TABLE>
NET ASSET VALUE AS OF 10/31/99
<TABLE>
<S> <C>
Class A $10.81
Class B $10.79
Class C $10.78
Class Z $11.28
</TABLE>
DISTRIBUTIONS DECLARED PER SHARE FROM 11/1/98 - 10/31/99
<TABLE>
<S> <C>
Class A $0.668
Class B $0.587
Class C $0.589
Class Z $0.693
</TABLE>
HOLDINGS
TOP 10 EQUITY HOLDINGS AS OF 10/31/99
D-4
<PAGE>
<TABLE>
<S> <C>
1. General Electric Co. 1.9%
2. Bristol Myers Squibb 1.8%
3. Cisco Systems 1.7%
4. Chase Manhattan Corp. 1.5%
5. Texas Instruments Inc. 1.4%
6. Microsoft Corp. 1.4%
7. International Business Machines Corp. 1.4%
8. Corning Inc. 1.3%
9. MCI WorldCom Inc. 1.3%
10. Omnicom Group 1.2%
</TABLE>
Holdings are calculated as a percentage of net assets. Because the Fund is
actively managed, there can be no guarantee the Fund will continue to maintain
these holdings in the future.
TOP 10 SECTOR BREAKDOWN AS OF 10/31/99
<TABLE>
<S> <C>
1. Technology 24.2%
2. Financials 18.6%
3. Health Care 9.5%
4. Consumer Cyclicals 9.4%
5. Consumer Staples 9.1%
6. Capital Goods 9.0%
7. Communication Services 6.9%
8. Utilities 5.1%
9. Energy 4.8%
10. Transportation 1.9%
</TABLE>
Sector breakdown is calculated as a percentage of total equity investments.
Because the Fund is actively managed, there can be no guarantee the Fund will
maintain this breakdown in the future.
D-5
<PAGE>
LIBERTY MUTUAL FUNDS
STEIN ROE MUTUAL FUNDS
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
Dear Shareholder:
Your Fund will hold a special meeting on December 19, 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 few
pages, 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 and rationalizing the product offerings of the
Liberty and Stein Roe Funds, reducing fund expense ratios by creating larger,
more efficient funds and permitting the Liberty organization to focus 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 AT OUR WEB SITE, BY MAIL, BY FAX (NOT AVAILABLE FOR ALL
SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT), BY PHONE OR IN PERSON. TO VOTE
THROUGH OUR WEB SITE, JUST FOLLOW THE SIMPLE INSTRUCTIONS THAT APPEAR ON THE
ENCLOSED PROXY INSERT. 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 8, 2000
[Job Code]
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
DECEMBER 19, 2000
LIBERTY FUNDS TRUST III
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
LIBERTY CONTRARIAN SMALL-CAP FUND
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of
the Liberty Contrarian Small-Cap Fund will be held at 10:00 a.m. on Tuesday,
December 19, 2000 at the offices of Colonial Management Associates, Inc., One
Financial Center, Boston, Massachusetts 02111 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
Small-Cap Fund to, and the assumption of all of the
liabilities of the Liberty Contrarian Small-Cap Fund by, the
Liberty Special Fund in exchange for shares of the Liberty
Special Fund and the distribution of such shares to the
shareholders of the Liberty Contrarian Small-Cap Fund in
complete liquidation of the Liberty Contrarian Small-Cap 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, Assistant Secretary
November 8, 2000
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE
NUMBER OF SHARES YOU OWN. YOU CAN VOTE
EASILY AND QUICKLY AT OUR WEB SITE, BY PHONE, BY MAIL,
BY FAX (NOT AVAILABLE FOR ALL SHAREHOLDERS;
REFER TO ENCLOSED PROXY INSERT) OR IN PERSON.
TO VOTE THROUGH OUR WEB SITE, JUST FOLLOW THE
SIMPLE INSTRUCTIONS THAT APPEAR ON THE ENCLOSED
PROXY INSERT. PLEASE HELP YOUR FUND AVOID
THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
<PAGE>
COMBINED PROSPECTUS AND PROXY STATEMENT
NOVEMBER 8, 2000
ACQUISITION OF THE ASSETS AND LIABILITIES OF
LIBERTY CONTRARIAN SMALL-CAP FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111
1-800-426-3750
BY AND IN EXCHANGE FOR SHARES OF
LIBERTY SPECIAL FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111
1-800-426-3750
TABLE OF CONTENTS
<TABLE>
<S> <C>
Synopsis.........................................................................................
Proposal 1 - Acquisition of the Liberty Contrarian Small-Cap Fund by
the Liberty Special Fund.........................................................
Principal Investment Risks..................................................................
Information about the Acquisition...........................................................
Proposal 2 - Election of Trustees................................................................
General..........................................................................................
Voting Information..........................................................................
Appendix A - Agreement and Plan of Reorganization................................................
Appendix B - Fund Information....................................................................
Appendix C - Capitalization .....................................................................
Appendix D - Management's Discussion of Fund Performance for the
Liberty Special Fund...........................................................
</TABLE>
This combined Prospectus/Proxy Statement contains information you
should know before voting on the proposed acquisition of the Liberty Contrarian
Small-Cap Fund (the "Small Cap Fund") by the Liberty Special Fund (the "Special
Fund") or voting on the other proposals to be considered at a Special Meeting of
Shareholders of the Small Cap Fund (the "Meeting"), which will be held at 10:00
a.m. Eastern Time on December 19, 2000 at the offices of Colonial Management
Associates, Inc. ("Colonial"), One Financial Center, Boston, Massachusetts
02111. 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 Small Cap Fund by the Special Fund (the "Acquisition"). If
the Acquisition occurs, you will become a shareholder of the Special Fund. The
Special Fund seeks significant long-term capital appreciation. If the Agreement
and Plan of Reorganization
<PAGE>
is approved by the shareholders of the Small Cap Fund and the Acquisition
occurs, the Small Cap Fund will transfer all of the assets and liabilities
attributable to each class of its shares to the Special Fund in exchange for
shares of the same class with the same aggregate net asset value as the assets
and liabilities transferred. After that exchange, shares of each class received
by the Small Cap Fund will be distributed pro rata to its shareholders of the
same class. After the Acquisition, the Special Fund expects to change its name
to "Liberty Contrarian Small Cap Fund."
Proposal 2 in this Prospectus/Proxy Statement relates to the election
of Trustees of Liberty Funds Trust III ("Trust III"), of which the Small Cap
Fund is a series.
Please review the enclosed Prospectuses of the Special Fund. 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 Small Cap Fund dated March 1, 2000, as
supplemented on May 5, 2000, June 23, 2000 and August 1, 2000.
- The Statement of Additional Information of the Small Cap Fund
dated March 1, 2000, as supplemented on June 23, 2000 and
August 21, 2000.
- The Statement of Additional Information of the Special Fund
dated March 1, 2000, as supplemented on June 23, 2000 and
August 21, 2000.
- The Report of Independent Accountants and financial statements
included in the Annual Report to Shareholders of the Small Cap
Fund dated October 31, 1999.
- The financial statements included in the Small Cap Fund's
Semi-Annual Report to Shareholders dated April 30, 2000.
- The Statement of Additional Information of the Special Fund
dated November 8, 2000 relating to the Acquisition.
The Small Cap 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. 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 Small Cap Fund and
Special 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 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.
-2-
<PAGE>
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF THE SPECIAL FUND
OR DETERMINED WHETHER THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-3-
<PAGE>
SYNOPSIS
THE FOLLOWING QUESTIONS AND RESPONSES 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, AS THIS SECTION IS ONLY A
SYNOPSIS OF THE COMPLETE DOCUMENT.
1. WHAT IS BEING PROPOSED?
First, the Trustees of the Funds are recommending in Proposal 1 that
the Special Fund acquire the Small Cap Fund. This means that the
Special Fund would acquire all of the assets and liabilities of the
Small Cap Fund in exchange for shares of the Special Fund representing
the aggregate net asset value of the Small Cap Fund's assets and
liabilities. If Proposal 1 is approved, you will receive shares of the
Special Fund with an aggregate net asset value equal to the aggregate
net asset value of your Small Cap Fund shares as of the 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 the Small Cap Fund 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 the Small Cap Fund recommend approval of the
Acquisition because it offers shareholders of the Fund an investment in
a fund with similar investment goals and the economies of scale of a
larger fund and with an expected reduction in the fees and expenses
payable by the Small Cap 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. In reviewing
the Acquisition, the Trustees also considered that it is unlikely the
Small Cap Fund will achieve scale through sales growth and considered
the tax-free nature of the Acquisition as opposed to other alternatives
for the Funds and for shareholders. 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.
3. WHAT CLASS OF SHARES WILL YOU RECEIVE IN THE SPECIAL FUND IF THE
ACQUISITION OCCURS?
You will receive the same class of shares that you currently own in the
Small Cap 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.
-4-
<PAGE>
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE SMALL CAP
FUND AND THE SPECIAL FUND COMPARE?
This table shows the investment goal and primary investment strategies
of each Fund:
<TABLE>
<CAPTION>
--------------------------------------------- ---------------------------------------------
THE SMALL CAP FUND THE SPECIAL FUND
--------------------------------------------- ---------------------------------------------
<S> <C>
INVESTMENT GOAL: The Small Cap Fund seeks INVESTMENT GOAL: The Special Fund seeks
to provide long-term capital appreciation. significant long-term capital appreciation.
--------------------------------------------- ---------------------------------------------
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Small Cap Fund seeks to achieve its The Special Fund seeks to achieve its goal
goal as follows: as follows:
- The Fund invests at least 65% of - The Fund invests at least 75% of
total assets in small cap (under $1 total assets in securities of
billion) companies. companies that have small (under $1
- The Fund follows a basic value, billion) to medium ($1-3 billion)
contrarian approach in selecting market capitalization.
stocks for its portfolio. - The Fund may engage in short sales
and use financial leverage.
- The Fund follows a basic value,
contrarian approach in selecting
stocks for its portfolio.
- The Fund invests primarily in U.S.
stocks that represent more aggressive
investments than the U.S. equity
market as a whole.
--------------------------------------------- ---------------------------------------------
</TABLE>
The investment policies of the Small Cap Fund and the Special
Fund are substantially similar.
5. 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 Small Cap Fund and the Special Fund
and to analyze the estimated expenses that Crabbe Huson Group, Inc.
("Crabbe Huson"), each Fund's investment advisor, expects the combined
fund to bear in the first year following the Acquisition. Sales charges
are paid directly by shareholders to Liberty Funds Distributor, Inc.,
each Fund's distributor. Annual Fund Operating Expenses are deducted
from the Fund. 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 last fiscal year ended October
31, 1999.
-5-
<PAGE>
SHAREHOLDER FEES(1)
(paid directly from your investment)
<TABLE>
<CAPTION>
SMALL CAP FUND SPECIAL 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) 5.75 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>
SMALL CAP FUND SPECIAL 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 fee(4)(%) 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05
---------------------------------- -------- --------- --------- --------- --------- --------- --------- --------
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) (%) 0.62 0.62 0.62 0.37 0.95 0.95 0.95 0.95
---------------------------------- -------- --------- --------- --------- --------- --------- --------- --------
Total annual fund operating
expenses(4) (%) 1.92 2.67 2.67 1.42 2.25 3.00 3.00 2.00
</TABLE>
<TABLE>
<CAPTION>
SPECIAL FUND (PRO FORMA COMBINED)
CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Management fee (%) 1.05 1.05 1.05 1.05
---------------------------------- -------- --------- --------- ---------
Distribution and service (12b-1) 0.25 1.00 1.00 0.00
fees (%)
---------------------------------- -------- --------- --------- ---------
Other expenses (%) 0.44 0.44 0.44 0.25
---------------------------------- -------- --------- --------- ---------
Total annual fund operating 1.74 2.49 2.49 1.30
expenses(5) (%)
</TABLE>
--------
(4) The advisor and administrator of each of the Small Cap Fund and the
Special Fund have voluntarily agreed to waive advisory and
administration 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 1.25% with respect
to Class A, B and C shares, and 1.00% with respect to Class I shares.
As a result, with respect to Class A, B and C shares of the Small Cap
Fund, the actual management and administration fees for each share
class would be 0.63%, other expenses for each share class would be
0.62% and total annual fund operating expenses for Class A, B and C
shares would be 1.50%, 2.25% and 2.25%, respectively. With respect to
Class I shares of the Small Cap Fund, the actual management and
administration fees would be 0.63%, other expenses would be 0.37% and
total annual fund operating expenses would be 1.00%. The actual
management and administration fees for each share class of the Special
Fund would be 0.30%, other expenses for each share class would be 0.95%
and total annual fund operating expenses for Class A, B and C shares
would be 1.50%, 2.25% and 2.25%, respectively. This arrangement may be
modified or terminated by each Fund's advisor or administrator at any
time.
(5) The advisor and administrator of the Special Fund have voluntarily
agreed to waive advisory and administration 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
1.25% for Class A, B and C shares, and 1.00% for Class I shares. As a
result, with respect to Class A,
-6-
<PAGE>
B and C shares of the Special Fund, the actual management and
administration fees for each share class would be 0.75%, other expenses
for each share class would be 0.44% and total annual fund operating
expenses for Class A, B and C shares would be 1.44%, 2.19% and 2.19%,
respectively. With respect to Class I shares of the Special Fund, the
actual management and administration fees would be 0.75%, other
expenses would be 0.25% and total annual fund operating expenses would
be 1.00%. This arrangement may be modified or terminated by each Fund's
advisor or administrator at any time.
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in the Small Cap Fund
and the Special 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>
SMALL CAP FUND
Class A $758 $1,142 $1,550 $2,685
Class B: did not sell your shares $270 $ 828 $1,413 $2,818
sold all your
shares at end of period $770 $1,128 $1,613 $2,818
Class C: did not sell your shares $270 $ 828 $1,413 $2,999
sold all your
shares at end of period $370 $ 828 $1,413 $2,999
Class I $145 $ 449 $ 776 $1,702
SPECIAL FUND $742 $1,091 $1,464 $2,509
Class A $790 $1,237 $1,709 $3,007
Class B: did not sell your shares $303 $ 926 $1,575 $3,139
sold all your
shares at end of period $803 $1,226 $1,775 $3,139
Class C: did not sell your shares $303 $ 926 $1,575 $3,314
sold all your
shares at end of period $403 $ 926 $1,575 $3,314
Class I $203 $ 627 $1,078 $2,327
SPECIAL FUND
(pro forma combined)
Class A $742 $1,091 $1,464 $2,509
Class B: did not sell your shares $252 $ 776 $1,326 $2,642
</TABLE>
-7-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
sold all your
shares at end of period $752 $1,076 $1,526 $2,642
Class C: did not sell your shares $252 $ 776 $1,326 $2,826
sold all your
shares at end of period $352 $ 776 $1,326 $2,826
Class I $133 $ 413 $ 714 $1,571
</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) any fee reductions proposed in this Prospectus/Proxy
Statement are approved; (3) the elimination of certain fixed costs involved in
operating the Small Cap Fund; and (4) expenses ratios are based on pro forma
average net assets for the year ended April 30, 2000.
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
Small Cap Fund or its shareholders as a result of the Acquisition.
The cost basis and holding period of your Small Cap Fund shares are
expected to carry over to your new shares in the Special Fund.
-8-
<PAGE>
PROPOSAL 1 - ACQUISITION OF THE LIBERTY CONTRARIAN SMALL-CAP FUND BY THE LIBERTY
SPECIAL FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of
Reorganization dated October 26, 2000. A form of Agreement and Plan of
Reorganization is attached as Appendix A to the Prospectus/Proxy Statement. By
approving the Agreement and Plan of Reorganization, you are also approving the
Acquisition of the Small Cap Fund by the Special Fund under the Agreement and
Plan of Reorganization.
PRINCIPAL INVESTMENT RISKS
WHAT ARE THE PRINCIPAL INVESTMENT RISKS OF THE SPECIAL FUND, AND HOW DO THEY
COMPARE WITH THE SMALL CAP FUND?
Because the Funds have similar goals and strategies, the potential
risks associated with each Fund are similar. The actual risks of investing in
each Fund depend on the securities held in each Fund's portfolio and on market
conditions, both of which change over time. Please see the enclosed Prospectuses
of the Special Fund for a description of the principal investment risks of the
Fund.
INFORMATION ABOUT THE ACQUISITION
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
If approved by the shareholders of the Small Cap Fund, the Acquisition
is expected to occur on or around January 16, 2001, under the Agreement and Plan
of Reorganization 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 Small Cap Fund will transfer all of the assets and
liabilities attributable to each class of shares of the Small
Cap Fund to the Special Fund in exchange for shares of the
same class of the Special Fund with an aggregate net asset
value equal to the net 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 Special Fund received by the
Small Cap Fund will be distributed to the shareholders of the
same class of the
-9-
<PAGE>
Small Cap Fund pro rata in accordance with their percentage
ownership of each class of the Small Cap Fund in full
liquidation of the Small Cap Fund.
- After the Acquisition, the Small Cap Fund will be terminated,
and its affairs will be wound up in an orderly fashion.
- The Acquisition requires approval by the Small Cap 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 both Funds.
A shareholder who objects to the Acquisition will not be entitled under
Massachusetts law or the Declaration of Trust (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. In addition, shares may be redeemed at any time prior to the consummation
of the Acquisition.
SHARES YOU WILL RECEIVE
If the Acquisition occurs, you will receive shares in the Special Fund
of the same class as the shares that you currently own in the Small Cap Fund. In
comparison to the shares you currently own, the shares you receive will have the
following characteristics:
- They will have an aggregate net asset value equal to the
aggregate net asset value of your current shares as of the
business day before the closing of the Acquisition.
- If applicable, your Special 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 Small Cap Fund 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 Special Fund.
REASONS FOR THE ACQUISITION
-10-
<PAGE>
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's shareholders and that the interests of
existing shareholders of each of the Funds would not be diluted as a result of
the Acquisition. 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 attached as Appendix A to this Prospectus/Proxy
Statement.
The Acquisition is one of several proposed acquisitions and
liquidations of funds in the Liberty and Stein Roe Fund groups proposed by
Liberty Financial Companies, Inc. ("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 and
rationalizing the product offerings of the Liberty and Stein Roe Funds, reducing
fund expense ratios by creating larger, more efficient funds and permitting the
Liberty Financial organization to focus 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 Small Cap Fund to enter into the
Acquisition:
- The Acquisition is expected to create a larger fund with similar
investment goals and strategies to the Small Cap Fund.
- The Small Cap Fund is not likely to achieve the scale necessary to
reduce Fund expenses through sales growth. In this connection,
Liberty Financial indicated to the Trustees that it was not willing to
continue subsidizing the Fund's operations (through fee waiver or
expense reimbursements) over the long term. Thus, even though the
Special Fund has a higher expense ratio than the subsidized expense
ratio of Small Cap Fund, the Special Fund's expense ratio after the
Acquisition is expected to be materially lower than the Small Cap Fund's
expense ratio would be if the advisor discontinued its subsidy.
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 Small Cap
and Special Funds on July 31, 2000 and the Funds' current expense
structures, the Special Fund's annualized expense ratio (excluding 12b-1
fees) immediately after the Acquisition would be about 0.33% lower than
the Small Cap Fund's current expense ratio would be if the current
voluntary expense limitation were discontinued (for example, for Class A
shares, a 1.57% expense ratio for the Special Fund, as compared to 1.80%
for the Small Cap Fund if the limitation were discontinued and 1.25% if
it continued). Note that the 12b-1 fees on Classes A, B and C on each
fund are 0.25%, 1.00% and 1.00%, respectively.
- The Acquisition will also 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.
-11-
<PAGE>
- The Acquisition is intended to permit the Small Cap Fund's shareholders
to exchange their investment for an investment in the Special Fund
without recognizing gain or loss for federal income tax purposes. By
contrast, if a Small Cap Fund shareholder redeemed his or her shares to
invest in another fund, like the Special Fund, the transaction would
likely be a taxable event for such shareholder. Similarly, if the Small
Cap 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
Special 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.
The Trustees also considered the possible limitation on the future use
of losses of the Small Cap Fund to offset future taxable capital gains required
to be distributed to shareholders.
The projected post-Acquisition expense reductions presented above are
based upon numerous material assumptions, including: (1) the current contractual
agreements will remain in place; (2) any fee reductions proposed in this
Prospectus/Proxy Statement are approved; and (3) the elimination of certain
fixed costs involved in operating the Small Cap Fund. 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 Special Fund or Liberty Financial.
In addition, the Trustees considered the relative performance results
which are based on the factors and assumptions set forth below under Performance
Information. No assurance can be given that the Special Fund will achieve any
particular level of performance after the Acquisition.
If the Acquisition does not occur, Liberty Financial has indicated that
it may recommend to the Trustees that the Small Cap Fund be liquidated.
PERFORMANCE INFORMATION
The charts below show the percentage gain or loss in each calendar year
for the 10-year period ending December 31, 1999 or, if shorter, since inception,
for the Class A shares of the Special Fund and the Class A shares of the Small
Cap Fund. They should give you a general idea of how each Fund's return has
varied from year-to-year. The graphs include the effects of Fund expenses, but
not sales charges (if applicable to the Fund's shares). Returns would be lower
if any 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.
-12-
<PAGE>
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, which are incorporated by reference in this Prospectus/Proxy
Statement.
SMALL CAP FUND
<TABLE>
<CAPTION>
----------------- ----------------------------- ----------------------------- -------------------------------
1997 1998 1999
----------------- ----------------------------- ----------------------------- -------------------------------
<S> <C> <C> <C>
30%
----------------- ----------------------------- ----------------------------- -------------------------------
26.14%
----------------- ----------------------------- ----------------------------- -------------------------------
20%
----------------- ----------------------------- ----------------------------- -------------------------------
10.09%
----------------- ----------------------------- ----------------------------- -------------------------------
10%
----------------- ----------------------------- ----------------------------- -------------------------------
----------------- ----------------------------- ----------------------------- -------------------------------
0%
----------------- ----------------------------- ----------------------------- -------------------------------
----------------- ----------------------------- ----------------------------- -------------------------------
-10%
----------------- ----------------------------- ----------------------------- -------------------------------
----------------- ----------------------------- ----------------------------- -------------------------------
-20%
----------------- ----------------------------- ----------------------------- -------------------------------
----------------- ----------------------------- ----------------------------- -------------------------------
-30%
----------------- ----------------------------- ----------------------------- -------------------------------
-32.11%
----------------- ----------------------------- ----------------------------- -------------------------------
-40%
----------------- ----------------------------- ----------------------------- -------------------------------
</TABLE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 21.91%. Best quarter: Second quarter 1999, +21.94%
Worst quarter: Third quarter 1998, -32.05%
</TABLE>
SPECIAL FUND
<TABLE>
<CAPTION>
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
33.38% 34.54%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
30%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
20%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
17.08% 11.72% 10.79% 11.28%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
10%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
3.82% 5.92% 8.14%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
0%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-10%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-20%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-30%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-40%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-42.85%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-50%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
</TABLE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 22.11%. Best quarter: Second quarter 1999, +29.61%
Worst quarter: Third quarter 1998, -33.61%
</TABLE>
The next table lists each Fund's average annual total return for Class
A shares (and, with respect to the Small Cap Fund, Class A and Class I shares)
for the one-year, five-year and ten-year periods ending December 31, 1999, or
for the life of the Fund through December 31, 1999 if shorter, as the case may
be, including the applicable sales charge for Class A shares. The average annual
total returns of Class B and Class C shares of each Fund are not listed in the
table below because, as of December 31, 1999, no shares of either class had been
issued. This table is intended to provide you with some indication
-13-
<PAGE>
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.
SMALL CAP FUND*
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS LIFE OF FUND
<S> <C> <C> <C> <C> <C>
Class A (%) 2/20/96 3.76 N/A N/A 1.49
----------------------------- --------------- -------------- ------------- --------------- ------------------
Class I (%) 10.59 N/A N/A 3.42
----------------------------- --------------- -------------- ------------- --------------- ------------------
Russell Index (%) N/A 21.26(1) N/A N/A 13.66(1)
----------------------------- --------------- -------------- ------------- --------------- ------------------
Lipper Average (%) N/A 33.49(1) N/A N/A 17.12(1)
</TABLE>
SPECIAL FUND*
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS LIFE OF FUND
<S> <C> <C> <C> <C> <C>
Class A (%) 4/9/87 1.92 -5.32 6.37
----------------------------- --------------- -------------- ------------- --------------- ------------------
Russell Index (%) N/A 21.26(1) 16.69(1) 13.40(1)
----------------------------- --------------- -------------- ------------- --------------- ------------------
Lipper Average (%) N/A 39.35(1) 23.31(1) 16.04(1)
</TABLE>
* The Small Cap Fund and the Special Fund's returns are compared to the
Russell 2000 Index ("Russell Index"), an unmanaged index that tracks the
performance of small-capitalization stocks traded on the New York Stock
Exchange, the American Stock Exchange and the NASDAQ. Unlike the Funds,
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 Funds' returns are also compared to the average return of the funds
included in the Lipper Mid Cap Funds category average ("Lipper Average").
This Lipper Average, which is calculated by Lipper, Inc., is composed of
funds with similar investment objectives to the Funds. Sales charges are not
reflected in the Lipper Average.
(1) Performance information is from February 29, 1996.
FEDERAL INCOME TAX CONSEQUENCES
The Acquisition is intended to be a tax-free reorganization. The closing of
the Acquisition will be conditioned on receipt of an opinion from Ropes & Gray
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 Small Cap Fund or the
shareholders of the Small Cap Fund as a result of the
Acquisition;
-14-
<PAGE>
- under Section 358 of the Code, the tax basis of the Special
Fund shares you receive will be the same, in the aggregate, as
the aggregate tax basis of your Small Cap Fund shares;
- under Section 1223(1) of the Code, your holding period for the
Special Fund shares you receive will include the holding
period for your Small Cap Fund shares if you hold Small Cap
Fund shares as a capital asset;
- under Section 1032 of the Code, no gain or loss will be
recognized by the Special Fund as a result of the Acquisition;
- under Section 362(b) of the Code, the Special Fund's tax basis
in the assets that the Special Fund receives from the Small
Cap Fund will be the same as the Small Cap Fund's basis in
such assets; and
- under Section 1223(2) of the Code, the Special Fund's holding
period in such assets will include the Small Cap Fund's
holding period in such assets.
The opinion 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 Small Cap Fund and the Special Fund will each distribute to
their shareholders all of their respective investment company taxable income and
net realized capital gains, which have not previously been distributed to
shareholders. Such distributions or dividends will be taxable to the Small Cap
Fund's shareholders.
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 THE SMALL CAP FUND 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 Small Cap 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
-15-
<PAGE>
vote in favor of the Acquisition to be a vote in favor of amending the
Declaration to provide that the Small Cap Fund may be terminated by majority
vote of the Small Cap Fund's shares entitled to vote (or by Trustee notice to
shareholders), and will so amend the Declaration if a majority of the Small Cap
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 between Trust III on behalf of the Small Cap Fund and Trust III on behalf
of the Special Fund will require the affirmative vote of a majority of the
shares of the Small Cap 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 Small Cap 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 (or, in the case of Messrs.
Lowry, Mayer and Neuhauser, 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, and were
recommended for election as Trustees of the Liberty Mutual Funds by the Board of
Trustees at a meeting held on October 25, 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 Funds. Liberty
Financial and Trust III's Trustees 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 Funds. Creation of a
single, consolidated board should also provide certain administrative
efficiencies and potential future cost savings for both the Liberty and Stein
Roe 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
-16-
<PAGE>
as Trustees of Trust III (if so instructed). If any nominee listed below becomes
unavailable for election, the enclosed proxy card may be voted for a substitute
nominee in the discretion of the proxy holder(s).
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 New nominee
(43) Financial Officer of UAL, Inc. (airline)
since July 1999; Senior Vice President and
Chief Financial Officer of UAL, Inc. prior
thereto.
Janet Langford Kelly Executive Vice President--Corporate New nominee
(41) Development, General Counsel, and
Secretary of Kellogg Company since
September 1999; Senior Vice President,
Secretary and General Counsel of Sara
Lee Corporation (branded, packaged,
consumer-products manufacturer) from
1995 to August 1999; partner at Sidley &
Austin (law firm) prior thereto.
Richard W. Lowry Private Investor since August 1987. 1995
(64) (Formerly Chairman and Chief Executive
Officer of U.S. Plywood Corporation
from August 1985 to August 1987.)
Salvatore Macera Private Investor. (Formerly Executive Vice 1998
(69) President and Director of Itek Corporation
(electronics) from 1975 to 1981.)
William E. Mayer(2) Partner, Park Avenue Equity Partners 1994
(60) (venture capital); Director, Johns
Manville; Director, Lee Enterprises;
Director, WR Hambrecht & Co. (Formerly
Dean, College of Business and Management,
University of Maryland, from October 1992
to November 1996.)
John J. Neuhauser Academic Vice President and Dean of 1985
(57) Faculties, Boston College, since August
1999. (Formerly Dean, Boston College
School of Management, from September
1977 to September 1999.)
</TABLE>
-17-
<PAGE>
<TABLE>
<S> <C> <C>
Charles Nelson Van Voorhis Professor of Political Economy New nominee
(57) of the University of Washington.
Joseph R. Palombo(3) Vice President of the Stein Roe Mutual 2000
(47) Funds since April 1999; Executive Vice
President and Director of Colonial
Management Associates, Inc. and Stein Roe
& Farnham Incorporated since April 1999;
Executive Vice President and Chief
Administrative Officer of Liberty Funds
Group LLC since April 1999. (Formerly
Chief Operating Officer, Putnam Mutual
Funds, from 1994 to 1998.)
Thomas E. Stitzel Business Consultant; Chartered Financial 1998
(64) Analyst. (Formerly Professor of Finance,
from 1975 to 1999, and Dean, from 1977 to
1991, College of Business, Boise State
University.)
Thomas C. Theobald Managing Director, William Blair Capital New nominee
(62) Partners (private equity investing) since
1994; Chief Executive Officer and
Chairman of the Board of Directors of
Continental Bank Corporation from 1987
to 1994.
Anne-Lee Verville Consultant. (Formerly General Manager, 1998
(54) Global Education Industry, from 1994 to
1997, and 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 Investment Company Act of 1940,
as amended (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.
TRUSTEES' COMPENSATION
The members of the Board of Trustees will serve as Trustees of the
Liberty and Stein Roe Funds, for which service each Trustee, except for Mr.
Palombo, will receive an annual retainer of $45,000, and attendance fees of
$8,000 for each regular joint 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 Funds based on each
-18-
<PAGE>
Fund's relative net assets, and one-third of the fees is divided equally among
the Liberty and Stein Roe 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 Trusts who are not continuing on the
combined Board of Trustees of the Liberty and Stein Roe Funds will receive
payments at an annual rate equal to their 1999 Trustee compensation for the
lesser of two years or until the date they would otherwise have retired at age
72. These payments will be made quarterly, beginning in 2001. 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 affiliates, but is considered
interested as a result of his affiliation with a broker-dealer.
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 and Moody, and
Ms. Verville, all of whom are non-interested Trustees, except for Mr. Mayer
(Mr. Mayer is interested as a result of his affiliation with a broker-dealer,
but is not affiliated with Liberty Financial or any of its 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 your Fund.
Record of Board and Committee Meetings. During the fiscal year ended
October 31, 1999, Trust III (excluding Liberty Federal Securities Fund which has
a different fiscal year end) held six meetings, the Audit Committee held four
meetings, the Compensation Committee held one meeting and the Governance
Committee held four meetings.
-19-
<PAGE>
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 is a member.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF TRUST III VOTE FOR
PROPOSAL 2.
REQUIRED VOTE FOR PROPOSAL 2
A plurality of the votes cast at the Meeting, 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 amount of votes will be
elected.
GENERAL
VOTING INFORMATION
The Trustees of the Trust III are soliciting proxies from the
shareholders of the Small Cap Fund in connection with the Meeting, which has
been called to be held at 10:00 a.m. Eastern Time on December 19, 2000 at
Colonial's offices, One Financial Center, Boston, Massachusetts. The meeting
notice, this combined Prospectus/Proxy Statement and proxy cards are being
mailed to shareholders beginning on or about November 8, 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 Small Cap Fund or by employees or agents of Crabbe
Huson and its affiliated companies. In addition, SCC has been engaged to assist
in the solicitation of proxies, at an estimated cost of $700,000 total for all
of the proposed acquisitions of funds in the Liberty and Stein Roe Fund groups
scheduled to take place in January 2001.
VOTING PROCESS
You can vote in any one of the following five ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, by calling 1-800-732-3683 and following the
instructions;
c. By internet, by visiting our Web site at www.libertyfunds.com
and clicking on "Proxy Voting;"
d. By fax (not available for all shareholders; refer to enclosed
proxy insert); or
e. 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. We encourage you to vote by internet,
using the 12-digit or
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14-digit "control" number that appears on the enclosed proxy card. Voting by
internet will reduce expenses by saving postage costs. 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 of Solicitation. The costs of the Meeting, including the costs of
soliciting proxies, and the costs of the Acquisition will be borne by the
following parties in the following percentages: the Small Cap Fund ___%, the
Special Fund __%, Liberty Financial __%.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy. 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 Assistant Secretary of the
Small Cap Fund, by properly executing and submitting a later-dated proxy or by
attending the Meeting and voting in person.
Votes cast in person or by proxy at the Meeting will be counted by
persons appointed by the Small Cap Fund as tellers for the Meeting (the
"Tellers"). Thirty percent (30%) of the shares of any 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 Small Cap Fund at the
Meeting. Shareholders of the Small Cap 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, Distributor'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. The address of each Fund's administrator, Colonial
Management Associates, Inc., is One Financial Center, Boston, Massachusetts
02111.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists for the Small Cap Fund and Trust III the total
number of shares outstanding as of September 29, 2000 for each class of the
shares of the Fund and the Trust entitled to vote at the Meeting. It also lists
for the Special 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,
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and contains information about the executive officers and Trustees of the Funds
and their shareholdings in the Funds.
Adjournments; Other Business. If the Small Cap Fund or Trust III,
depending on the Proposal, 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 Small Cap 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 Small Cap Fund intends
to present or knows that others will present is Proposal 1 and Proposal 2, as
described above. 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
Assistant Secretary of the Small Cap 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 Small
Cap 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 Fund or Trust III must be received by the Small Cap 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.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 26, 2000 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 Small Cap 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 Special 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 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").
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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 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 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 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
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Declaration of Trust of the Acquiring Trust and the then current
prospectus or prospectuses and the statement of additional
information 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 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.
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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;
(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
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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 of additional
information or statements of additional information
(collectively, as amended or supplemented from time to time,
the "Acquired Fund Prospectus")), non-assessable by the
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
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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; and
(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
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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.
(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;
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(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;
(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
A-8
<PAGE>
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; and
(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.
(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-9
<PAGE>
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
A-10
<PAGE>
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.
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
A-11
<PAGE>
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.
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
A-12
<PAGE>
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.
7.3 The Acquired Fund shall have furnished to the Acquiring Fund tax
returns, signed by a partner of Ernst & Young LLP for the fiscal
year ended October 31, 2000 and signed pro forma tax returns for the
period from November 1, 2000 to the Closing Date (which pro forma
tax returns shall be furnished promptly after the Closing Date).
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.
A-13
<PAGE>
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 to 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-14
<PAGE>
(c) No gain or loss will be recognized to 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.
(h) 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. The other expenses of the
transactions contemplated by this Agreement shall be borne by the
following parties in the percentages indicated: (a) the Trust, on
behalf of the Acquired Fund, __%, (b) the Acquiring Trust, on behalf
of the Acquiring Fund, __%, and (c) Liberty Financial Companies,
Inc. __%.
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
A-15
<PAGE>
covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
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;
or
(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.
(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, MA 02111 attention Secretary.
A-16
<PAGE>
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.
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-17
<PAGE>
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
Small Cap Fund
By:____________________________
Name:__________________________
Title:_________________________
ATTEST:
____________________________
Name:_______________________
Title:______________________
LIBERTY FUNDS TRUST III,
on behalf of Liberty Special Fund
By:____________________________
Name:__________________________
Title:_________________________
ATTEST:
____________________________
Name:_______________________
Title:______________________
Solely for purposes of Section 9.2
of the Agreement:
LIBERTY FINANCIAL COMPANIES, INC.
By:____________________________
Name:__________________________
Title:_________________________
ATTEST:
____________________________
Name:_______________________
Title:______________________
A-18
<PAGE>
APPENDIX B
FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE SMALL CAP FUND AND TRUST III AND
SHARES OUTSTANDING OF THE SPECIAL FUND
For each class of the Small Cap Fund's shares and Trust III's shares
entitled to vote at the Meeting, and for each class of the Special Fund's
shares, the number of shares outstanding as of September 29, 2000 was as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
NUMBER OF SHARES OUTSTANDING
FUND OR TRUST CLASS AND ENTITLED TO VOTE
--------------------------------------------------------------------------------
<S> <C> <C>
--------------------------------------------------------------------------------
Small Cap Fund A 533,240
--------------------------------------------------------------------------------
B 0
--------------------------------------------------------------------------------
C 0
--------------------------------------------------------------------------------
I 2,194,567
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Trust III 297,008,531
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Special Fund A 4,884,506
--------------------------------------------------------------------------------
B 0
--------------------------------------------------------------------------------
C 0
--------------------------------------------------------------------------------
</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>
-----------------------------------------------------------------------------------------------------------------
NUMBER OF OUTSTANDING PERCENTAGE OF OUTSTANDING
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER SHARES OF CLASS OWNED SHARES OF CLASS OWNED
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SMALL CAP FUND
CLASS A
Chemical Bank & Trust Co. Agent 33,666.013 6.31%
Chippewa Nature Center Endowment Fund
Attn: Trust Department
P.O. Box 231
Midland, MI 48640-0231
Enele Co. 31,254.135 5.86%
Dividend Reinvest
c/o Copper Mountain Trust
601 SW 2nd Avenue, Suite 1800
Portland, OR 97204
CLASS I
AAAA Retirement Fund for Member Agencies 974,283.752 44.40%*
Wendy E. Jones Trustee
Donald S. Lewis Trustee
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
201 McCullough Drive, Ste. 100
Charlotte, NC 28262-4345
M&I Trust Co. Trustee 700,918.677 31.94%*
Neese/Crabbe Huson
1000 N. Water Street, 14th Floor
Milwaukee, WI 53202-6648
Chicagoland Race Meet Operators 211,321.471 9.63%
Pension Trust Fund
8700 W. Bryn Mawr Avenue
Suite 810N
Chicago, IL 60631
Northwestern Trust Company Custodian 115,983.670 5.28%
FBO IBEW Local 76
Supplemental Income Fund
1201 3rd Avenue, Ste. 2010
Seattle, WA 98101
Enele Co. 144,743.890 6.60%
Dividend Reinvest
c/o Copper Mountain Trust
601 SW 2nd Avenue, Suite 1800
Portland, OR 97204
SPECIAL FUND
CLASS A
Charles Schwab & Co. Inc. 1,109,976.285 22.72%
Special Custody A/C for Benefit of
Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
FTC & Co. 577,726.047 11.83%
Attn. Datalynx #203
PO Box 173 736
Denver, CO 80217
</TABLE>
----------
* Entity owned 25% or more of the outstanding shares of beneficial interest
of the Small Cap Fund, and therefore may be presumed to "control" such Fund,
as that term is defined in the Investment Company Act of 1940, as amended.
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 above noted class of shares of the above noted
Fund would own the following percentage of the Acquiring Fund upon consummation
of the Acquisition:
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES OF CLASS OWNED
NAME AND ADDRESS OF UPON CONSUMMATION OF
FUND AND CLASS SHAREHOLDER ACQUISITION
------------- ------------------- -------------------------
<S> <C> <C>
LIBERTY CONTRARIAN
SMALL CAP FUND
CLASS A
Chemical Bank & Trust Co. Agent 0.73%
Chippewa Nature Center Endowment Fund
Attn: Trust Department
P.O. Box 231
Midland, MI 48640-0231
Enele Co. 0.68%
Dividend Reinvest
c/o Copper Mountain Trust
601 SW 2nd Avenue, Suite 1800
Portland, OR 97204
CLASS I
AAAA Retirement Fund for Member Agencies 45.45%
Wendy E. Jones Trustee
Donald S. Lewis Trustee
201 McCullough Drive, Ste. 100
Charlotte, NC 28262-4345
M&I Trust Co. Trustee 32.70%
Neese/Crabbe Huson
1000 N. Water Street, 14th Floor
Milwaukee, WI 53202-6648
Chicagoland Race Meet Operators 9.86%
Pension Trust Fund
8700 W. Bryn Mawr Avenue
Suite 810N
Chicago, IL 60631
Northwestern Trust Company Custodian 5.30%
FBO IBEW Local 76
Supplemental Income Fund
1201 3rd Avenue, Ste. 2010
Seattle, WA 98101
Enele Co. 6.75%
Dividend Reinvest
c/o Copper Mountain Trust
601 SW 2nd Avenue, Suite 1800
Portland, OR 97204
LIBERTY SPECIAL FUND
CLASS A
Charles Schwab & Co. Inc. 20.33%
Special Custody A/C for Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth certain information about the executive officers
of each Fund:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER YEAR OF ELECTION AS
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION (1) EXECUTIVE OFFICER
----------------- ----------------------------------- -----------------
<S> <C> <C>
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C> <C>
Stephen E. Gibson President of the Liberty Funds since June, 1998; Chairman 1998
(46) of the Board since July, 1998, Chief Executive Officer and
President since December, 1996 and Director, since July,
1996 of CMA (formerly Executive Vice President 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. (TCG) from December, 1996 to
December, 1998); Director of Stein Roe & Farnham
Incorporated (SR&F) since September, 2000, President since
January, 2000 and Vice Chairman since August, 1998
(formerly Assistant Chairman and Executive Vice President
from August, 1998 to January, 2000) (formerly Managing
Director of Marketing of Putnam Investments, June, 1992 to
July, 1996.)
Pamela A. McGrath Treasurer and Chief Financial Officer of the Liberty Funds and 1999
(46) Liberty All-Star Funds since April, 2000; Treasurer, Chief
Financial Officer and Vice President of LFG since
December, 1999; Chief Financial Officer, Treasurer and
Senior Vice President of CMA since December, 1999;
Director of Offshore Accounting for Putnam Investments
from May, 1998 to October, 1999; Managing Director of
Scudder Kemper Investments from October, 1984 to December,
1997.
</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.
B-3
<PAGE>
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 and for the calendar year ended December 31,
1999(1):
<TABLE>
<CAPTION>
--------------------------------------------------------------------
SMALL CAP FUND SPECIAL FUND
10/31/99 10/31/99
--------------------------------------------------------------------
<S> <C> <C>
Mr. Bleasdale $729(2) $796(3)
--------------------------------------------------------------------
Ms. Collins 685 748
--------------------------------------------------------------------
Mr. Grinnell 714 779
--------------------------------------------------------------------
Mr. Lowry 693 756
--------------------------------------------------------------------
Mr. Macera 686 749
--------------------------------------------------------------------
Mr. Mayer 705 768
--------------------------------------------------------------------
Mr. Moody 635(4) 694(5)
--------------------------------------------------------------------
Mr. Neuhauser 726 791
--------------------------------------------------------------------
Mr. Stitzel 686 749
--------------------------------------------------------------------
Ms. Verville 678(6) 768(7)
--------------------------------------------------------------------
</TABLE>
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"):
Total Compensation From Liberty
All-Star Funds For The Calendar
Trustee Year Ended December 31, 1999 (11)
------- ---------------------------------
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
William E. Mayer 25,000
John J. Neuhauser 25,000
----------
(1) The Funds do not currently provide pension or retirement plan benefits to
the Trustees.
(2) Includes $375 payable in later years as deferred compensation.
(3) Includes $409 payable in later years as deferred compensation.
(4) Total compensation of $635 for the fiscal year ended October 31, 1999, will
be payable in later years as deferred compensation.
(5) Total compensation of $694 for the fiscal year ended October 31, 1999, will
be payable in later years as deferred compensation.
(6) Total compensation of $678 for the fiscal year ended October 31, 1999, will
be payable in later years as deferred compensation.
(7) Total compensation of $768 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 Companies, Inc. (an intermediate parent of the
Advisor of each Fund).
B-4
<PAGE>
APPENDIX C
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of each of
the Small Cap Fund and the Special Fund as of April 28, 2000, and on a pro forma
combined basis, giving effect to the acquisition of the assets and liabilities
of the Small Cap Fund by the Special Fund at net asset value as of that date:
<TABLE>
<CAPTION>
SMALL CAP SPECIAL PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS (1) COMBINED (2)
<S> <C> <C> <C> <C>
Class A
Net asset value $ 6,382,596 $ 44,498,861 (53,815) $ 50,827,642
Shares outstanding 581,392 4,779,249 104,697 5,465,338
Net asset value per share $ 10.98 $ 9.31 $ 9.30
Class I
Net asset value $ 23,772,428 (20,716) $ 23,751,712
Shares outstanding 2,146,233 404,971 2,551,204
Net asset value per share $ 11.08 $ 9.31
</TABLE>
(1) Adjustments reflect one time proxy, accounting, legal and other costs
of the reorganization of $26,278 and $48,253 to be borne by the Small
Cap Fund and the Special Fund, respectively.
(2) Assumes the Acquisition was consummated on April 28, 2000, and is for
information purposes only. No assurance can be given as to how many
shares of the Special Fund will be received by the shareholders of the
Small Cap Fund on the date the Acquisition takes place, and the
foregoing should not be relied upon to reflect the number of shares of
the Special Fund that actually will be received on or after such date.
C-1
<PAGE>
APPENDIX D
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AS OF OCTOBER 31, 1999
LIBERTY SPECIAL FUND
PORTFOLIO MANAGEMENT REPORT
FUND PERFORMANCE AFFECTED BY MARKET BIAS TOWARD LARGE-CAP GROWTH AND IMPACT OF
HEALTH CARE STOCKS
During the fiscal year, the Fund had a total return of negative 13.95%,
based on Class A shares without a sales charge. The Fund has not performed well
in the past few years, in large part because the stock market has been dominated
by large-cap growth stocks, and because investors have favored growth stocks
generally over value stocks. While we do seek--and have found--growth stocks
that are reasonably priced, the Fund has had a value bias for the past several
years.
The Fund was also impacted by events in the health care industry.
Non-pharmaceutical health care companies, including HMOs and sub-acute care
companies, have been very harshly treated by the Hospital Financial Control
Authority (HFCA) -- the financial arm of Medicare. Most of the much-publicized
$200 billion in Medicare savings has come from the enormous reductions in
Medicare reimbursements to health care providers. As many people are aware, this
has severely impacted profitability in the health care sector.
"SHORT SELLING" TECHNIQUES NOT USED IN 1999
The Fund experienced an especially difficult year in 1998 because of
"short selling" strategies that did not achieve their goals. Short selling is a
common market strategy that allows investors to sell an unowned stock in
anticipation of a price decline with the intent to buy it back at a lower price.
It is typically used to hedge downside risk. We did not employ this strategy in
the Fund in 1999.
AN OUTSTANDING SECOND QUARTER
When the market broadened in the second quarter of this year, the Fund
performed very well, posting a return of 29.61% for the quarter ended June 30,
1999. By comparison, the Russell 2000 Index, a broad-based measure of small-cap
stock performance, had a total return of 15.52% during the same period. However,
when the market again narrowed in August to favor large caps and became more
volatile across the board, small-cap stocks declined substantially. The Fund
fared poorly during this time primarily because it had a significant weighting
in value-oriented stocks. These companies were shunned by investors who-in a
volatile and uncertain market-fled to the more familiar large-cap growth issues.
Also, the Fund had exposure to certain sectors
D-1
<PAGE>
that did not perform as well, including health care and, to a lesser extent,
basic materials.
TECHNOLOGY AND ENERGY HOLDINGS HOLD PROMISE
The Fund's technology holdings, at roughly 20% of net assets, are an
important part of the portfolio. Most of these companies are component or
circuit manufacturers that are creating entirely new designs for a variety of
electronic and high-tech applications. Another large sector is mining and
energy, at roughly 24% of net assets. In this sector, we are invested primarily
in natural gas companies involved in exploration, production and service. In the
past year, there has been a severe depletion of natural gas reserves and a drop
in Canadian natural gas production, resulting in a significant decline in supply
that created many attractive investment opportunities. We also have stocks in
the basic materials sector, including the aluminum and chemicals industries. We
believe that if global economies continue improving and commodity prices remain
firm, basic materials companies should be profitable.
NEW ADDITIONS TO THE FUND ILLUSTRATE CONTRARIAN STYLE
The concentration of the stock market's preference toward large-cap,
blue chip growth companies has created many opportunities in the small- and
mid-cap areas of the market. One example is Mail-Well (1.2% of net assets), a
fast-growing company in the printing industry. Mail-Well is the leading
conglomerate in this fragmented business, having consolidated companies in four
areas: commercial printing, envelopes, labels, and printing for distributors.
The firm has had strong sales and earnings growth, and we were able to acquire
it after its stock dropped sharply from its mid-summer high. As a growing
company, Mail-Well nicely fits our criteria of growth at a reasonable price.
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 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.
D-2
<PAGE>
/s/ James Crabbe
/s/ John W. Johnson
PERFORMANCE INFORMATION
SPECIAL FUND'S INVESTMENT PERFORMANCE VS. RUSSELL 2000 INDEX
[LINE CHART: Initial and subsequent account values at end of each of the most
recently completed ten fiscal years]
Change in Value of $10,000 from 10/31/1989 - 10/31/1999
Class A Shares, With and Without Sales Charge
<TABLE>
<CAPTION>
Fund With Fund Without Russell 2000
Sales Charge Sales Charge Index
------------ ------------ ------------
<S> <C> <C> <C>
10/89 9,425 10,000 10,000
10/90 8,398 8,910 7,272
10/91 12,561 13,328 11,536
10/92 13,580 14,408 12,631
10/93 19,201 20,372 16,725
10/94 23,502 24,935 16,666
10/95 23,920 25,379 19,725
10/96 25,123 26,656 23,001
10/97 31,811 33,752 29,747
10/98 17,496 18,563 26,225
10/99 15,053 15,971 30,123
</TABLE>
The Russell 2000 Index is an unmanaged index that tracks the performance of
small-capitalization stocks traded on the New York Stock Exchange, the American
Stock Exchange, and NASDAQ. Unlike mutual funds, indexes are not investments and
do not incur fees or expenses. It is not possible to invest directly in an
index.
AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/99
INCEPTION DATE 4/9/1987
SHARE CLASS A
<TABLE>
<CAPTION>
WITHOUT WITH SALES
SALES CHARGE CHARGE
------------ ----------
<S> <C> <C>
1 Year (13.95)% (18.90)%
5 Year (8.52)% (9.60)%
10 Years 4.79 % 4.17 %
</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.
Performance results reflect any voluntary waivers or reimbursement of Fund
expenses by the Fund's advisor or its affiliates. Absent these waivers or
reimbursement arrangements, performance results would have been lower.
D-3
<PAGE>
LIBERTY MUTUAL FUNDS
STEIN ROE MUTUAL FUNDS
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
Dear Shareholder:
Your Fund will hold a special meeting on December 19, 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 few
pages, 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 and rationalizing the product offerings of the
Liberty and Stein Roe Funds, reducing fund expense ratios by creating larger,
more efficient funds and permitting the Liberty organization to focus 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 AT OUR WEB SITE, BY MAIL, BY FAX (NOT AVAILABLE FOR ALL
SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT), BY PHONE OR IN PERSON. TO VOTE
THROUGH OUR WEB SITE, JUST FOLLOW THE SIMPLE INSTRUCTIONS THAT APPEAR ON THE
ENCLOSED PROXY INSERT. 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 8, 2000
[Job Code]
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
DECEMBER 19, 2000
LIBERTY FUNDS TRUST III
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
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. on Tuesday,
December 19, 2000 at the offices of Colonial Management Associates, Inc., One
Financial Center, Boston, Massachusetts 02111 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, Assistant Secretary
November 8, 2000
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU
CAN VOTE EASILY AND QUICKLY AT OUR WEB SITE, BY PHONE, BY MAIL, BY FAX
(NOT AVAILABLE FOR ALL SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT) OR
IN PERSON. TO VOTE THROUGH OUR WEB SITE, JUST FOLLOW THE SIMPLE
INSTRUCTIONS THAT APPEAR ON THE ENCLOSED PROXY INSERT. PLEASE HELP YOUR
FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
<PAGE>
COMBINED PROSPECTUS AND PROXY STATEMENT
NOVEMBER 8, 2000
ACQUISITION OF THE ASSETS AND LIABILITIES OF
LIBERTY CONTRARIAN BALANCED FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111
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
1-800-426-3750
TABLE OF CONTENTS
Synopsis.......................................................................
Proposal 1 - Acquisition of the Liberty Contrarian Balanced Fund by
the Liberty Contrarian Equity Fund................................
Principal Investment Risks................................................
Information about the Acquisition.........................................
Proposal 2 - Election of Trustees..............................................
General........................................................................
Voting Information........................................................
Appendix A - Agreement and Plan of Reorganization..............................
Appendix B - Fund Information..................................................
Appendix C - Capitalization....................................................
Appendix D - Management's Discussion of Fund Performance for
the Liberty Contrarian Equity Fund................................
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 19, 2000 at the offices of Colonial
Management Associates, Inc. ("Colonial"), One Financial Center, Boston,
Massachusetts 02111. 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
<PAGE>
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 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.
Please review the enclosed Prospectuses of the Equity Fund. Each of
these documents 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 and August 1, 2000.
- The Statement of Additional Information of the Balanced Fund
dated March 1, 2000, as supplemented on June 23, 2000 and
August 21, 2000.
- The Statement of Additional Information of the Equity Fund
dated March 1, 2000, as supplemented on June 23, 2000 and
August 21, 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 8, 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. 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 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.
-2-
<PAGE>
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF THE EQUITY FUND
OR DETERMINED WHETHER THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-3-
<PAGE>
SYNOPSIS
THE FOLLOWING QUESTIONS AND RESPONSES 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, AS THIS SECTION IS ONLY A
SYNOPSIS OF THE COMPLETE DOCUMENT.
1. WHAT IS BEING PROPOSED?
First, the Trustees of the Funds 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 Acquired Fund shares as of the 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 the Balanced Fund 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 the Balanced Fund recommend approval of the Acquisition
because it offers shareholders of the Fund an investment in a fund with
similar investment goals and the economies of scale of a larger fund.
In addition, the Acquisition will result in an 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.
In reviewing the Acquisition, the Trustees also considered that it is
unlikely the Balanced Fund will achieve scale through sales growth and
considered the tax-free nature of the Acquisition as opposed to other
alternatives for the Funds and for shareholders. 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.
3. 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.
-4-
<PAGE>
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
-------------------------------------------------------------------------------------------
INVESTMENT GOALS: The Balanced Fund seeks INVESTMENT GOAL: The Equity Fund seeks
preservation of capital, capital long-term capital appreciation.
appreciation and income.
-------------------------------------------------------------------------------------------
<S> <C>
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Balanced Fund seeks to achieve its The Equity Fund seeks to achieve its goal
goals as follows: 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 as primarily U.S. stocks of medium
follows: 25% to 60% in stocks; 30% to ($1-3 billion) to large (over $3 billion)
55% in bonds; and 5% to 30% in cash cap companies.
or cash equivalents. - The Fund follows a basic value,
- The Fund's stock investments are contrarian approach in selecting
primarily U.S. stocks of medium stocks for its portfolio.
($1-3 billion) to large (over $3 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 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
-5-
<PAGE>
hold a higher percentage of assets in debt securities and cash
after the Acquisition than immediately before the Acquisition.
5. 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 Crabbe Huson Group, Inc.
("Crabbe Huson"), the Equity Fund's advisor, expects the combined fund
to bear in the first year following the Acquisition. Sales charges are
paid directly by shareholders to Liberty Funds Distributor, Inc., each
Fund's distributor. Annual Fund Operating Expenses are deducted from
the Fund. 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 last fiscal year ended October
31, 1999.
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>
B CLASS C CLASS I
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>
-6-
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND (PRO FORMA COMBINED)
CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
Management fee (%) 0.98 0.98 0.98 0.98
--------------------------------------------------------------------------------
Distribution and service (12b-1) 0.25 1.00 1.00 0.00
fees (%)
--------------------------------------------------------------------------------
Other expenses (%) 0.27 0.27 0.27 0.10
--------------------------------------------------------------------------------
Total annual fund operating 1.50 2.25 2.25 1.08
expenses (5) (%)
</TABLE>
(4) The advisor and administrator of each of the Balanced Fund and the Equity
Fund have voluntarily agreed to waive advisory fees and administration 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 and administration fees 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 and administration fees for Class I shares
would be 0.76%, other expenses for Class I shares would be 0.24% and total
annual fund operating expenses for Class I shares would be 1.00%. With
respect to Class A, B and C shares of the Equity Fund, the actual
management and administration fees 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%, respectively. With respect to Class I shares of the Equity Fund, the
actual management and administration fees for Class I shares would be
0.77%, other expenses for Class I shares would be 0.23% and total annual
fund operating expenses for Class I shares would be 1.00%. This arrangement
may be modified or terminated by each Fund's advisor or administrator at
any time.
(5) The advisor and administrator of the Equity Fund have voluntarily agreed to
waive advisory fees and administration 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. With respect to
Class A, B and C shares of the Equity Fund, the actual management and
administration fees 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 of the Equity Fund, the actual management
and administration fees for Class I shares would be 0.90%, other expenses
for Class I shares would be 0.10% and total annual fund operating expenses
for Class I shares would be 1.00%. This arrangement may be modified or
terminated by each Fund's advisor or administrator 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)
-7-
<PAGE>
<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
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) the elimination of certain fixed costs involved in
operating the Acquired Fund; and (3) expense ratios are based on pro forma
average net assets for the year ended April 30, 2000.
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.
-8-
<PAGE>
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 Agreement and Plan of Reorganization is
attached as Appendix A to the 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 similar goals and strategies, the potential
risks associated with each Fund are similar. The actual risks of investing in
each Fund depend on the securities held in each Fund's portfolio and on market
conditions, both of which change over time. Please see the enclosed Prospectus
of the Equity Fund for a description of the principal investment risks of the
Fund.
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 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 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
-9-
<PAGE>
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 both Funds.
A shareholder who objects to the Acquisition will not be entitled under
Massachusetts law or the Declaration of Trust (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. In addition, shares may be redeemed at any time prior to the
consummation of the Acquisition.
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 business day before the closing of the Acquisition.
- 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.
- 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.
REASONS FOR THE ACQUISITION
-10-
<PAGE>
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's shareholders. 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 attached as Appendix A to
this Prospectus/Proxy Statement.
The Acquisition is one of several proposed acquisitions and
liquidations of funds in the Liberty and Stein Roe Fund groups proposed by
Liberty Financial Companies, Inc. ("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 and
rationalizing the product offerings of the Liberty and Stein Roe Funds, reducing
fund expense ratios by creating larger, more efficient funds and permitting the
Liberty Financial organization to focus 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:
- The Acquisition is expected to create a larger fund with similar
investment goals and strategies to the Balanced Fund.
- The Balanced Fund is not likely to achieve the scale necessary to
reduce Fund expenses through sales growth. In this connection,
Liberty Financial indicated to the Trustees that it was not willing
to continue subsidizing the Fund's operations (through fee waiver or
expense assumptions) over the long term. Thus, even though the
Equity Fund has a higher expense ratio than the subsidized expense
ratio of the Balanced Fund, the Equity Fund's expense ratio after
the Acquisition is expected to be materially lower than the Balanced
Fund's expense ratio would be if the advisor discontinued its
subsidy. 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, 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 would be if the current voluntary expense
limitation were discontinued (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 Classes A, B and C of
each Fund are 0.25%, 1.00% and 1.00%, respectively.
- The Acquisition will also 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.
-11-
<PAGE>
- 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%).
- The Acquisition is intended to permit the Balanced Fund's
shareholders to exchange their investment for an investment in the
Equity 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.
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 projected post-Acquisition expense reductions presented above are
based upon numerous material assumptions, including: (1) the current contractual
agreements will remain in place; and that (2) certain fixed costs involved in
operating the Acquired 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.
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.
If the Acquisition does not occur, Liberty Financial has indicated that
it may recommend to the Trustees that the Balanced Fund be liquidated.
PERFORMANCE INFORMATION
The charts below show the percentage gain or loss in each calendar year
for the 10-year period ending December 31, 1999 or, if shorter, since inception,
for the Class A shares of the Equity Fund and the Class A shares of the Balanced
Fund. They should give you a general idea of how each Fund's return has varied
from year-to-year. The
-12-
<PAGE>
graphs include the effects of Fund expenses, but not sales charges (if
applicable to the Fund's shares). Returns would be lower if any 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 Prospectuses and Statement of Additional
Information, which are incorporated by reference in this Prospectus/Proxy
Statement.
BALANCED FUND
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25%
21.22% 20.21%
20%
18.20% 19.19%
15%
12.20%
10%
6.84% 6.16%
5%
0%
-0.76% -0.84% -0.18%
-5%
</TABLE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 10.44%. Best quarter: Second quarter 1997, +11.85%
Worst quarter: Third quarter 1998, -10.21%
</TABLE>
EQUITY FUND
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40%
35.07%
35%
30%
25.97% 25.72%
25%
23.80%
20%
16.40%
15%
11.74% 10.45%
10%
-8.83%
5%
1.60%
0%
-1.54%
-5%
-10%
-15%
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 12.50%. Best quarter: First quarter 1991, +18.98%
Worst quarter: Third quarter 1998, -19.93%
</TABLE>
The next table lists 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, or for the life of the Fund through December 31, 1999 if shorter, as
the case may be, including the applicable sales charges. This table is 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>
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 11.41(2) 13.15
Class C (%) 8.53 11.63(2) 13.15
Class I (%) 10.95 12.16 13.40
S&P 500 Index (%) 21.03 16.53 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. 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.
-14-
<PAGE>
(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. The closing of
the Acquisition will be conditioned on receipt of an opinion from Ropes & Gray
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;
- 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.
-15-
<PAGE>
The opinion 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, which have not previously been distributed to
shareholders. Such distributions or dividends will be taxable to the Balanced
Fund's shareholders.
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 THE BALANCED FUND 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 between Trust III on behalf of the Balanced Fund and Trust III on behalf
of the Equity Fund will require the affirmative vote of a majority of the shares
of the Balanced Fund outstanding at the record date for the Meeting. Since the
number of Trustees has been fixed at eleven, this means that the eleven persons
receiving the highest number of votes will be elected.
PROPOSAL 2 - ELECTION OF TRUSTEES
THE PROPOSAL
-16-
<PAGE>
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 (or, in the case of Messrs. Lowry,
Mayer and Neuhauser, 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, and were
recommended for election as Trustees of the Liberty Mutual Funds by the Board of
Trustees at a meeting held on October 25, 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 Funds. Liberty
Financial and Trust III's Trustees 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 Funds. Creation of a
single, consolidated board should also provide certain administrative
efficiencies and potential future cost savings for both the Liberty and Stein
Roe 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 enclosed proxy card 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>
YEAR
NOMINEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS
TRUSTEE SINCE
<S> <C> <C>
Douglas A. Hacker Executive Vice President and Chief New nominee
(43) Financial Officer of UAL, Inc. (airline)
since July 1999; Senior Vice President and
Chief Financial Officer of UAL, Inc. prior
thereto.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Janet Langford Kelly Executive Vice President--Corporate New nominee
(41) Development, General Counsel, and
Secretary of Kellogg Company since September 1999; Senior
Vice President, Secretary and General Counsel of Sara Lee
Corporation (branded, packaged, consumer-products
manufacturer) from 1995 to August 1999; partner at Sidley
& Austin (law firm) prior thereto.
Richard W. Lowry Private Investor since August 1987. 1995
(64) (Formerly Chairman and Chief Executive
Officer of U.S. Plywood Corporation from August 1985 to
August 1987.)
Salvatore Macera Private Investor. (Formerly Executive Vice 1998
(69) President and Director of Itek Corporation
(electronics) from 1975 to 1981.)
William E. Mayer(2) Partner, Park Avenue Equity Partners 1994
(60) (venture capital); Director, Johns
Manville; Director, Lee Enterprises;
Director, WR Hambrecht & Co. (Formerly
Dean, College of Business and Management,
University of Maryland, from October 1992
to November 1996.)
John J. Neuhauser Academic Vice President and Dean of 1985
(57) Faculties, Boston College, since August
1999. (Formerly Dean, Boston College School of
Management, from September 1977 to September 1999.)
Charles Nelson Van Voorhis Professor of Political Economy New nominee
(57) of the University of Washington.
Joseph R. Palombo(3) Vice President of the Stein Roe Mutual 2000
(47) Funds since April 1999; Executive Vice
President and Director of Colonial
Management Associates, Inc. and Stein Roe
& Farnham Incorporated since April 1999;
Executive Vice President and Chief
Administrative Officer of Liberty Funds
Group LLC since April 1999. (Formerly
Chief Operating Officer, Putnam Mutual
Funds, from 1994 to 1998.)
Thomas E. Stitzel Business Consultant; Chartered Financial 1998
(64) Analyst. (Formerly Professor of Finance,
from 1975 to 1999, and Dean, from 1977 to
1991, College of Business, Boise State
University.)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Thomas C. Theobald Managing Director, William Blair Capital New nominee
(62) Partners (private equity investing) since
1994; Chief Executive Officer and Chairman of the Board
of Directors of Continental Bank Corporation from 1987 to
1994.
Anne-Lee Verville Consultant. (Formerly General Manager, 1998
(54) Global Education Industry, from 1994 to
1997, and 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 Investment Company Act of 1940,
as amended (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.
TRUSTEES' COMPENSATION
The members of the Board of Trustees will serve as Trustees of the
Liberty and Stein Roe Funds, for which service each Trustee, except for Mr.
Palombo, will receive an annual retainer of $45,000, and attendance fees of
$8,000 for each regular joint 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 Funds based on each Fund's relative net assets,
and one-third of the fees is divided equally among the Liberty and Stein Roe
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 Trust III who are not continuing on the combined Board
of Trustees of the Liberty and Stein Roe Funds will receive payments at an
annual rate equal to their 1999 Trustee compensation for the lesser of two years
or until the date they would otherwise have retired at age 72. These payments
will be made quarterly, beginning in 2001. 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.
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<PAGE>
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 affiliates, but is considered
interested as a result of his affiliation with a broker-dealer.
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, 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 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 the Balanced Fund.
Record of Board and Committee Meetings. During the fiscal year ended
October 31, 2000, Trust III (excluding Liberty Federal Securities Fund) held six
meetings, the Audit Committee held four meetings, the Compensation Committee
held one meeting, and the Governance Committee held four 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 is a member.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF TRUST III VOTE FOR
PROPOSAL 2.
REQUIRED VOTE FOR PROPOSAL 2
A plurality of the votes cast at the Meeting, if a quorum is
represented, is required for the election of each Trustee to the Board of
Trustees of Trust III.
GENERAL
VOTING INFORMATION
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<PAGE>
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 19, 2000 at Colonial's offices, One
Financial Center, Boston, Massachusetts. The meeting notice, this combined
Prospectus/Proxy Statement and proxy cards are being mailed to shareholders
beginning on or about November 8, 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 and its affiliated companies. In addition, SCC has been engaged to assist
in the solicitation of proxies, at an estimated cost of $700,000 total for all
of the proposed acquisitions of funds in the Liberty and Stein Roe Fund groups
scheduled to take place in January 2001.
VOTING PROCESS
You can vote in any one of the following five ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, by calling 1-800-732-3683 and following the
instructions;
c. By internet, by visiting our Web site at www.libertyfunds.com
and clicking on "Proxy Voting;"
d. By fax (not available for all shareholders; refer to enclosed
proxy insert); or
e. 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. We encourage you to vote by internet,
using the 12-digit or 14-digit "control" number that appears on the enclosed
proxy card. Voting by internet will reduce expenses by saving postage costs. 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 of Solicitation. The costs of the Meeting, including the costs of
soliciting proxies, and the costs of the Acquisition will be borne by the
following parties in the following percentages: the Balanced Fund __%, the
Equity Fund __%, Liberty Financial __%.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy. 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 Assistant Secretary of the
Balanced Fund, by properly
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<PAGE>
executing and submitting a later-dated proxy or by attending the Meeting and
voting in person.
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 any 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, Distributor'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. The address of each Fund's administrator, Colonial
Management Associates, Inc., is One Financial Center, Boston, Massachusetts
02111.
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 Fund and the Trust 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 the Funds and their shareholdings
in the Funds.
Adjournments; Other Business. If the Balanced Fund 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 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.
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<PAGE>
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 Assistant 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 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.
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<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 26, 2000
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 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").
A-1
<PAGE>
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 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 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 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
A-2
<PAGE>
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 of additional information 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 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.
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<PAGE>
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;
(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
A-4
<PAGE>
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 of
additional information or statements of additional
information (collectively, as amended or supplemented
from time to time, the "Acquired Fund
Prospectus")),non-assessable by the Acquired Fund and
will have been issued in compliance with all
applicable registration or qualification requirements
of federal
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<PAGE>
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; and
(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
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<PAGE>
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.
(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;
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<PAGE>
(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;
(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
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<PAGE>
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; and
(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.
(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).
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<PAGE>
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
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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
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.
7.3 The Acquired Fund shall have furnished to the Acquiring Fund
tax returns, signed by a partner of Ernst & Young LLP for the
fiscal year ended October 31, 2000 and signed pro forma tax
returns for the period from November 1, 2000 to the Closing
Date (which pro forma tax returns shall be furnished promptly
after the Closing Date).
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.
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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 to 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;
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<PAGE>
(c) No gain or loss will be recognized to 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.
(h) 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. The
other expenses of the transactions contemplated by this
Agreement shall be borne by the following parties in the
percentages indicated: (a) the Trust, on behalf of the
Acquired Fund, __%, (b) the Acquiring Trust, on behalf of the
Acquiring Fund, __%, and (c) Liberty Financial Companies, Inc.
__%.
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
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<PAGE>
covenant not set forth herein and that this Agreement
constitutes the entire agreement between the parties.
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; or
(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.
(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, MA 02111, attention Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
NON-RECOURSE.
A-16
<PAGE>
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.
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-17
<PAGE>
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:__________________________
Solely for purposes of Section 9.2
of the Agreement:
LIBERTY FINANCIAL COMPANIES, INC.
By:____________________________
Name:__________________________
Title:_________________________
ATTEST:
____________________________
Name:_______________________
Title:______________________
A-18
<PAGE>
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>
-------------------------------------------------------------------
FUND OR TRUST CLASS NUMBER OF SHARES OUTSTANDING AND
ENTITLED TO VOTE
-------------------------------------------------------------------
<S> <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>
-----------------------------------------------------------------------------------
NUMBER OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
NAME AND ADDRESS OF SHARES OF SHARES OF
FUND AND CLASS SHAREHOLDER CLASS OWNED CLASS OWNED
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCED FUND
CLASS B
Investors Bank & Trust Co. 743.446 8.06%
</TABLE>
--------------------------------------------------------------------------------
(10) Total compensation of $96,000 for the calendar year ended December 31,
1999, will be payable in later years as deferred compensation.
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
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
Investors Bank & Trust Co. Custodian 153.528 54.67%
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
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
Mary H. Stevenson 71,826.067 6.44%
P.O. Box 375
White Salmon, WA 98672-0375
Investors Bank & Trust Co. Custodian 68,833.045 6.17%
Joanne Panian Rollover IRA
16112 NW Claremont Drive
Portland, OR 97229-7836
Northwestern Trust Company Custodian 631,365.355 56.61%
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 Custodian 1,479.255 5.13%
Morris E. Kinghorn Rollover IRA
P.O. Box 83
Pocatello, ID 83204
Investors Bank & Trust Co Trustee 1,616.486 5.61%
Arms Inc.
401(K) Plan
A/C Patrick J. Hanigan
2447 E. Sunshine Drive
Boise, ID 83712
CLASS C
Colonial Management Associates, Inc. 62.691 10.30%
Attn: Finance Department
One Financial Center
Boston, MA 02111-2621
Investors Bank & Trust Co. Trustee 75.327 12.38%
Morgan Franklin Corporation
401K Retirement Plan
A/C Robert Franklin
47042 Dixon Court
Lexington Park, MD 20653
Investors Bank & Trust Co. Trustee 31.998 5.26%
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.
Pearlanad, TX 77581
Investors Bank & Trust Co. Custodian 284.402 46.74%
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Clyde Williams SARSEP Plan
Burnt Ranch Road
Cherry Creek Ranch
Mitchell, OR 97750
Investors Bank & Trust Co. Custodian 41.083 6.75%
Susan C. Williams SARSEP Plan
43861 Burnt Ranch Road
Mitchell, OR 97750
CLASS I
Northwestern Trust Company Custodian 470,458.694 79.55%
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.
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 above noted class of shares of the above noted
Fund would own the following percentage of the Acquiring Fund upon consummation
of the Acquisition:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
PERCENTAGE OF OUTSTANDING
SHARES OF CLASS OWNED
NAME AND ADDRESS OF UPON CONSUMMATION OF
FUND AND CLASS SHAREHOLDER ACQUISITION
-----------------------------------------------------------------------------------------
<S> <C> <C>
LIBERTY CONTRARIAN BALANCED FUND
CLASS B
-------
Investors Bank & Trust Co. 1.86%
Patricia L. Lyons Rollover IRA
241 Gropp Avenue
Hamilton, NJ 08610
CLASS C
-------
N&S Electric Inc. 3.63%
401K Retirement Plan
A/C Gery Maggi
15 Kellers Farm Road
Easton, CT 06612
Colonial Management Associates, Inc. 7.71%
Attn: Finance Department
One Financial Center
Boston, MA 02111-2621
Investors Bank & Trust Co. Custodian 13.72%
Leslie J. Littleton Rollover IRA
1550 Yellowstone Avenue #116
Pocatello, ID 83201
CLASS I
-------
Union Bank TR Nominee** 4.41%
FBO Toc-Burgermeister 610001272-08
P.O. Box 85484
San Diego, CA 92186
Norma F. Cole 4.09%
2590 Birch Lane
Eugene, OR 97403-2135
Mary H. Stevenson 3.67%
P.O. Box 375
White Salmon, WA 98672-0375
Investors Bank & Trust Co. Custodian 3.52%
Joanne Panian Rollover IRA
16112 NW Claremont Drive
Portland, OR 97229-7836
Northwestern Trust Company Custodian 32.20%
FBO IBEW Local 76
Supplemental Income Fund
1201 3rd Avenue, Ste. 2010
Seattle, WA 98101
Enele Co. 5.24%
FBO Wealthtrack Operations
601 SW 2nd Avenue
Portland, OR 97204-3154
LIBERTY CONTRARIAN EQUITY FUND
CLASS B
-------
Investors Bank & Trust Co Custodian 5.36%
Morris E. Kinghorn Rollover IRA
P.O. Box 83
Pocatello, ID 83204
Investors Bank & Trust Co Trustee 5.85%
Arms Inc.
401(K) Plan
A/C Patrick J. Hanigan
2447 E. Sunshine Drive
Boise, ID 83712
CLASS C
-------
Colonial Management Associates, Inc. 1.40%
Attn: Finance Department
One Financial Center
Boston, MA 02111-2621
Investors Bank & Trust Co. Trustee 9.74%
Morgan Franklin Corporation
401K Retirement Plan
A/C Robert Franklin
47042 Dixon Court
Lexington Park, MD 20653
Investors Bank & Trust Co. Trustee 4.14%
Morgan Franklin Corporation
401K Retirement Plan
A/C Angela Dawn Foret
45803 Spruce Drive
Lexington Park, MD 20653
Don A. McKee 11.60%
Molly McKee
3917 Oakwood Drive N.
Pearlanad, TX 77581
Investors Bank & Trust Co. Custodian 36.79%
Clyde Williams SARSEP Plan
Burnt Ranch Road
Cherry Creek Ranch
Mitchell, OR 97750
Investors Bank & Trust Co. Custodian 5.31%
Susan C. Williams SARSEP Plan
43861 Burnt Ranch Road
Mitchell, OR 97750
CLASS I
-------
Northwestern Trust Company Custodian 35.28%
FBO IBEW Local 76
Supplemental Income Fund
1201 3th Avenue, Ste. 2010
Seattle, WA 98101
Bidwell & Company 8.55%
Bruce N. Hildreth
209 SW Oak Street
Portland, OR 97204-2791
</TABLE>
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth certain information about the executive officers
of each Fund:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER YEAR OF ELECTION AS
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION (1) EXECUTIVE OFFICER
---------- ----------------------------------- -----------------
<S> <C> <C>
Stephen E. Gibson President of the Liberty Funds since June, 1998; Chairman 1998
(46) of the Board since July, 1998, Chief Executive Officer and
President since December, 1996 and Director, since July,
1996 of CMA (formerly Executive Vice President 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. (TCG) from December, 1996 to
December, 1998); Director of Stein Roe & Farnham
Incorporated (SR&F) since September, 2000, President since
January, 2000 and Vice Chairman since August, 1998
(formerly Assistant Chairman and Executive Vice President
from August, 1998 to January, 2000) (formerly Managing
Director of Marketing of Putnam Investments, June, 1992 to
July, 1996.)
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C> <C>
Pamela A. McGrath Treasurer and Chief Financial Officer of the Liberty Funds and 1999
(46) Liberty All-Star Funds since April, 2000; Treasurer, Chief
Financial Officer and Vice President of LFG since
December, 1999; Chief Financial Officer, Treasurer and
Senior Vice President of CMA since December, 1999;
Director of Offshore Accounting for Putnam Investments
from May, 1998 to October, 1999; Managing Director of
Scudder Kemper Investments from October, 1984 to December,
1997.
</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.
B-5
<PAGE>
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 and for the calendar year ended December 31,
1999(1):
<TABLE>
<CAPTION>
---------------------------------------------------------
BALANCED FUND EQUITY FUND
---------------------------------------------------------
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>
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>
Total Compensation From Liberty
All-Star Funds For The Calendar
Trustee Year Ended December 31, 1999 (11)
------- ---------------------------------
<S> <C>
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
William E. Mayer 25,000
John J. Neuhauser 25,000
</TABLE>
--------------------------
(1) The 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 Companies, Inc. (an intermediate parent of the Advisor of each
Fund).
B-6
<PAGE>
Appendix C
Capitalization
The following table shows on an unaudited basis the capitalization of each of
the Balanced Fund and the Equity Fund as of April 28, 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>
Balanced Equity Pro Forma Pro Forma
Fund Fund Adjustments (1) Combined (2)
<S> <C> <C> <C> <C>
Class A
Net asset value $27,781,136 $89,923,387 (48,383) $117,656,140
Shares outstanding 2,168,730 4,803,141 (687,129) 6,284,742
Net asset value per share $ 12.81 $ 18.72 $ 18.72
Class B
Net asset value $ 29,756 $ 481,057 (182) $ 510,631
Shares outstanding 2,326 25,986 (719) 27,593
Net asset value per share $ 12.79 $ 18.51 $ 18.51
Class C
Net asset value $ 3,215 $ 11,102 (6) $ 14,311
Shares outstanding 251 600 (78) 773
Net asset value per share $ 12.79 $ 18.52 $ 18.51
Class I
Net asset value $14,141,083 $10,875,954 (12,798) $25,004,239
Shares outstanding 1,105,633 578,080 (354,407) 1,329,306
Net asset value per share $ 12.79 $ 18.81 $ 18.81
</TABLE>
(1) Adjustments reflect one time proxy, accounting, legal and other costs of the
reorganization of $27,035 and $34,334 to be borne by the Balanced Fund and
the Equity Fund, respectively.
(2) Assumes the Acquisition was consummated on April 28, 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>
APPENDIX D
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AS OF OCTOBER 31, 1999
LIBERTY CONTRARIAN EQUITY FUND
PORTFOLIO MANAGEMENT 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.
D-1
<PAGE>
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 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
[LINE CHART: Initial and subsequent account values at end of each of the
most recently completed ten fiscal years]
Change in Value of $10,000 from 10/31/1989 - 10/31/1999
Class A Shares, With and Without Sales Charge
<TABLE>
<CAPTION>
Fund Without Fund With S&P 500
Sales Charge Sales Charge Index
------------ ------------ -------
<S> <C> <C> <C>
10/89 10,000 9,425 10,000
10/90 8,502 8,013 9,252
10/91 12,960 12,215 12,344
10/92 14,578 13,740 13,572
10/93 19,027 17,933 15,596
10/94 20,528 19,348 16,198
10/95 23,273 21,935 20,476
10/96 26,480 24,957 25,406
10/97 34,390 32,412 33,562
10/98 30,923 29,145 40,949
10/99 32,409 30,545 51,454
</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.
D-2
<PAGE>
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 10/31/1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Without With Without With Without With
sales sales sales sales sales sales
charge charge charge charge charge charge
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>
PERFORMANCE OF A $10,000 INVESTMENT IN ALL SHARE CLASSES FROM 10/31/1989 TO
10/31/1999
<TABLE>
<CAPTION>
WITHOUT WITH SALES
SALES CHARGE 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>
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>
LIBERTY FUNDS TRUST III
LIBERTY SELECT VALUE FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 8, 2000
This Statement of Additional Information (the "SAI") relates to the
proposed Acquisition (the "Acquisition") of the Stein Roe Disciplined Stock Fund
(the "Disciplined Stock Fund"), a series of Liberty-Stein Roe Funds Investment
Trust, and the Liberty Small Cap Value Fund (the "Small Cap Fund"), a series of
Liberty Funds Trust VI (together, the "Acquired Funds"), by the Liberty Select
Value 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 8,
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 Funds in exchange
for shares of the Acquiring Fund and the assumption of all the liabilities of
the Acquired Funds. Each of the Acquired Funds 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 or by calling 1-800-426-3750.
Table of Contents
<TABLE>
<S> <C> <C>
I. Additional Information about the Acquiring Fund..................
II. Additional Information about the Acquired Funds..................
III. Financial Statements.............................................
</TABLE>
<PAGE>
I. Additional Information about the Acquiring Fund.
Incorporated by reference to Post-Effective Amendment No. 114 to the
Registration Statement on Form N-1A (filed on February 28, 2000) of Liberty
Funds Trust III (Registration Statement Nos. 2-15184 and 811-881).
II. Additional Information about the Acquired Funds.
With respect to the Disciplined Stock Fund, incorporated by reference
to Post-Effective Amendment No. 65 to the Registration Statement on Form N-1A
(filed on January 28, 2000) of Liberty-Stein Roe Funds Investment Trust
(Registration Statement Nos. 33-11351 and 811-4978).
With respect to the Small Cap Fund, incorporated by reference to
Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A
(filed on October 18, 1999) of Liberty Funds Trust VI (Registration Statement
Nos. 33-45117 and 811-6529).
III. Financial Statements.
This SAI is accompanied by (i) the Semi-Annual Report for the six-month
period ended April 30, 2000 and the Annual Report for the year ended October 31,
1999 of the Acquiring Fund; (ii) the Semi-Annual Report for the six months ended
March 31, 2000 and the Annual Report for the year ended September 30, 1999 of
the Disciplined Stock Fund; and (iii) the Annual Report for the year ended June
30, 2000 of the Small Cap Fund, all of 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>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE
DISCIPLINED STEIN ROE LIBERTY
STOCK LIBERTY PRO FORMA DISCIPLINED SELECT PRO FORMA
PORTFOLIO SELECT VALUE COMBINED STOCK PORT. VALUE FUND COMBINED
SHARES FUND SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Agriculture, Forestry & Fishing
NABISCO GROUP HOLDINGS 172,400 172,400 $ 4,471,625 $ 4,471,625
------------- --------------
Construction
FLUOR CORP 53,100 53,100 1,679,288 1,679,288
------------- --------------
Finance, Insurance & Real Estate
ALLMERICA FINANCIAL CORP 62,400 62,400 3,268,200 3,268,200
AMBAC FINANCIAL GROUP INC 113,100 113,100 6,199,294 6,199,294
BANCWEST CORPORATION 202,800 202,800 3,333,525 3,333,525
BANKNORTH GROUP INC 215,500 215,500 3,299,844 3,299,844
BEAR STEARNS COMPANIES INC 90,600 90,600 3,771,225 3,771,225
CAPITAL ONE FINANCIAL CORP 57,000 57,000 2,543,625 2,543,625
CHASE MANHATTAN CORP (NEW) 150,000 150,000 $ 6,909,375 6,909,375
CINCINNATI FINANCIAL CORP 71,900 71,900 2,260,356 2,260,356
CITY NATIONAL CORP 146,800 146,800 5,211,400 5,211,400
COMPASS BANCSHARES INC 90,000 90,000 1,535,625 1,535,625
CULLEN/FROST BANKERS INC 130,500 130,500 3,433,781 3,433,781
DOW JONES & CO INC 19,200 19,200 1,406,400 1,406,400
EDWARDS (A.G.), INC 79,100 79,100 3,084,900 3,084,900
FINL SECURITY ASSURANCE HLDG 40,000 40,000 3,035,000 3,035,000
FIRSTAR CORP 50,000 50,000 1,053,125 1,053,125
GOLDEN STATE BANCORP 263,200 263,200 4,737,600 4,737,600
GOLDEN STATE BANCORP-LITIG WT 155,000 155,000 174,375 174,375
GOLDEN WEST FINANCIAL CORP 351,700 88,200 439,900 14,353,756 3,599,663 17,953,419
GREENPOINT FINANCIAL CORP 236,400 236,400 4,432,500 4,432,500
HCA-THE HEALTHCARE CORP 334,900 334,900 10,172,588 10,172,588
KNIGHT TRADING GROUP INC 40,700 40,700 1,213,369 1,213,369
LEHMAN BROTHERS HLDG INC 71,700 71,700 6,780,131 6,780,131
LOEWS CORP 69,500 69,500 4,170,000 4,170,000
MGIC INV CORP 69,600 69,600 3,166,800 3,166,800
MONY GROUP INC 61,800 61,800 2,089,613 2,089,613
NATIONWIDE FINANCIAL SERV A 154,800 154,800 5,089,050 5,089,050
NORTH FORK BANCORPORATION 282,400 282,400 4,271,300 4,271,300
PACIFIC CENTURY FINL CORP 196,300 196,300 2,870,888 2,870,888
PAINE WEBBER GROUP INC 49,000 49,000 2,229,500 2,229,500
PMI GROUP INC 75,000 100,200 175,200 3,562,500 4,759,500 8,322,000
RADIAN GROUP INC 94,500 94,500 4,890,375 4,890,375
SOVEREIGN BANCORP INC 506,600 506,600 3,562,031 3,562,031
ST PAUL COMPANIES INC 121,800 121,800 4,156,425 4,156,425
TORCHMARK INSURANCE 57,900 57,900 1,429,406 1,429,406
UNIONBANCAL CORPORATION 143,200 143,200 2,658,150 2,658,150
UNITED HEALTHCARE CORP 98,000 98,000 8,403,500 8,403,500
WASHINGTON MUTUAL INC 382,600 382,600 11,047,575 11,047,575
WEBSTER FINANCIAL CORP 114,600 114,600 2,542,688 2,542,688
WELLPOINT HEALTH NETWORKS 62,200 62,200 4,505,613 4,505,613
------------- ------------- --------------
47,098,919 124,115,650 171,214,569
------------- ------------- --------------
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE
DISCIPLINED STEIN ROE LIBERTY
STOCK LIBERTY PRO FORMA DISCIPLINED SELECT PRO FORMA
PORTFOLIO SELECT VALUE COMBINED STOCK PORT. VALUE FUND COMBINED
SHARES FUND SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Manufacturing
ACUSON CORP 515,700 515,700 6,961,950 6,961,950
ADC TELECOMMUNICATIONS INC 91,100 91,100 7,641,013 7,641,013
ADVANCED DIGITAL INFO CORP 21,900 21,900 349,031 349,031
ADVANCED MICRO DEVICES INC 48,600 48,600 3,754,350 3,754,350
AIR PRODUCTS & CHEMICALS INC 200,000 200,000 6,162,500 6,162,500
ALTERA CORPORATION 62,800 62,800 6,401,675 6,401,675
AMERADA HESS CORP 60,000 47,000 107,000 3,705,000 2,902,250 6,607,250
ANALOG DEVICES INC. 40,100 40,100 3,047,600 3,047,600
ANDREW CORP 603,900 603,900 20,268,394 20,268,394
APPLE COMPUTER INC 124,800 124,800 6,536,400 6,536,400
APPLIED MICRO CIRCUITS CORP 46,300 46,300 4,572,125 4,572,125
ATMEL CORP 73,700 73,700 2,717,688 2,717,688
AVX CORP 430,600 430,600 9,876,888 9,876,888
B F GOODRICH CO 102,700 102,700 3,498,219 3,498,219
BAUSCH & LOMB INC 19,400 19,400 1,501,075 1,501,075
BIOGEN INC 21,400 21,400 1,380,300 1,380,300
BIOMET INC 270,000 270,000 10,378,125 10,378,125
BOISE CASCADE CORP 95,200 95,200 2,463,300 2,463,300
BRISTOL-MYERS SQUIBB CO 50,000 50,000 2,912,500 2,912,500
BRUNSWICK CORP 122,200 122,200 2,023,938 2,023,938
C R BARD INC 40,000 40,000 1,925,000 1,925,000
CARLISLE COS INC 242,000 242,000 10,890,000 10,890,000
CARPENTER TECHNOLOGY CORP 130,000 130,000 2,746,250 2,746,250
CHIRON CORP 77,800 77,800 3,695,500 3,695,500
COMPAQ COMPUTER CORP 250,000 250,000 6,390,625 6,390,625
COMVERSE TECH 64,400 64,400 5,989,200 5,989,200
COOPER TIRE & RUBBER CO 280,000 280,000 3,115,000 3,115,000
CROWN CORK AND SEAL CO. INC. 141,100 141,100 2,116,500 2,116,500
CYPRESS SEMICONDUCTOR CORP 45,800 45,800 1,935,050 1,935,050
DALLAS SEMICONDUCTOR CORP 68,200 68,200 2,779,150 2,779,150
DELPHI AUTOMOTIVE SYSTEMS 158,800 158,800 2,312,525 2,312,525
DEXTER CORP 235,000 235,000 11,280,000 11,280,000
DOVER CORP 120,900 120,900 4,904,006 4,904,006
EATON CORP 45,500 45,500 3,048,500 3,048,500
ECOLAB INC 256,800 21,100 277,900 10,031,250 824,219 10,855,469
EI DUPONT DE NEMOURS & CO INC 100,000 100,000 4,375,000 4,375,000
ENGELHARD CORPORATION 175,300 175,300 2,991,056 2,991,056
EXFO ELECTRO-OPTICAL ENGINEE 6,200 6,200 272,025 272,025
FLOWSERVE CORP 215,000 215,000 3,238,438 3,238,438
FMC CORP 66,000 66,000 3,828,000 3,828,000
FURNITURE BRANDS INTL INC 119,300 119,300 1,804,413 1,804,413
GENTEX CORP 74,000 74,000 1,859,250 1,859,250
GEORGIA PACIFIC CORP 130,000 91,200 221,200 3,412,500 2,394,000 5,806,500
GRANT PRIDECO INC 103,800 103,800 2,595,000 2,595,000
HARLEY DAVIDSON 118,000 118,000 4,543,000 4,543,000
HARRIS CORPORATION DEL 49,300 49,300 1,614,575 1,614,575
HORMEL FOODS CORP 137,400 137,400 2,310,038 2,310,038
IMMUNEX CORP 14,500 14,500 716,844 716,844
IMPERIAL CHEM IND INC ADR 375,400 375,400 11,567,013 11,567,013
INGERSOLL RAND CO 157,100 157,100 6,323,275 6,323,275
INTEGRATED DEVICES TECH INC 36,100 36,100 2,161,488 2,161,488
INTERSTATE BAKERIES 181,700 181,700 2,543,800 2,543,800
INTL BUSINESS MACHINES CORP 60,000 60,000 6,573,750 6,573,750
INTUIT INC 84,300 84,300 3,487,913 3,487,913
IVAX CORP 158,850 158,850 6,592,275 6,592,275
JDS UNIPHASE CORP 22,000 22,000 2,637,250 2,637,250
JOHNSON CONTROLS INC 92,500 92,500 4,746,406 4,746,406
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE
DISCIPLINED LIBERTY
STOCK LIBERTY PRO FORMA STEIN ROE SELECT PRO FORMA
PORTFOLIO SELECT VALUE COMBINED DISCIPLINED STOCK VALUE FUND COMBINED
SHARES FUND SHARES SHARES PORT. MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
KNIGHT RIDDER INC 88,100 88,100 4,685,819 4,685,819
LAFARGE CORP 78,000 78,000 1,638,000 1,638,000
LEAR CORP 157,000 119,200 276,200 3,140,000 2,384,000 5,524,000
LINEAR TECHNOLOGY CORP 97,100 97,100 6,208,331 6,208,331
LITTLEFUSE INC 495,000 495,000 24,255,000 24,255,000
LOCKHEED MARTIN CORP 153,200 153,200 3,801,275 3,801,275
LSI LOGIC CORP 51,400 51,400 2,782,025 2,782,025
LUBRIZOL CORP 170,800 170,800 3,586,800 3,586,800
LYONDELL PETRO 321,500 321,500 5,385,125 5,385,125
MALLINCKRODT INC 130,000 130,000 5,646,875 5,646,875
MAXIM INTEGRATED PRODUCTS INC 64,300 64,300 4,368,381 4,368,381
MCCORMICK & CO 96,800 96,800 3,146,000 3,146,000
MERITOR AUTOMOTIVE INC 281,900 281,900 3,100,900 3,100,900
MICROCHIP TECHNOLOGY 45,000 45,000 2,621,953 2,621,953
MICRON TECHNOLOGY INCORPORATED 26,000 26,000 2,289,625 2,289,625
MILLENNIUM CHEMICALS INC 234,100 234,100 3,979,700 3,979,700
MUELLER INDUSTRIES INC 148,000 148,000 4,144,000 4,144,000
MYLAN LABORATORIES, INC 125,000 125,000 2,281,250 2,281,250
NATIONAL SEMICONDUCTOR CORP 46,900 46,900 2,661,575 2,661,575
NAVISTAR INTERNATIONAL 129,600 129,600 4,025,700 4,025,700
NEW YORK TIMES CO CLASS A 115,000 115,000 4,542,500 4,542,500
NORTHROP GRUMMAN CORP 35,400 35,400 2,345,250 2,345,250
NOVELLUS SYSTEMS INC 98,400 98,400 5,565,750 5,565,750
NUCOR CORP 70,200 70,200 2,329,763 2,329,763
OM GROUP INC 369,500 369,500 16,258,000 16,258,000
PACCAR INC 50,900 50,900 2,020,094 2,020,094
PARKER HANNIFIN CORP 39,800 39,800 1,363,150 1,363,150
PE CORP-PE BIOSYSTEMS GROUP 28,800 28,800 1,897,200 1,897,200
PEPSI BOTTLING GROUP 193,200 193,200 5,639,025 5,639,025
PHELPS DODGE CORP 65,908 65,908 2,450,954 2,450,954
PPG INDUSTRIES INC 102,100 102,100 4,524,306 4,524,306
PRAXAIR INC 130,000 130,000 4,866,875 4,866,875
REYNOLDS & REYNOLDS CO 280,000 280,000 5,110,000 5,110,000
SABRE HOLDINGS CORP 72,265 72,265 2,059,553 2,059,553
SANMINA CORPX 77,400 77,400 6,617,700 6,617,700
SEAGATE TECHNOLOGY INC 145,800 145,800 8,019,000 8,019,000
SUPERIOR INDUSTRIES INTL 250,200 250,200 6,442,650 6,442,650
TEMPLE INLAND INC 34,500 34,500 1,449,000 1,449,000
TERADYNE INC 84,598 84,598 6,217,953 6,217,953
TIME WARNER TELECOM-CL A 9,400 9,400 605,125 605,125
TOSCO CORP 159,600 159,600 4,518,675 4,518,675
TUPPERWARE CORPORATION 166,100 166,100 3,654,200 3,654,200
ULTRAMAR DIAMOND SHAMROCK CORP 65,600 65,600 1,627,700 1,627,700
UNIFI INC 145,475 145,475 1,800,253 1,800,253
UNISYS CORP 181,500 181,500 2,643,094 2,643,094
US INDUSTRIES INC 252,500 252,500 3,061,563 3,061,563
USG CORP NEW 123,200 123,200 3,742,200 3,742,200
USX-US STEEL GROUP 44,400 44,400 824,175 824,175
VALASSIS COMM. INC 129,700 129,700 4,944,813 4,944,813
VISHAY INTERTECHNOLOGY 158,400 158,400 6,009,300 6,009,300
VITESSE SEMICONDUCTOR CORP 72,100 72,100 5,303,856 5,303,856
W R GRACE & CO 189,000 189,000 2,291,625 2,291,625
WATERS CORPORATION 48,900 48,900 6,103,331 6,103,331
WATSON PHARMACEUTICALS 67,900 67,900 3,649,625 3,649,625
WEATHERFORD INTERNATIONAL 103,800 103,800 4,132,538 4,132,538
WESTVACO CORP 169,800 169,800 4,213,163 4,213,163
WHIRLPOOL CORP 51,700 51,700 2,410,513 2,410,513
WILLAMETTE IND INC 90,600 90,600 2,468,850 2,468,850
WOLVERINE WORLD WIDE INC 546,000 546,000 5,391,750 5,391,750
XILINIX INC 63,000 63,000 5,201,438 5,201,438
-------------- ------------- --------------
228,498,628 297,574,612 526,073,241
-------------- ------------- --------------
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE
DISCIPLINED LIBERTY
STOCK LIBERTY PRO FORMA STEIN ROE SELECT PRO FORMA
PORTFOLIO SELECT VALUE COMBINED DISCIPLINED STOCK VALUE FUND COMBINED
SHARES FUND SHARES SHARES PORT. MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Mining & Energy
BJ SERVICES CO 81,700 81,700 5,106,250 5,106,250
CROSS TIMBER OIL CO 768,725 768,725 17,008,041 17,008,041
DIAMOND OFFSHORE DRILLING 130,000 130,000 4,566,250 4,566,250
FALCON DRILLING COMPANY INC 244,000 244,000 5,749,250 5,749,250
F-PORT MCMORAN COP & GOLD 200,000 200,000 1,850,000 1,850,000
NOBLE DRILLING CORP 143,600 143,600 5,914,525 5,914,525
OCCIDENTAL PETROLEUM 122,200 122,200 2,573,838 2,573,838
PETROLEUM GEO SERVICES ADR 322,400 231,900 554,300 5,500,950 3,956,794 9,457,744
REALNETWORKS INC 20,400 20,400 1,031,475 1,031,475
TRANSOCEAN SEDCO FOREX INC 87,700 87,700 4,686,469 4,686,469
------------- ------------- --------------
24,358,991 33,584,850 57,943,841
------------- ------------- --------------
Retail Trade
ABERCROMBIE & FITCH CO-CL A 140,500 140,500 1,712,344 1,712,344
BEST BUY INC 79,200 79,200 5,009,400 5,009,400
BJ'S WHOLESALE CLUB INC 122,500 122,500 4,042,500 4,042,500
BORDERS GROUP INC 290,000 290,000 4,513,125 4,513,125
BRINKER INTERNATIONAL INC 78,500 78,500 2,296,125 2,296,125
CIRCUIT CITY STORES INC 70,100 70,100 2,326,444 2,326,444
FEDERATED DEPT STORES INC NEW 180,000 61,100 241,100 6,075,000 2,062,125 8,137,125
ROSS STORES 209,800 209,800 3,579,713 3,579,713
TJX COMPANIES, INC 400,000 400,000 7,500,000 7,500,000
TRICON GLOBAL RESTAURANTS 114,200 114,200 3,226,150 3,226,150
ZALE CORP 26,100 26,100 952,650 952,650
------------- ------------- --------------
18,088,125 25,207,450 43,295,575
------------- ------------- --------------
Services
ADOBE SYSTEMS INC 32,300 32,300 4,199,000 4,199,000
AFFILIATED COMPUTER SVCS INC-A 201,800 201,800 6,672,013 6,672,013
CINTAS CORP 117,500 117,500 4,310,781 4,310,781
COMDISCO INC 127,000 127,000 2,833,688 2,833,688
CONVERGYS CORP 119,300 119,300 6,188,688 6,188,688
DEVRY INC 470,000 470,000 12,425,625 12,425,625
DST SYSTEMS INC 53,400 53,400 4,065,075 4,065,075
DUN & BRADSTREET CORP 91,800 91,800 2,627,775 2,627,775
FIRST HEALTH GROUP CORP 445,200 26,200 471,400 14,608,125 859,688 15,467,813
HARRAH'S ENTERTAINMENT INC 169,000 169,000 3,538,438 3,538,438
HERTZ CORP-CL A 90,000 87,000 177,000 2,525,625 2,441,438 4,967,063
IMS HEALTH INC 91,400 91,400 1,645,200 1,645,200
INTERIM SERVICES INC 550,000 550,000 9,762,500 9,762,500
INTERPUBLIC GROUP COS INC 69,400 69,400 2,984,200 2,984,200
LINCARE HOLDINGS INC 121,300 121,300 2,987,013 2,987,013
OMNICOM GROUP 45,000 45,000 4,007,813 4,007,813
PACIFICARE HEALTH SYSTEMS - A 18,400 18,400 1,107,450 1,107,450
PARK PLACE ENTERTAINMENT 230,000 230,000 2,803,125 2,803,125
PAYCHEX INC 175,968 175,968 7,390,656 7,390,656
PITTSTON BRINKS GROUP 540,200 540,200 7,393,988 7,393,988
PORTAL SOFTWARE 29,700 29,700 1,897,088 1,897,088
ROBERT HALF INTL INC 50,200 50,200 1,430,700 1,430,700
SIEBEL SYSTEMS INC 29,900 29,900 4,890,519 4,890,519
SYMANTEC CORP 69,500 69,500 3,748,656 3,748,656
USA NETWORKS INC 62,100 62,100 1,342,913 1,342,913
VERITAS SOFTWRE 49,600 49,600 5,605,575 5,605,575
WESTWOOD ONE INC 58,900 58,900 2,009,963 2,009,963
------------- ------------- --------------
57,698,656 70,604,656 128,303,312
------------- ------------- --------------
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE
DISCIPLINED STEIN ROE LIBERTY
STOCK LIBERTY PRO FORMA DISCIPLINED SELECT PRO FORMA
PORTFOLIO SELECT VALUE COMBINED STOCK VALUE FUND COMBINED
SHARES FUND SHARES SHARES PORT. MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Transportation, Communications,
Electric, Gas and Sanitary Services
ALLEGHENY ENERGY IN COM 158,500 158,500 4,338,938 4,338,938
AMR CORP 120,000 120,000 3,172,500 3,172,500
BELL ATLANTIC CORP 125,000 125,000 6,351,563 6,351,563
CALPINE CORPORATION 92,000 92,000 6,049,000 6,049,000
CANADIAN PACIFIC LTD 104,500 104,500 2,736,594 2,736,594
CENTURYTEL INC 83,950 83,950 2,413,563 2,413,563
CHRIS-CRAFT INDUSTRIES INC 29,497 29,497 1,948,646 1,948,646
CITIZENS COMMUNICATIONS CO 45,800 45,800 790,050 790,050
CLEAR CHANNEL COMMUNICATIONS 20,000 20,000 1,500,000 1,500,000
CNF TRANSPORTATION INC 155,700 155,700 3,542,175 3,542,175
COLUMBIA ENERGY GROUP 63,000 63,000 4,134,375 4,134,375
CONECTIV INC 276,200 276,200 4,298,363 4,298,363
CONTINENTAL AIRLINES CL B 100,000 100,000 4,700,000 4,700,000
COVAD COMMUNICATIONS GROUP 105,000 105,000 1,693,125 1,693,125
DELTA AIR LINES INC 92,900 92,900 4,697,256 4,697,256
DOMINION RESOURCES INC 31,531 31,531 1,351,892 1,351,892
EL PASO ENERGY CORP 150,000 84,500 234,500 7,640,625 4,304,219 11,944,844
ENERGY EAST CORPORATION 224,600 224,600 4,281,438 4,281,438
ENTERGY CORP 147,100 147,100 3,999,281 3,999,281
FLORIDA PROGRESS CORP 96,900 96,900 4,542,188 4,542,188
GPU INC 122,600 122,600 3,317,863 3,317,863
INCO LTD 216,000 216,000 3,321,000 3,321,000
KANSAS CITY SOUTHN INDS INC 155,000 155,000 13,746,563 13,746,563
MINNESOTA POWER INC 284,800 284,800 4,930,600 4,930,600
MIPS TECHNOLOGIES INC CL-B 3 3 116 116
NEXTLINK COMMUNICATIONS-A 87,000 87,000 3,300,563 3,300,563
NORTHEAST UTILITIES 97,000 97,000 2,109,750 2,109,750
NTL INC 23,375 23,375 1,399,578 1,399,578
P G & E CORP 173,200 173,200 4,265,050 4,265,050
P P & L RESOURCES INC 142,400 142,400 3,123,900 3,123,900
PECO ENERGY CO 98,900 98,900 3,986,906 3,986,906
PEOPLES ENERGY CORP 75,000 75,000 2,428,125 2,428,125
PINNACLE WEST CAPITAL CORP 41,600 41,600 1,409,200 1,409,200
PMC-SIERRA INC 11,100 11,100 1,972,331 1,972,331
POTOMAC ELECTRIC POWER CO 87,100 87,100 2,177,500 2,177,500
POWERWAVE TECHNOLOGIES INC 26,400 26,400 1,161,600 1,161,600
PUBLIC SERVICE ENTER GROUP INC 80,600 80,600 2,790,775 2,790,775
PUGET SOUND ENERGY INC 103,700 103,700 2,210,106 2,210,106
RELIANT ENERGY INC 99,700 99,700 2,947,381 2,947,381
SEMPRA ENERGY 79,500 79,500 1,351,500 1,351,500
TELEPHONE & DATA 143,000 48,000 191,000 14,335,750 4,812,000 19,147,750
TXU CORP 89,800 89,800 2,649,100 2,649,100
UAL INC 39,400 39,400 2,292,588 2,292,588
UNICOM CORPORATION 142,000 142,000 5,493,625 5,493,625
UNIVISION COMMUNICATIONS CL A 52,000 52,000 5,382,000 5,382,000
USFREIGHTWAYS CORPORATION 63,100 63,100 1,549,894 1,549,894
UTILICORP UNITED INC 129,100 129,100 2,565,863 2,565,863
------------- ------------- --------------
51,447,116 128,069,897 179,517,012
------------- ------------- --------------
Wholesale Trade
ARROW ELECTRONICS INC 238,800 43,300 282,100 7,402,800 1,342,300 8,745,100
PATTERSON DENTAL CO 86,350 86,350 4,403,850 4,403,850
ULTRAMED 450,000 450,000 0 0
7,402,800 5,746,150 13,148,950
------------- ------------- --------------
Total Common Stocks 434,593,234 691,054,177 1,125,647,412
------------- ------------- --------------
SHORT-TERM OBLIGATIONS
ASSOCIATES FIRST CAPITAL 0.00% 7/3/2000 $ 23,665,000 23,665,000 23,655,863 23,655,863
RELIANT ENERGY-CP 0.00% 7/5/2000 23,600,000 23,600,000 23,580,989 23,580,989
WARBURG REPURCHASE AGREEMENT $ 19,027,000 19,027,000 19,027,000 23,655,863
------------- ------------- --------------
Total Short-Term Obligations 47,236,852 19,027,000 70,892,714
------------- ------------- --------------
TOTAL INVESTMENTS
(COST OF $381,825,159, $606,431,283
AND $988,256,442, RESPECTIVELY) $ 481,830,086 $ 710,081,177 $1,191,911,263
============= ============= ==============
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Stein Roe Stein Roe Liberty
Disciplined Stock Disciplined Stock Select Value Pro Forma Pro Forma
Portfolio Fund Fund Adjustments Combined
<S> <C> <C> <C> <C> <C>
Investments, at value $ 481,830,086 $ 484,399,223 $710,081,177 $(484,399,223)(a) $1,191,911,263
Cash - - - - -
Receivable for investments sold - - - - -
Payable for investments purchased - - - - -
Other assets less other liabilities 2,731,499 (146,180) (337,122) (592,513)(b) 1,655,684
Net assets $ 484,561,585 $ 484,253,043 $709,744,055 $(484,991,736) $1,193,566,947
Shares outstanding 25,325,082 (25,325,082)(c) -
Net asset value $ 19.12
Class A:
Net assets $388,214,593 (184,863) $ 388,029,730
Shares outstanding 17,372,786 (3,505) 17,369,281
Net asset value $ 22.35 $ 22.34
Class B:
Net assets $298,824,770 (142,297) $ 298,682,473
Shares outstanding 14,029,006 232 14,029,238
Net asset value $ 21.30 $ 21.29
Class C:
Net assets $ 21,661,061 (10,315) $ 21,650,746
Shares outstanding 991,551 (216) 991,335
Net asset value $ 21.85 $ 21.84
Class Z:
Net assets $ 1,043,631 (497) $ 1,043,134
Shares outstanding 46,541 7 46,548
Net asset value $ 22.42 $ 22.41
Class S:
Net assets $ (92,179) $ 484,160,864
Shares outstanding 21,604,679 (c) 21,604,679
Net asset value $ 22.41
</TABLE>
Footnotes to pro forma statement of assets and liabilities
(a) - Adjustment represents the elimination of Stein Roe Disciplined Stock
Fund's investment in the Portfolio, as the master/feeder structure will be
dissolved, with the securities held by the Portfolio withdrawn from the
Portfolio by Stein Roe Disciplined Stock Fund prior to the merger.
(b) - Adjustment reflects a payable to the general partner of the Portfolio
for its remaining net assets after withdrawal of Stein Roe Disciplined
Stock Fund's investment in the Portfolio of $162,362 in addition to one
time proxy, accounting, legal and other costs of the reorganization of
$92,179 and $337,972 to be borne by Stein Roe Disciplined Stock Fund and
Liberty Select Value Fund respectively.
(c) - Stein Roe Disciplined Stock Fund shares are exchanged for new Class S
shares of Liberty Select Value Fund, to be established upon consummation
of the merger. Initial per share value of Class S shares is presumed to
equal that of current Class Z shares.
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTH
PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE
DISCIPLINED STEIN ROE LIBERTY
STOCK DISCIPLINED SELECT PRO FORMA PRO FORMA
PORTFOLIO STOCK FUND VALUE ADJUSTMENTS COMBINED
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends 5,893,642 5,821,792 8,174,225 (5,893,642)(c) 13,996,017
Interest 3,064,826 3,133,889 1,184,633 (3,064,826)(c) 4,318,522
----------- ----------- ----------- ----------- -----------
Total investment income 8,958,468 8,955,680 9,358,859 (8,958,468)(c) 18,314,539
EXPENSES
Management fee 4,167,035 - 5,223,265 (440,572)(a) 8,949,728
Administration fee - 830,666 - (830,666)(a) -
Service fee - Class A, B, C - - 1,861,867 - (a) 1,861,867
Distribution fee - Class B - - 2,384,795 - (a) 2,384,795
Distribution fee - Class C - - 164,376 - (a) 164,376
Transfer agent fee 6,000 1,218,310 1,620,653 (375,043)(e) 2,469,920
Bookkeeping fee 37,640 37,594 270,663 88,592 (a) 434,489
Trustees fee 12,900 8,100 28,901 (2,829)(b) 47,072
Expenses allocated 4,249,412 - (4,249,412)(c) -
from SRF Disciplined Stock Portfolio - -
All other expenses 25,837 407,666 884,431 (212,395)(d) 1,105,539
----------- ----------- ----------- ----------- -----------
Total operating expenses 4,249,412 6,751,748 12,438,951 (6,022,325) 17,417,786
----------- ----------- ----------- ----------- -----------
Expense reimbursement - - - - -
----------- ----------- ----------- ----------- -----------
Net Expenses 4,249,412 6,751,748 12,438,951 (6,022,325) 17,417,786
NET INVESTMENT INCOME (LOSS) 4,709,056 2,203,932 (3,080,092) (2,936,143) 896,753
-
NET REALIZED & UNREALIZED GAIN (LOSS)
Net realized gain on:
Investments 26,447,704 27,136,826 113,063,056 (26,447,704)(c) 140,199,882
Closed futures contracts - - - - -
Foreign currency transactions (0) 0 (1) - (1)
----------- ----------- ----------- ----------- -----------
Net Realized Gain 26,447,704 27,136,826 113,063,055 (26,447,704) 140,199,881
Change in net unrealized appreciation/depreciation
during the period on:
Investments (35,970,362) (36,662,338) (57,406,602) 35,970,362 (c) (94,068,940)
Open futures contracts - - - - -
Foreign currency transactions (2,334) - - 2,334 (c) -
----------- ----------- ----------- ----------- -----------
Net Change in Unrealized Appreciation/Depreciation (35,972,696) (36,662,338) (57,406,602) 35,972,696 (94,068,940)
----------- ----------- ----------- ----------- -----------
Net Gain (9,524,993) (9,525,512) 55,656,453 9,524,993 46,130,941
----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets from Operations (4,815,937) (7,321,580) 52,576,361 6,588,849 47,027,694
</TABLE>
(a) Based on the contract in effect for the surviving fund.
(b) Based on trustee compensation plan for the surviving fund.
(c) Due to elimination of master/feeder structure.
(d) Decrease due to the elimination of duplicative expenses achieved by merging
the funds.
(e) Based on the contract in effect for the surviving fund. Note that a new
transfer agent fee structure was implemented for Liberty Select Value Fund
effective January 1, 2000. The pro forma combined transfer agent fee shown
assumes this new agreement was in effect for the entire twelve month period
ended June 30, 2000.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
SMALL SELECT PRO FORMA LIBERTY SMALL LIBERTY SELECT PRO FORMA
CAP VALUE VALUE FUND COMBINED CAP VALUE FUND VALUE FUND COMBINED
FUND SHARES SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Agriculture, Forestry & Fishing
NABISCO GROUP HOLDINGS 172,400 172,400 $ 4,471,625 $ 4,471,625
RAYONIER INC 53,300 53,300 $ 1,912,138 1,912,138
------------- ------------- --------------
1,912,138 4,471,625 6,383,763
------------- ------------- --------------
Construction
FLUOR CORP 53,100 53,100 1,679,288 1,679,288
GRANITE CONSTRUCTION INC 77,600 77,600 1,901,200 1,901,200
NVR INC 37,500 37,500 2,137,500 2,137,500
TOLL BROTHERS INC 39,200 39,200 803,600 803,600
------------- ------------- --------------
4,842,300 1,679,288 6,521,588
------------- ------------- --------------
Finance, Insurance & Real Estate
AFFILIATED MANAGERS GROUP 44,000 44,000 2,002,000 2,002,000
ALLMERICA FINANCIAL CORP 62,400 62,400 3,268,200 3,268,200
AMBAC FINANCIAL GROUP INC 113,100 113,100 6,199,294 6,199,294
AMERICREDIT CORP 105,600 105,600 1,795,200 1,795,200
AMERUS LIFE HOLDINGS INC-A 82,500 82,500 1,701,563 1,701,563
ARGOSY GAMING COMPANY 97,800 97,800 1,405,875 1,405,875
BANCWEST CORPORATION 52,000 202,800 254,800 854,750 3,333,525 4,188,275
BANK UNITED CORP CL A 80,700 80,700 2,839,631 2,839,631
BANKATLANTIC BANCORP INC-B 102,900 102,900 604,538 604,538
BANKNORTH GROUP INC 97,450 215,500 312,950 1,492,203 3,299,844 4,792,047
BEAR STEARNS COMPANIES INC 90,600 90,600 3,771,225 3,771,225
CAPITAL ONE FINANCIAL CORP 57,000 57,000 2,543,625 2,543,625
CAPITOL FEDERAL FINANCIAL 177,000 177,000 1,958,063 1,958,063
CINCINNATI FINANCIAL CORP 71,900 71,900 2,260,356 2,260,356
CITY NATIONAL CORP 146,800 146,800 5,211,400 5,211,400
COMMERCE BANCORP INC 52,185 52,185 2,400,510 2,400,510
COMMUNITY BANK SYSTEM INC 74,500 74,500 1,652,969 1,652,969
COMPASS BANCSHARES INC 90,000 90,000 1,535,625 1,535,625
CULLEN/FROST BANKERS INC 60,700 130,500 191,200 1,597,169 3,433,781 5,030,950
DELPHI FINANCIAL GROUP CLASS A 67,668 67,668 2,296,488 2,296,488
DOW JONES & CO INC 19,200 19,200 1,406,400 1,406,400
DOWNEY FINL CP 91,400 91,400 2,650,600 2,650,600
EDWARDS (A.G.), INC 79,100 79,100 3,084,900 3,084,900
ENHANCE FINANCIAL SVCS GROUP 103,600 103,600 1,489,250 1,489,250
FIDELITY NATIONAL FINL INC 135,560 135,560 2,482,443 2,482,443
FINL SECURITY ASSURANCE HLDG 40,000 40,000 3,035,000 3,035,000
FIRST FEDERAL CAPITAL CORP 155,100 155,100 1,715,794 1,715,794
FIRSTFED FINANCIAL CORP 144,400 144,400 2,039,650 2,039,650
GALLAGHER (ARTHUR J.) & CO. 55,080 55,080 2,313,360 2,313,360
GOLDEN STATE BANCORP 263,200 263,200 4,737,600 4,737,600
GOLDEN STATE BANCORP-LITIG WT 155,000 155,000 174,375 174,375
GOLDEN WEST FINANCIAL CORP 88,200 88,200 3,599,663 3,599,663
GREATER BAY BANCORP 46,000 46,000 2,150,500 2,150,500
GREENPOINT FINANCIAL CORP 236,400 236,400 4,432,500 4,432,500
HUDSON UNITED BANCORP 87,844 87,844 1,971,000 1,971,000
INDEPENDENCE COMMUNITY BANK 153,400 153,400 2,032,550 2,032,550
KNIGHT TRADING GROUP INC 40,700 40,700 1,213,369 1,213,369
LEHMAN BROTHERS HLDG INC 71,700 71,700 6,780,131 6,780,131
LOEWS CORP 69,500 69,500 4,170,000 4,170,000
MAF BANCORP INC 109,500 109,500 1,991,531 1,991,531
MARCHFIRST INC 36,700 36,700 669,775 669,775
MGIC INV CORP 69,600 69,600 3,166,800 3,166,800
MIDLAND CO 45,400 45,400 1,112,300 1,112,300
MONY GROUP INC 61,800 61,800 2,089,613 2,089,613
NATIONWIDE FINANCIAL SERV A 154,800 154,800 5,089,050 5,089,050
NORTH FORK BANCORPORATION 95,200 282,400 377,600 1,439,900 4,271,300 5,711,200
PACIFIC CENTURY FINL CORP 196,300 196,300 2,870,888 2,870,888
PAINE WEBBER GROUP INC 49,000 49,000 2,229,500 2,229,500
PMI GROUP INC 43,100 100,200 143,300 2,047,250 4,759,500 6,806,750
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
SMALL SELECT PRO FORMA LIBERTY SMALL LIBERTY SELECT PRO FORMA
CAP VALUE VALUE FUND COMBINED CAP VALUE FUND VALUE FUND COMBINED
FUND SHARES SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
PROVIDENT BANKSHARES CORP 127,680 127,680 1,723,680 1,723,680
RADIAN GROUP INC 90,300 94,500 184,800 4,673,025 4,890,375 9,563,400
RAYMOND JAMES FINANCIAL INC 52,300 52,300 1,176,750 1,176,750
RENAISSANCERE HOLDINGS LTD 42,200 42,200 1,838,338 1,838,338
SOVEREIGN BANCORP INC 506,600 506,600 3,562,031 3,562,031
ST PAUL COMPANIES INC 121,800 121,800 4,156,425 4,156,425
STATE AUTO FINANCIAL CORP 86,000 86,000 1,021,250 1,021,250
STATEN ISLAND BANCORP INC 68,000 68,000 1,198,500 1,198,500
SUSQUEHANNA BANCSHARES INC 100,000 100,000 1,425,000 1,425,000
TORCHMARK INSURANCE 57,900 57,900 1,429,406 1,429,406
UMB FINANCIAL CORP 62,500 62,500 2,050,781 2,050,781
UNIONBANCAL CORPORATION 143,200 143,200 2,658,150 2,658,150
UNITED HEALTHCARE CORP 98,000 98,000 8,403,500 8,403,500
WALTER INDUSTRIES INC 113,500 113,500 1,298,156 1,298,156
WEBSTER FINANCIAL CORP 104,300 114,600 218,900 2,314,156 2,542,688 4,856,844
WELLPOINT HEALTH NETWORKS 62,200 62,200 4,505,613 4,505,613
WHITNEY HOLDING CORP 71,500 71,500 2,444,406 2,444,406
------------- ------------- --------------
69,870,902 124,115,650 193,986,552
------------- ------------- --------------
Manufacturing
ACTEL CORP 50,500 50,500 2,304,063 2,304,063
ADAC LABORATORIES 99,400 99,400 2,385,600 2,385,600
ADC TELECOMMUNICATIONS INC 91,100 91,100 7,641,013 7,641,013
ADVANCED DIGITAL INFO CORP 21,600 21,900 43,500 344,250 349,031 693,281
ADVANCED MICRO DEVICES INC 48,600 48,600 3,754,350 3,754,350
AGRIBRANDS INTERNATIONAL INC 30,700 30,700 1,287,481 1,287,481
ALBEMARLE CORP 54,800 54,800 1,082,300 1,082,300
ALLIANT TECHSYSTEMS INC 20,400 20,400 1,375,725 1,375,725
ALPHARMA INC 44,000 44,000 2,739,000 2,739,000
ALTERA CORPORATION 62,800 62,800 6,401,675 6,401,675
AMERADA HESS CORP 47,000 47,000 2,902,250 2,902,250
ANALOG DEVICES INC. 40,100 40,100 3,047,600 3,047,600
APPLE COMPUTER INC 124,800 124,800 6,536,400 6,536,400
APPLIED MICRO CIRCUITS CORP 46,300 46,300 4,572,125 4,572,125
ARVIN INDUSTRIES INC 48,400 48,400 840,950 840,950
ATMEL CORP 73,700 73,700 2,717,688 2,717,688
AUDIOVOX CORP -CL A 32,000 32,000 706,000 706,000
AURORA BIOSCIENCES CORP 13,200 13,200 900,075 900,075
B F GOODRICH CO 102,700 102,700 3,498,219 3,498,219
BALDOR ELECTRIC 43,300 43,300 806,463 806,463
BARNES GROUP INC 100,000 100,000 1,631,250 1,631,250
BARR LABORATORIES INC 24,000 24,000 1,075,500 1,075,500
BAUSCH & LOMB INC 19,400 19,400 1,501,075 1,501,075
BELL AND HOWELL COMPANY 38,500 38,500 933,625 933,625
BETHLEHEM STEEL CORP 173,800 173,800 619,163 619,163
BIOGEN INC 21,400 21,400 1,380,300 1,380,300
BOISE CASCADE CORP 48,000 95,200 143,200 1,242,000 2,463,300 3,705,300
BRUNSWICK CORP 122,200 122,200 2,023,938 2,023,938
BURR-BROWN CORP 12,600 12,600 1,092,263 1,092,263
C R BARD INC 40,000 40,000 1,925,000 1,925,000
CACI INTERNATIONAL INC-CL A 64,000 64,000 1,248,000 1,248,000
CANANDAIGUA BRANDS INC 83,100 83,100 4,191,356 4,191,356
CARLISLE COS INC 41,300 41,300 1,858,500 1,858,500
CENTEX CONSTRUCTION PRODUCTS 41,900 41,900 950,606 950,606
CHIRON CORP 77,800 77,800 3,695,500 3,695,500
CHURCH & DWIGHT CO 74,000 74,000 1,332,000 1,332,000
CLECO CORP 30,000 30,000 1,005,000 1,005,000
COMMSCOPE INC 46,700 46,700 1,914,700 1,914,700
COMVERSE TECH 64,400 64,400 5,989,200 5,989,200
CORN PRODUCTS INTL INC 45,300 45,300 1,200,450 1,200,450
CREE INC 6,300 6,300 841,050 841,050
CROWN CORK AND SEAL CO. INC. 141,100 141,100 2,116,500 2,116,500
CYMER INC 34,300 34,300 1,637,825 1,637,825
CYPRESS SEMICONDUCTOR CORP 30,400 45,800 76,200 1,284,400 1,935,050 3,219,450
CYTEC INDUSTRIES INC 129,300 129,300 3,192,094 3,192,094
DALLAS SEMICONDUCTOR CORP 68,200 68,200 2,779,150 2,779,150
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
SMALL SELECT PRO FORMA LIBERTY SMALL LIBERTY SELECT PRO FORMA
CAP VALUE VALUE FUND COMBINED CAP VALUE FUND VALUE FUND COMBINED
FUND SHARES SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
DELPHI AUTOMOTIVE SYSTEMS 158,800 158,800 2,312,525 2,312,525
DOVER CORP 120,900 120,900 4,904,006 4,904,006
EATON CORP 45,500 45,500 3,048,500 3,048,500
ECOLAB INC 21,100 21,100 824,219 824,219
ELANTEC SEMICONDUCTOR INC 14,200 14,200 988,675 988,675
EMULEX CORP 6,400 6,400 420,400 420,400
ENGELHARD CORPORATION 175,300 175,300 2,991,056 2,991,056
ESTERLINE TECHNOLOGIES CORP 87,700 87,700 1,304,538 1,304,538
ETHAN ALLEN INTERIORS INC 56,400 56,400 1,353,600 1,353,600
FMC CORP 66,000 66,000 3,828,000 3,828,000
FOSSIL INC 69,925 69,925 1,359,167 1,359,167
FULLER (H.B.) CO 20,000 20,000 911,250 911,250
FURNITURE BRANDS INTL INC 91,600 119,300 210,900 1,385,450 1,804,413 3,189,863
GEHL CO 90,600 90,600 1,291,050 1,291,050
GENERAL SEMICONDUCTOR INC 89,600 89,600 1,321,600 1,321,600
GEON COMPANY 53,000 53,000 980,500 980,500
GEORGIA PACIFIC CORP 91,200 91,200 2,394,000 2,394,000
GLATFELTER (P.H.) CO 110,600 110,600 1,126,738 1,126,738
GLENAYRE TECHNOLOGIES INC 127,000 127,000 1,341,438 1,341,438
GRANT PRIDECO INC 103,800 103,800 2,595,000 2,595,000
HAIN CELESTIAL GROUP INC 59,000 59,000 2,164,563 2,164,563
HANNA CO 169,800 169,800 1,528,200 1,528,200
HARLEY DAVIDSON 118,000 118,000 4,543,000 4,543,000
HARMAN INTERNATIONAL INC NEW 43,000 43,000 2,623,000 2,623,000
HARRIS CORPORATION DEL 49,300 49,300 1,614,575 1,614,575
HARSCO CORP 41,700 41,700 1,063,350 1,063,350
HAVERTY FURNITURE 10,000 10,000 85,000 85,000
HELIX TECHNOLOGY CORP 6,800 6,800 265,200 265,200
HORMEL FOODS CORP 137,400 137,400 2,310,038 2,310,038
IDEC PHARMACEUTICALS CORP 17,000 17,000 1,994,313 1,994,313
IMATION CORP 55,600 55,600 1,633,250 1,633,250
IMMUNEX CORP 14,500 14,500 716,844 716,844
INFOCUS CORP 70,200 70,200 2,259,563 2,259,563
INGERSOLL RAND CO 157,100 157,100 6,323,275 6,323,275
INTEGRATED DEVICES TECH INC 46,800 36,100 82,900 2,802,150 2,161,488 4,963,638
INTERNATIONAL HOME FOODS INC 115,100 115,100 2,409,906 2,409,906
INTERNATIONAL RECTIFIER CORP 73,000 73,000 4,088,000 4,088,000
INTERSTATE BAKERIES 181,700 181,700 2,543,800 2,543,800
INTUIT INC 84,300 84,300 3,487,913 3,487,913
IVAX CORP 158,850 158,850 6,592,275 6,592,275
JDS UNIPHASE CORP 22,000 22,000 2,637,250 2,637,250
JOHNSON CONTROLS INC 92,500 92,500 4,746,406 4,746,406
JONES PHARMA INC 51,150 51,150 2,042,803 2,042,803
KELLWOOD CO 37,700 37,700 796,413 796,413
KEMET CORP 20,400 20,400 511,275 511,275
KENNAMETAL INC 43,800 43,800 938,963 938,963
KNIGHT RIDDER INC 30,300 88,100 118,400 1,611,581 4,685,819 6,297,400
LAFARGE CORP 78,000 78,000 1,638,000 1,638,000
LAM RESEARCH CORP 35,400 35,400 1,327,500 1,327,500
LATTICE SEMICONDUCTOR CORP 6,300 6,300 435,488 435,488
LEAR CORP 119,200 119,200 2,384,000 2,384,000
LINEAR TECHNOLOGY CORP 97,100 97,100 6,208,331 6,208,331
LOCKHEED MARTIN CORP 153,200 153,200 3,801,275 3,801,275
LONGVIEW FIBRE CO 152,500 152,500 1,687,031 1,687,031
LSI LOGIC CORP 51,400 51,400 2,782,025 2,782,025
LUBRIZOL CORP 69,800 170,800 240,600 1,465,800 3,586,800 5,052,600
LUXOTTICA GROU SPA-SPON ADR 50,200 50,200 611,813 611,813
LYONDELL PETRO 321,500 321,500 5,385,125 5,385,125
MANITOWOC INC 66,100 66,100 1,768,175 1,768,175
MATTSON TECHNOLOGY INC 16,100 16,100 523,250 523,250
MAXIM INTEGRATED PRODUCTS INC 64,300 64,300 4,368,381 4,368,381
MCCORMICK & CO 96,800 96,800 3,146,000 3,146,000
MERITOR AUTOMOTIVE INC 281,900 281,900 3,100,900 3,100,900
MICHAEL FOODS INC 59,700 59,700 1,462,650 1,462,650
MICROCHIP TECHNOLOGY 45,000 45,000 2,621,953 2,621,953
MICRON TECHNOLOGY INCORPORATED 26,000 26,000 2,289,625 2,289,625
MILACRON INC 86,400 86,400 1,252,800 1,252,800
MKS INSTRUMENTS INC 34,000 34,000 1,330,250 1,330,250
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
SMALL SELECT PRO FORMA LIBERTY SMALL LIBERTY SELECT PRO FORMA
CAP VALUE VALUE FUND COMBINED CAP VALUE FUND VALUE FUND COMBINED
FUND SHARES SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
MRV COMMUNICATIONS INC 20,600 20,600 1,385,350 1,385,350
MUELLER INDUSTRIES INC 85,100 148,000 233,100 2,382,800 4,144,000 6,526,800
MYLAN LABORATORIES, INC 125,000 125,000 2,281,250 2,281,250
NACCO INDUSTRIES INC CL A 31,200 31,200 1,095,900 1,095,900
NATIONAL SEMICONDUCTOR CORP 46,900 46,900 2,661,575 2,661,575
NAVISTAR INTERNATIONAL 129,600 129,600 4,025,700 4,025,700
NEW YORK TIMES CO CLASS A 115,000 115,000 4,542,500 4,542,500
NORTEK INC. 63,800 63,800 1,260,050 1,260,050
NORTHROP GRUMMAN CORP 35,400 35,400 2,345,250 2,345,250
NOVELLUS SYSTEMS INC 98,400 98,400 5,565,750 5,565,750
NUCOR CORP 70,200 70,200 2,329,763 2,329,763
OCEANEERING INTL INC 44,000 44,000 836,000 836,000
OSHKOSH TRUCK CORP 32,850 32,850 1,174,388 1,174,388
PACCAR INC 50,900 50,900 2,020,094 2,020,094
PARK ELECTROCHEMICAL CORP 77,900 77,900 2,809,269 2,809,269
PARKER HANNIFIN CORP 39,800 39,800 1,363,150 1,363,150
PE CORP-CELERA GENOMICS GRP 26,400 26,400 2,468,400 2,468,400
PE CORP-PE BIOSYSTEMS GROUP 28,800 28,800 1,897,200 1,897,200
PENNZOIL-QUAKER STATE CO 91,800 91,800 1,107,338 1,107,338
PENTAIR INC 40,400 40,400 1,434,200 1,434,200
PEPSI BOTTLING GROUP 193,200 193,200 5,639,025 5,639,025
PHILLIPS VAN HEUSEN CORP 97,500 97,500 926,250 926,250
PHOTON DYNAMICS INC 8,600 8,600 642,313 642,313
PLEXUS CORP 21,500 21,500 2,429,500 2,429,500
PPG INDUSTRIES INC 102,100 102,100 4,524,306 4,524,306
PRECISION CASTPARTS CORP 22,500 22,500 1,018,125 1,018,125
PROTEIN DESIGN LABS INC 10,500 10,500 1,732,008 1,732,008
QUANEX CORP 72,700 72,700 1,081,413 1,081,413
RUSS BERRIE & CO INC 61,600 61,600 1,185,800 1,185,800
RYERSON TULL INC 93,598 93,598 971,079 971,079
SANMINA CORPX 77,400 77,400 6,617,700 6,617,700
SEMTECH CORP 25,800 25,800 1,973,297 1,973,297
SHIRE PHARMACEUTICALS-ADR 32,184 32,184 1,669,546 1,669,546
SILICON VALLEY GROUP INC 95,100 95,100 2,460,713 2,460,713
SPRINGS INDUSTRIES INC 22,100 22,100 711,344 711,344
SPS TECHNOLOGIES, IN 26,300 26,300 1,079,944 1,079,944
STORAGENETWORKS INC 11,700 11,700 1,055,925 1,055,925
STURM RUGER & CO INC 181,300 181,300 1,609,038 1,609,038
SUPERIOR INDUSTRIES INTL 72,100 72,100 1,856,575 1,856,575
TEKTRONIX INC 19,700 19,700 1,457,800 1,457,800
TELCOM SEMICONDUCTOR INC 19,300 19,300 779,238 779,238
TEMPLE INLAND INC 34,500 34,500 1,449,000 1,449,000
TERADYNE INC 84,598 84,598 6,217,953 6,217,953
TEREX CORP 84,900 84,900 1,199,213 1,199,213
TESORO PETROLEUM CORP 141,500 141,500 1,432,688 1,432,688
TEXAS INDUSTRIES INC 60,500 60,500 1,746,938 1,746,938
TIME WARNER TELECOM-CL A 9,400 9,400 605,125 605,125
TIMKEN CO 97,100 97,100 1,808,488 1,808,488
TOPPS COMPANY 133,100 133,100 1,530,650 1,530,650
TORO CO 44,700 44,700 1,472,306 1,472,306
TOSCO CORP 159,600 159,600 4,518,675 4,518,675
TOWER AUTOMOTIVE INC 76,100 76,100 951,250 951,250
TRIQUINT SEMICONDUCTOR INC 9,900 9,900 947,306 947,306
TUPPERWARE CORPORATION 86,800 166,100 252,900 1,909,600 3,654,200 5,563,800
ULTRAMAR DIAMOND SHAMROCK CORP 65,600 65,600 1,627,700 1,627,700
UNISYS CORP 181,500 181,500 2,643,094 2,643,094
USG CORP NEW 123,200 123,200 3,742,200 3,742,200
USX-US STEEL GROUP 44,400 44,400 824,175 824,175
VALASSIS COMM. INC 105,250 129,700 234,950 4,012,656 4,944,813 8,957,469
VARIAN INC 16,700 16,700 770,288 770,288
VERTEX PHARMACEUTICALS INC 12,500 12,500 1,317,188 1,317,188
VICAL INC 43,800 43,800 843,150 843,150
VISHAY INTERTECHNOLOGY 158,400 158,400 6,009,300 6,009,300
VITESSE SEMICONDUCTOR CORP 72,100 72,100 5,303,856 5,303,856
W R GRACE & CO 132,900 189,000 321,900 1,611,413 2,291,625 3,903,038
WATERS CORPORATION 48,900 48,900 6,103,331 6,103,331
WATSON PHARMACEUTICALS 67,900 67,900 3,649,625 3,649,625
WEATHERFORD INTERNATIONAL 103,800 103,800 4,132,538 4,132,538
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
SMALL SELECT PRO FORMA LIBERTY SMALL LIBERTY SELECT PRO FORMA
CAP VALUE VALUE FUND COMBINED CAP VALUE FUND VALUE FUND COMBINED
FUND SHARES SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
WESTVACO CORP 169,800 169,800 4,213,163 4,213,163
WHIRLPOOL CORP 51,700 51,700 2,410,513 2,410,513
WILLAMETTE IND INC 90,600 90,600 2,468,850 2,468,850
WINNEBAGO INDUSTRIES 40,900 40,900 534,256 534,256
--------------
WORTHINGTON INDUSTRIES 205,200 205,200 2,154,600 2,154,600
XILINIX INC 63,000 63,000 5,201,438 5,201,438
ZEBRA TECHNOLOGIES CORP-CL A 24,100 24,100 1,067,931 1,067,931
------------- ------------- --------------
162,391,894 297,574,612 459,966,506
------------- ------------- --------------
Mining & Energy
BJ SERVICES CO 81,700 81,700 5,106,250 5,106,250
DIAMOND OFFSHORE DRILLING 130,000 130,000 4,566,250 4,566,250
FALCON DRILLING COMPANY INC 43,700 244,000 287,700 1,029,681 5,749,250 6,778,931
HS RESOURCES INC 100,100 100,100 3,003,000 3,003,000
NOBLE DRILLING CORP 143,600 143,600 5,914,525 5,914,525
OCCIDENTAL PETROLEUM 122,200 122,200 2,573,838 2,573,838
PARKER DRILLING CO 356,200 356,200 2,203,988 2,203,988
PATTERSON ENERGY INC 140,000 140,000 3,990,000 3,990,000
PETROLEUM GEO SERVICES ADR 231,900 231,900 3,956,794 3,956,794
PRIDE PETROLEUM INTERNATIONAL 219,200 219,200 5,425,200 5,425,200
REALNETWORKS INC 20,400 20,400 1,031,475 1,031,475
RGS ENERGY GROUP INC 103,000 103,000 2,291,750 2,291,750
SOUTHWESTERN ENERGY COMPANY 140,000 140,000 875,000 875,000
TRANSOCEAN SEDCO FOREX INC 87,700 87,700 4,686,469 4,686,469
VECTREN CORPORATION 54,000 54,000 931,500 931,500
VERITAS DGC INC 131,900 131,900 3,429,400 3,429,400
VINTAGE PETROLEUM INC 176,800 176,800 3,989,050 3,989,050
------------- ------------- --------------
27,168,569 33,584,850 60,753,419
------------- ------------- --------------
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
SMALL SELECT PRO FORMA LIBERTY SMALL LIBERTY SELECT PRO FORMA
CAP VALUE VALUE FUND COMBINED CAP VALUE FUND VALUE FUND COMBINED
FUND SHARES SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Retail Trade
ABERCROMBIE & FITCH CO-CL A 140,500 140,500 1,712,344 1,712,344
BEST BUY INC 79,200 79,200 5,009,400 5,009,400
BJ'S WHOLESALE CLUB INC 122,500 122,500 4,042,500 4,042,500
BRINKER INTERNATIONAL INC 78,500 78,500 2,296,125 2,296,125
CEC ENTERTAINMENT INC 150,870 150,870 3,866,044 3,866,044
CIRCUIT CITY STORES INC 70,100 70,100 2,326,444 2,326,444
DOLLAR THRIFTY AUTOMOTIVE GP 41,100 41,100 757,781 757,781
FEDERATED DEPT STORES INC NEW 61,100 61,100 2,062,125 2,062,125
JACK IN THE BOX INC 64,800 64,800 1,595,700 1,595,700
MUSICLAND STORES CORP 92,300 92,300 686,481 686,481
ROSS STORES 75,400 209,800 285,200 1,286,513 3,579,713 4,866,225
SONIC CORP 42,000 42,000 1,233,750 1,233,750
TIMBERLAND COMPANY-CL A 12,000 12,000 849,750 849,750
TRICON GLOBAL RESTAURANTS 114,200 114,200 3,226,150 3,226,150
WPS RESOURCES 34,100 34,100 1,025,131 1,025,131
ZALE CORP 36,100 26,100 62,200 1,317,650 952,650 2,270,300
------------- ------------- --------------
12,618,800 25,207,450 37,826,250
------------- ------------- --------------
Services
ADOBE SYSTEMS INC 32,300 32,300 4,199,000 4,199,000
ADVO INC 59,100 59,100 2,482,200 2,482,200
ANCHOR GAMING 38,800 38,800 1,859,975 1,859,975
BARRA INC 25,900 25,900 1,283,669 1,283,669
COMDISCO INC 127,000 127,000 2,833,688 2,833,688
CONVERGYS CORP 119,300 119,300 6,188,688 6,188,688
COVENTRY HEALTH CARE INC 107,800 107,800 1,436,772 1,436,772
CURATIVE HEALTH SERVICES INC 151,500 151,500 913,734 913,734
DENDRITE INTERNATIONAL INC 66,550 66,550 2,216,947 2,216,947
DST SYSTEMS INC 53,400 53,400 4,065,075 4,065,075
DUN & BRADSTREET CORP 91,800 91,800 2,627,775 2,627,775
ECCS INC 53,200 53,200 264,338 264,338
ESS TECHNOLOGY 35,800 35,800 519,100 519,100
FIRST HEALTH GROUP CORP 35,700 26,200 61,900 1,171,406 859,688 2,031,094
HALL KINION & ASSOCIATES INC 59,600 59,600 1,985,425 1,985,425
HARRAH'S ENTERTAINMENT INC 169,000 169,000 3,538,438 3,538,438
HEALTH MGMT SYSTEMS INC 175,000 175,000 546,875 546,875
HERTZ CORP-CL A 87,000 87,000 2,441,438 2,441,438
HOOPER HOLMES INC 98,200 98,200 785,600 785,600
IDEXX LABS INC 54,000 54,000 1,235,250 1,235,250
IMS HEALTH INC 91,400 91,400 1,645,200 1,645,200
INPRISE CORPORATION 94,100 94,100 576,363 576,363
INTERIM SERVICES INC 103,270 103,270 1,833,043 1,833,043
INTERPUBLIC GROUP COS INC 69,400 69,400 2,984,200 2,984,200
ISLE OF CAPRI CASINOS 118,200 118,200 1,603,088 1,603,088
JACOBS ENGINEERING GROUP INC 56,600 56,600 1,850,113 1,850,113
KRONOS INC 31,300 31,300 813,800 813,800
LINCARE HOLDINGS INC 121,300 121,300 2,987,013 2,987,013
MERCURY INTERACTIVE CORP 11,600 11,600 1,122,300 1,122,300
MICROS SYSTEMS INC 28,900 28,900 536,456 536,456
NATIONAL COMPUTER SYS INC 40,200 40,200 1,979,850 1,979,850
NATURAL MICROSYSTEMS CORP 9,500 9,500 1,068,156 1,068,156
NEOPHARM INC 40,000 40,000 784,375 784,375
OMNICOM GROUP 45,000 45,000 4,007,813 4,007,813
PACIFICARE HEALTH SYSTEMS - A 18,400 18,400 1,107,450 1,107,450
PARK PLACE ENTERTAINMENT 230,000 230,000 2,803,125 2,803,125
PAYCHEX INC 175,968 175,968 7,390,656 7,390,656
PORTAL SOFTWARE 29,700 29,700 1,897,088 1,897,088
PROGRESS SOFTWARE CORP 71,800 71,800 1,287,913 1,287,913
QUEST DIAGNOSTICS 53,300 53,300 3,814,281 3,814,281
REHABCARE GROUP INC 139,600 139,600 3,804,100 3,804,100
REMEDY CORP 12,900 12,900 719,175 719,175
RENT-A-CENTER INC 73,300 73,300 1,649,250 1,649,250
ROBERT HALF INTL INC 50,200 50,200 1,430,700 1,430,700
RSA SECURITY INC 12,600 12,600 872,550 872,550
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
SMALL SELECT PRO FORMA LIBERTY SMALL LIBERTY SELECT PRO FORMA
CAP VALUE VALUE FUND COMBINED CAP VALUE FUND VALUE FUND COMBINED
FUND SHARES SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
SALTON INC 13,700 13,700 505,188 505,188
SENSORMATIC ELECTRONICS CORP 36,300 36,300 573,994 573,994
SERENA SOFTWARE INC 29,700 29,700 1,348,566 1,348,566
SIEBEL SYSTEMS INC 29,900 29,900 4,890,519 4,890,519
SYBASE INC 107,500 107,500 2,472,500 2,472,500
SYMANTEC CORP 69,500 69,500 3,748,656 3,748,656
UNIVERSAL HEALTH SERVICES - B 28,600 28,600 1,887,600 1,887,600
USA NETWORKS INC 57,240 62,100 119,340 1,237,815 1,342,913 2,580,728
VERITAS SOFTWRE 49,600 49,600 5,605,575 5,605,575
WESTWOOD ONE INC 58,900 58,900 2,009,963 2,009,963
XTRA CORP 40,000 40,000 1,577,500 1,577,500
------------- ------------- --------------
50,619,264 70,604,656 121,223,920
------------- ------------- --------------
Transportation, Communications,
Electric, Gas and Sanitary Services
ADVANCED FIBRE COMMUNICATION 34,500 34,500 1,563,281 1,563,281
ALLEGHENY ENERGY IN COM 158,500 158,500 4,338,938 4,338,938
ALPHA INDUSTRIES INC 26,400 26,400 1,163,250 1,163,250
ARCH COMMUNICATIONS GROUP 120,000 120,000 780,000 780,000
ARKANSAS BEST CORP 135,900 135,900 1,350,506 1,350,506
AVIS GROUP HOLDINGS INC 92,900 92,900 1,741,875 1,741,875
BOSTON COMMUNICATIONS GROUP 84,200 84,200 1,178,800 1,178,800
CALPINE CORPORATION 92,000 92,000 6,049,000 6,049,000
CANADIAN PACIFIC LTD 104,500 104,500 2,736,594 2,736,594
CENTURYTEL INC 83,950 83,950 2,413,563 2,413,563
CHRIS-CRAFT INDUSTRIES INC 29,497 29,497 1,948,646 1,948,646
CIRCLE INTERNATIONAL 65,400 65,400 1,643,175 1,643,175
CITIZENS COMMUNICATIONS CO 45,800 45,800 790,050 790,050
CMP GROUP INC 211,900 211,900 6,211,319 6,211,319
CNF TRANSPORTATION INC 24,000 155,700 179,700 546,000 3,542,175 4,088,175
COLUMBIA ENERGY GROUP 63,000 63,000 4,134,375 4,134,375
CONECTIV INC 276,200 276,200 4,298,363 4,298,363
COVAD COMMUNICATIONS GROUP 105,000 105,000 1,693,125 1,693,125
DELTA AIR LINES INC 92,900 92,900 4,697,256 4,697,256
DOMINION RESOURCES INC 31,531 31,531 1,351,892 1,351,892
EL PASO ENERGY CORP 84,500 84,500 4,304,219 4,304,219
ENERGEN CORP 117,900 117,900 2,571,694 2,571,694
ENERGY EAST CORPORATION 224,600 224,600 4,281,438 4,281,438
ENTERGY CORP 147,100 147,100 3,999,281 3,999,281
EXAR CORP 7,400 7,400 645,188 645,188
FLORIDA PROGRESS CORP 96,900 96,900 4,542,188 4,542,188
GETTHERE.COM INC 71,200 71,200 752,050 752,050
GPU INC 122,600 122,600 3,317,863 3,317,863
IDACORP INC 77,100 77,100 2,486,475 2,486,475
INCO LTD 216,000 216,000 3,321,000 3,321,000
LIGHTBRIDGE INC 51,500 51,500 1,229,563 1,229,563
METROCALL INC 75,800 75,800 682,200 682,200
MINNESOTA POWER INC 85,520 284,800 370,320 1,480,565 4,930,600 6,411,165
NEXTLINK COMMUNICATIONS-A 87,000 87,000 3,300,563 3,300,563
NORTHEAST UTILITIES 97,000 97,000 2,109,750 2,109,750
NORTHWEST NATURAL GAS CO 112,000 112,000 2,506,000 2,506,000
NTL INC 23,375 23,375 1,399,578 1,399,578
NUI CORP 48,200 48,200 1,301,400 1,301,400
ODETICS INC-CL A 53,700 53,700 778,650 778,650
ONEOK INC 89,300 89,300 2,316,219 2,316,219
P G & E CORP 173,200 173,200 4,265,050 4,265,050
P P & L RESOURCES INC 142,400 142,400 3,123,900 3,123,900
PECO ENERGY CO 98,900 98,900 3,986,906 3,986,906
PEOPLES ENERGY CORP 75,000 75,000 2,428,125 2,428,125
PINNACLE HOLDINGS INC 9,500 9,500 513,000 513,000
PINNACLE WEST CAPITAL CORP 41,600 41,600 1,409,200 1,409,200
PMC-SIERRA INC 11,100 11,100 1,972,331 1,972,331
POTOMAC ELECTRIC POWER CO 87,100 87,100 2,177,500 2,177,500
POWERWAVE TECHNOLOGIES INC 29,400 26,400 55,800 1,293,600 1,161,600 2,455,200
PRICE COMMUNICATIONS CORP 56,500 56,500 1,331,281 1,331,281
PUBLIC SERVICE CO NEW MEX 125,800 125,800 1,942,038 1,942,038
PUBLIC SERVICE ENTER GROUP INC 80,600 80,600 2,790,775 2,790,775
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
SMALL SELECT PRO FORMA LIBERTY SMALL LIBERTY SELECT PRO FORMA
CAP VALUE VALUE FUND COMBINED CAP VALUE FUND VALUE FUND COMBINED
FUND SHARES SHARES SHARES MARKET VALUE MARKET VALUE MARKET VALUE
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
PUGET SOUND ENERGY INC 103,700 103,700 2,210,106 2,210,106
RELIANT ENERGY INC 99,700 99,700 2,947,381 2,947,381
SEMPRA ENERGY 79,500 79,500 1,351,500 1,351,500
SIERRA PACIFIC RESOURCES 137,800 137,800 1,731,113 1,731,113
SKYWEST INC 47,800 47,800 1,771,588 1,771,588
TELEPHONE & DATA 48,000 48,000 4,812,000 4,812,000
TOLLGRADE COMMUNICATIONS INC 8,400 8,400 1,113,000 1,113,000
TRUE NORTH COMMUNICATIONS 37,900 37,900 1,667,600 1,667,600
TXU CORP 89,800 89,800 2,649,100 2,649,100
U G I CORP 127,600 127,600 2,615,800 2,615,800
UAL INC 39,400 39,400 2,292,588 2,292,588
UNICOM CORPORATION 142,000 142,000 5,493,625 5,493,625
UNITED ILLUMINATING CO 32,800 32,800 1,435,000 1,435,000
UNIVISION COMMUNICATIONS CL A 52,000 52,000 5,382,000 5,382,000
USFREIGHTWAYS CORPORATION 68,500 63,100 131,600 1,682,531 1,549,894 3,232,425
UTILICORP UNITED INC 129,100 129,100 2,565,863 2,565,863
------------- ------------- --------------
50,024,759 128,069,897 178,094,655
------------- ------------- --------------
Wholesale Trade
ANIXTER INTERNATIONAL INC 80,700 80,700 2,138,550 2,138,550
ARROW ELECTRONICS INC 43,300 43,300 1,342,300 1,342,300
BINDLEY WESTERN INDUSTRIES INC 74,800 74,800 1,977,525 1,977,525
BRIGHTPOINT INC 142,900 142,900 1,236,978 1,236,978
HANDLEMAN CO 72,000 72,000 900,000 900,000
OWENS & MINOR INC HLDG CO 130,100 130,100 2,236,094 2,236,094
PATTERSON DENTAL CO 30,210 86,350 116,560 1,540,710 4,403,850 5,944,560
RICHARDS ELEC LTD 83,300 83,300 1,338,006 1,338,006
SUIZA FOODS CORP 38,500 38,500 1,881,688 1,881,688
U.S. CAN CORPORATION 71,000 71,000 1,233,625 1,233,625
ULTRAMED 450,000 450,000 0 0
UNITED STATIONERS INC 91,900 91,900 2,975,263 2,975,263
------------- ------------- --------------
17,458,438 5,746,150 23,204,588
------------- ------------- --------------
Total Common Stocks 396,907,063 691,054,177 1,087,961,240
------------- ------------- --------------
CORPORATE FIXED INCOME BONDS & NOTES
Finance, Insurance & Real Estate Par Par
IMPAC MORTGAGE HOLDINGS 11%, 2/15/04 $ 2,426,500 2,426,500 1,941,200 1,941,200
------------- --------------
SHORT-TERM OBLIGATIONS
WARBURG REPURCHASE AGREEMENT 7,628,000 $ 19,027,000 26,655,000 7,628,000 19,027,000 26,655,000
------------- ------------- --------------
TOTAL INVESTMENTS
(COST OF $379,406,041, $606,431,283
AND $986,837,324, RESPECTIVELY) $ 406,476,263 $ 710,081,177 $1,116,557,440
============= ============= ==============
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Liberty Liberty
Small Cap Value Select Value Pro Forma Pro Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C> <C>
Investments, at value $ 406,476,263 $710,081,177 $ - $1,116,557,440
Cash - - - -
Receivable for investments sold - - - -
Payable for investments purchased - - - -
Other assets less other liabilities 9,931,124 (337,122) (500,899)(a) 9,093,103
Net assets $ 416,407,387 $709,744,055 $ (500,899) $1,125,650,543
Class A:
Net assets $ 138,969,129 $388,214,593 (239,237) $ 526,944,485
Shares outstanding 4,268,643 17,372,786 1,946,059 23,587,488
Net asset value $ 32.56 $ 22.35 $ 22.34
Class B:
Net assets $ 238,607,222 $298,824,770 (235,656) $ 537,196,336
Shares outstanding 7,786,282 14,029,006 3,417,043 25,232,331
Net asset value $ 30.64 $ 21.30 $ 21.29
Class C:
Net assets $ 27,400,025 $ 21,661,061 (21,036) $ 49,040,050
Shares outstanding 869,870 991,551 384,003 2,245,424
Net asset value $ 31.50 $ 21.85 $ 21.84
Class Z:
Net assets $ 11,431,011 $ 1,043,631 (4,970) $ 12,469,672
Shares outstanding 346,276 46,541 163,616 556,433
Net asset value $ 33.01 $ 22.42 $ 22.41
</TABLE>
(a) Adjustment reflects one time proxy, accounting, legal and other costs of the
reorganization of $162,927 and $337,972 to be borne by Liberty Small Cap Value
Fund and Liberty Select Value Fund respectively.
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTH
PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY SMALL LIBERTY SELECT PRO FORMA PRO FORMA
CAP FUND VALUE ADJUSTMENTS COMBINED
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends 4,583,067 8,174,225 - 12,757,292
Interest 1,187,526 1,184,633 - 2,372,159
----------- ----------- ---------- ------------
Total investment income 5,770,592 9,358,859 - 15,129,451
EXPENSES
Management fee 3,988,196 5,223,265 (620,877)(a) 8,590,584
Administration fee - - - (a) -
Service fee - Class A, B, C 1,214,205 1,861,867 - (a) 3,076,072
Distribution fee - Class B 1,974,223 2,384,795 - (a) 4,359,018
Distribution fee - Class C 229,724 164,376 - (a) 394,100
Transfer agent fee 1,323,581 1,620,653 (579,294)(b) 2,364,940
Bookkeeping fee 183,984 270,663 (33,971)(a) 420,676
Trustees fee 20,766 28,901 (4,432)(c) 45,235
All other expenses 669,140 884,431 (448,032)(d) 1,105,539
----------- ----------- ---------- ------------
Total operating expenses 9,603,819 12,438,951 (1,539,782) 20,356,164
----------- ----------- ---------- ------------
Expense reimbursement - - - -
----------- ----------- ---------- ------------
Net Expenses 9,603,819 12,438,951 (1,539,782) 20,356,164
NET INVESTMENT LOSS (3,833,227) (3,080,092) 1,539,782 (5,226,713)
NET REALIZED & UNREALIZED GAIN
Net realized gain on:
Investments 83,353,135 113,063,056 - 196,416,191
Closed futures contracts - - - -
Foreign currency transactions 0 (1) - (1)
----------- ----------- ---------- ------------
Net Realized Gain 83,353,135 113,063,055 - 196,416,190
Change in net unrealized appreciation/depreciation -
during the period on: -
Investments (55,231,387) (57,406,602) - (112,637,989)
Open futures contracts - - - -
Foreign currency transactions - 424 - 424
----------- ----------- ---------- ------------
Net Change in Unrealized Appreciation/Depreciation (55,231,387) (57,406,178) - (112,637,565)
----------- ----------- ---------- ------------
Net Gain 28,121,748 55,656,877 - 83,778,625
----------- ----------- ---------- ------------
Increase in Net Assets from Operations 24,288,521 52,576,785 1,539,782 78,551,912
</TABLE>
(a) Based on 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 Select Value
Fund effective January 1, 2000. The pro forma combined transfer agent
fee shown assumes this new agreement was in effect for the entire twelve-
month period ended June 30, 2000.
(c) Based on trustee compensation plan for the surviving fund.
(d) Decrease due to the elimination of duplicative expenses achieved by merging
the fund.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE LIBERTY
DISCIPLINED SMALL CAP LIBERTY
STOCK VALUE SELECT PRO FORMA
PORTFOLIO FUND VALUE FUND COMBINED
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
COMMON STOCKS
Agriculture, Forestry & Fishing
NABISCO GROUP HOLDINGS 172,400 172,400
RAYONIER INC 53,300 53,300
Construction
FLUOR CORP 53,100 53,100
GRANITE CONSTRUCTION INC 77,600 77,600
NVR INC 37,500 37,500
TOLL BROTHERS INC 39,200 39,200
Finance, Insurance & Real Estate
AFFILIATED MANAGERS GROUP 44,000 44,000
ALLMERICA FINANCIAL CORP 62,400 62,400
AMBAC FINANCIAL GROUP INC 113,100 113,100
AMERICREDIT CORP 105,600 105,600
AMERUS LIFE HOLDINGS INC-A 82,500 82,500
ARGOSY GAMING COMPANY 97,800 97,800
BANCWEST CORPORATION 52,000 202,800 254,800
BANK UNITED CORP CL A 80,700 80,700
BANKATLANTIC BANCORP INC-B 102,900 102,900
BANKNORTH GROUP INC 97,450 215,500 312,950
BEAR STEARNS COMPANIES INC 90,600 90,600
CAPITAL ONE FINANCIAL CORP 57,000 57,000
CAPITOL FEDERAL FINANCIAL 177,000 177,000
CHASE MANHATTAN CORP (NEW) 150,000 150,000
CINCINNATI FINANCIAL CORP 71,900 71,900
CITY NATIONAL CORP 146,800 146,800
COMMERCE BANCORP INC 52,185 52,185
COMMUNITY BANK SYSTEM INC 74,500 74,500
COMPASS BANCSHARES INC 90,000 90,000
CULLEN/FROST BANKERS INC 60,700 130,500 191,200
DELPHI FINANCIAL GROUP CLASS A 67,668 67,668
DOW JONES & CO INC 19,200 19,200
DOWNEY FINL CP 91,400 91,400
EDWARDS (A.G.), INC 79,100 79,100
ENHANCE FINANCIAL SVCS GROUP 103,600 103,600
FIDELITY NATIONAL FINL INC 135,560 135,560
FINL SECURITY ASSURANCE HLDG 40,000 40,000
FIRST FEDERAL CAPITAL CORP 155,100 155,100
FIRSTAR CORP 50,000 50,000
FIRSTFED FINANCIAL CORP 144,400 144,400
GALLAGHER (ARTHUR J.) & CO. 55,080 55,080
GOLDEN STATE BANCORP 263,200 263,200
GOLDEN STATE BANCORP-LITIG WT 155,000 155,000
GOLDEN WEST FINANCIAL CORP 351,700 88,200 439,900
GREATER BAY BANCORP 46,000 46,000
GREENPOINT FINANCIAL CORP 236,400 236,400
HCA-THE HEALTHCARE CORP 334,900 334,900
HUDSON UNITED BANCORP 87,844 87,844
INDEPENDENCE COMMUNITY BANK 153,400 153,400
KNIGHT TRADING GROUP INC 40,700 40,700
LEHMAN BROTHERS HLDG INC 71,700 71,700
LOEWS CORP 69,500 69,500
MAF BANCORP INC 109,500 109,500
MARCHFIRST INC 36,700 36,700
MGIC INV CORP 69,600 69,600
MIDLAND CO 45,400 45,400
MONY GROUP INC 61,800 61,800
NATIONWIDE FINANCIAL SERV A 154,800 154,800
NORTH FORK BANCORPORATION 95,200 282,400 377,600
PACIFIC CENTURY FINL CORP 196,300 196,300
PAINE WEBBER GROUP INC 49,000 49,000
PMI GROUP INC 75,000 43,100 100,200 218,300
</TABLE>
<TABLE>
<CAPTION>
STEIN ROE LIBERTY LIBERTY
DISCIPLINED SMALL CAP SELECT VALUE PRO FORMA
STOCK PORT. VALUE FUND FUND MARKET COMBINED
MARKET VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
COMMON STOCKS
Agriculture, Forestry & Fishing
NABISCO GROUP HOLDINGS $ 4,471,625 $ 4,471,625
RAYONIER INC $ 1,912,138 1,912,138
------------- ------------- --------------
1,912,138 4,471,625 6,383,763
------------- ------------- --------------
Construction
FLUOR CORP 1,679,288 1,679,288
GRANITE CONSTRUCTION INC 1,901,200 1,901,200
NVR INC 2,137,500 2,137,500
TOLL BROTHERS INC 803,600 803,600
------------- ------------- --------------
4,842,300 1,679,288 6,521,588
------------- ------------- --------------
Finance, Insurance & Real Estate
AFFILIATED MANAGERS GROUP 2,002,000 2,002,000
ALLMERICA FINANCIAL CORP 3,268,200 3,268,200
AMBAC FINANCIAL GROUP INC 6,199,294 6,199,294
AMERICREDIT CORP 1,795,200 1,795,200
AMERUS LIFE HOLDINGS INC-A 1,701,563 1,701,563
ARGOSY GAMING COMPANY 1,405,875 1,405,875
BANCWEST CORPORATION 854,750 3,333,525 4,188,275
BANK UNITED CORP CL A 2,839,631 2,839,631
BANKATLANTIC BANCORP INC-B 604,538 604,538
BANKNORTH GROUP INC 1,492,203 3,299,844 4,792,047
BEAR STEARNS COMPANIES INC 3,771,225 3,771,225
CAPITAL ONE FINANCIAL CORP 2,543,625 2,543,625
CAPITOL FEDERAL FINANCIAL 1,958,063 1,958,063
CHASE MANHATTAN CORP (NEW) $ 6,909,375 6,909,375
CINCINNATI FINANCIAL CORP 2,260,356 2,260,356
CITY NATIONAL CORP 5,211,400 5,211,400
COMMERCE BANCORP INC 2,400,510 2,400,510
COMMUNITY BANK SYSTEM INC 1,652,969 1,652,969
COMPASS BANCSHARES INC 1,535,625 1,535,625
CULLEN/FROST BANKERS INC 1,597,169 3,433,781 5,030,950
DELPHI FINANCIAL GROUP CLASS A 2,296,488 2,296,488
DOW JONES & CO INC 1,406,400 1,406,400
DOWNEY FINL CP 2,650,600 2,650,600
EDWARDS (A.G.), INC 3,084,900 3,084,900
ENHANCE FINANCIAL SVCS GROUP 1,489,250 1,489,250
FIDELITY NATIONAL FINL INC 2,482,443 2,482,443
FINL SECURITY ASSURANCE HLDG 3,035,000 3,035,000
FIRST FEDERAL CAPITAL CORP 1,715,794 1,715,794
FIRSTAR CORP 1,053,125 1,053,125
FIRSTFED FINANCIAL CORP 2,039,650 2,039,650
GALLAGHER (ARTHUR J.) & CO. 2,313,360 2,313,360
GOLDEN STATE BANCORP 4,737,600 4,737,600
GOLDEN STATE BANCORP-LITIG WT 174,375 174,375
GOLDEN WEST FINANCIAL CORP 14,353,756 3,599,663 17,953,419
GREATER BAY BANCORP 2,150,500 2,150,500
GREENPOINT FINANCIAL CORP 4,432,500 4,432,500
HCA-THE HEALTHCARE CORP 10,172,588 10,172,588
HUDSON UNITED BANCORP 1,971,000 1,971,000
INDEPENDENCE COMMUNITY BANK 2,032,550 2,032,550
KNIGHT TRADING GROUP INC 1,213,369 1,213,369
LEHMAN BROTHERS HLDG INC 6,780,131 6,780,131
LOEWS CORP 4,170,000 4,170,000
MAF BANCORP INC 1,991,531 1,991,531
MARCHFIRST INC 669,775 669,775
MGIC INV CORP 3,166,800 3,166,800
MIDLAND CO 1,112,300 1,112,300
MONY GROUP INC 2,089,613 2,089,613
NATIONWIDE FINANCIAL SERV A 5,089,050 5,089,050
NORTH FORK BANCORPORATION 1,439,900 4,271,300 5,711,200
PACIFIC CENTURY FINL CORP 2,870,888 2,870,888
PAINE WEBBER GROUP INC 2,229,500 2,229,500
PMI GROUP INC 3,562,500 2,047,250 4,759,500 10,369,250
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE LIBERTY
DISCIPLINED SMALL CAP LIBERTY
STOCK VALUE SELECT PRO FORMA
PORTFOLIO FUND VALUE FUND COMBINED
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
COMMON STOCKS
PROVIDENT BANKSHARES CORP 127,680 127,680
RADIAN GROUP INC 90,300 94,500 184,800
RAYMOND JAMES FINANCIAL INC 52,300 52,300
RENAISSANCERE HOLDINGS LTD 42,200 42,200
SOVEREIGN BANCORP INC 506,600 506,600
ST PAUL COMPANIES INC 121,800 121,800
STATE AUTO FINANCIAL CORP 86,000 86,000
STATEN ISLAND BANCORP INC 68,000 68,000
SUSQUEHANNA BANCSHARES INC 100,000 100,000
TORCHMARK INSURANCE 57,900 57,900
UMB FINANCIAL CORP 62,500 62,500
UNIONBANCAL CORPORATION 143,200 143,200
UNITED HEALTHCARE CORP 98,000 98,000
WALTER INDUSTRIES INC 113,500 113,500
WASHINGTON MUTUAL INC 382,600 382,600
WEBSTER FINANCIAL CORP 104,300 114,600 218,900
WELLPOINT HEALTH NETWORKS 62,200 62,200
WHITNEY HOLDING CORP 71,500 71,500
Manufacturing
ACTEL CORP 50,500 50,500
ACUSON CORP 515,700 515,700
ADAC LABORATORIES 99,400 99,400
ADC TELECOMMUNICATIONS INC 91,100 91,100
ADVANCED DIGITAL INFO CORP 21,600 21,900 43,500
ADVANCED MICRO DEVICES INC 48,600 48,600
AGRIBRANDS INTERNATIONAL INC 30,700 30,700
AIR PRODUCTS & CHEMICALS INC 200,000 200,000
ALBEMARLE CORP 54,800 54,800
ALLIANT TECHSYSTEMS INC 20,400 20,400
ALPHARMA INC 44,000 44,000
ALTERA CORPORATION 62,800 62,800
AMERADA HESS CORP 60,000 47,000 107,000
ANALOG DEVICES INC. 40,100 40,100
ANDREW CORP 603,900 603,900
APPLE COMPUTER INC 124,800 124,800
APPLIED MICRO CIRCUITS CORP 46,300 46,300
ARVIN INDUSTRIES INC 48,400 48,400
ATMEL CORP 73,700 73,700
AUDIOVOX CORP -CL A 32,000 32,000
AURORA BIOSCIENCES CORP 13,200 13,200
AVX CORP 430,600 430,600
B F GOODRICH CO 102,700 102,700
BALDOR ELECTRIC 43,300 43,300
BARNES GROUP INC 100,000 100,000
BARR LABORATORIES INC 24,000 24,000
BAUSCH & LOMB INC 19,400 19,400
BELL AND HOWELL COMPANY 38,500 38,500
BETHLEHEM STEEL CORP 173,800 173,800
BIOGEN INC 21,400 21,400
BIOMET INC 270,000 270,000
BOISE CASCADE CORP 48,000 95,200 143,200
BRISTOL-MYERS SQUIBB CO 50,000 50,000
BRUNSWICK CORP 122,200 122,200
BURR-BROWN CORP 12,600 12,600
C R BARD INC 40,000 40,000
CACI INTERNATIONAL INC-CL A 64,000 64,000
CANANDAIGUA BRANDS INC 83,100 83,100
CARLISLE COS INC 242,000 41,300 283,300
CARPENTER TECHNOLOGY CORP 130,000 130,000
CENTEX CONSTRUCTION PRODUCTS 41,900 41,900
CHIRON CORP 77,800 77,800
CHURCH & DWIGHT CO 74,000 74,000
CLECO CORP 30,000 30,000
COMMSCOPE INC 46,700 46,700
COMPAQ COMPUTER CORP 250,000 250,000
COMVERSE TECH 64,400 64,400
COOPER TIRE & RUBBER CO 280,000 280,000
</TABLE>
<TABLE>
<CAPTION>
STEIN ROE LIBERTY LIBERTY
DISCIPLINED SMALL CAP SELECT VALUE PRO FORMA
STOCK PORT. VALUE FUND FUND MARKET COMBINED
MARKET VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
COMMON STOCKS
PROVIDENT BANKSHARES CORP 1,723,680 1,723,680
RADIAN GROUP INC 4,673,025 4,890,375 9,563,400
RAYMOND JAMES FINANCIAL INC 1,176,750 1,176,750
RENAISSANCERE HOLDINGS LTD 1,838,338 1,838,338
SOVEREIGN BANCORP INC 3,562,031 3,562,031
ST PAUL COMPANIES INC 4,156,425 4,156,425
STATE AUTO FINANCIAL CORP 1,021,250 1,021,250
STATEN ISLAND BANCORP INC 1,198,500 1,198,500
SUSQUEHANNA BANCSHARES INC 1,425,000 1,425,000
TORCHMARK INSURANCE 1,429,406 1,429,406
UMB FINANCIAL CORP 2,050,781 2,050,781
UNIONBANCAL CORPORATION 2,658,150 2,658,150
UNITED HEALTHCARE CORP 8,403,500 8,403,500
WALTER INDUSTRIES INC 1,298,156 1,298,156
WASHINGTON MUTUAL INC 11,047,575 11,047,575
WEBSTER FINANCIAL CORP 2,314,156 2,542,688 4,856,844
WELLPOINT HEALTH NETWORKS 4,505,613 4,505,613
WHITNEY HOLDING CORP 2,444,406 2,444,406
------------- ------------- ------------- --------------
47,098,919 69,870,902 124,115,650 241,085,470
------------- ------------- ------------- --------------
Manufacturing
ACTEL CORP 2,304,063 2,304,063
ACUSON CORP 6,961,950 6,961,950
ADAC LABORATORIES 2,385,600 2,385,600
ADC TELECOMMUNICATIONS INC 7,641,013 7,641,013
ADVANCED DIGITAL INFO CORP 344,250 349,031 693,281
ADVANCED MICRO DEVICES INC 3,754,350 3,754,350
AGRIBRANDS INTERNATIONAL INC 1,287,481 1,287,481
AIR PRODUCTS & CHEMICALS INC 6,162,500 6,162,500
ALBEMARLE CORP 1,082,300 1,082,300
ALLIANT TECHSYSTEMS INC 1,375,725 1,375,725
ALPHARMA INC 2,739,000 2,739,000
ALTERA CORPORATION 6,401,675 6,401,675
AMERADA HESS CORP 3,705,000 2,902,250 6,607,250
ANALOG DEVICES INC. 3,047,600 3,047,600
ANDREW CORP 20,268,394 20,268,394
APPLE COMPUTER INC 6,536,400 6,536,400
APPLIED MICRO CIRCUITS CORP 4,572,125 4,572,125
ARVIN INDUSTRIES INC 840,950 840,950
ATMEL CORP 2,717,688 2,717,688
AUDIOVOX CORP -CL A 706,000 706,000
AURORA BIOSCIENCES CORP 900,075 900,075
AVX CORP 9,876,888 9,876,888
B F GOODRICH CO 3,498,219 3,498,219
BALDOR ELECTRIC 806,463 806,463
BARNES GROUP INC 1,631,250 1,631,250
BARR LABORATORIES INC 1,075,500 1,075,500
BAUSCH & LOMB INC 1,501,075 1,501,075
BELL AND HOWELL COMPANY 933,625 933,625
BETHLEHEM STEEL CORP 619,163 619,163
BIOGEN INC 1,380,300 1,380,300
BIOMET INC 10,378,125 10,378,125
BOISE CASCADE CORP 1,242,000 2,463,300 3,705,300
BRISTOL-MYERS SQUIBB CO 2,912,500 2,912,500
BRUNSWICK CORP 2,023,938 2,023,938
BURR-BROWN CORP 1,092,263 1,092,263
C R BARD INC 1,925,000 1,925,000
CACI INTERNATIONAL INC-CL A 1,248,000 1,248,000
CANANDAIGUA BRANDS INC 4,191,356 4,191,356
CARLISLE COS INC 10,890,000 1,858,500 12,748,500
CARPENTER TECHNOLOGY CORP 2,746,250 2,746,250
CENTEX CONSTRUCTION PRODUCTS 950,606 950,606
CHIRON CORP 3,695,500 3,695,500
CHURCH & DWIGHT CO 1,332,000 1,332,000
CLECO CORP 1,005,000 1,005,000
COMMSCOPE INC 1,914,700 1,914,700
COMPAQ COMPUTER CORP 6,390,625 6,390,625
COMVERSE TECH 5,989,200 5,989,200
COOPER TIRE & RUBBER CO 3,115,000 3,115,000
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE LIBERTY
DISCIPLINED SMALL CAP LIBERTY
STOCK VALUE SELECT PRO FORMA
PORTFOLIO FUND VALUE FUND COMBINED
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
COMMON STOCKS
CORN PRODUCTS INTL INC 45,300 45,300
CREE INC 6,300 6,300
CROWN CORK AND SEAL CO. INC. 141,100 141,100
CYMER INC 34,300 34,300
CYPRESS SEMICONDUCTOR CORP 30,400 45,800 76,200
CYTEC INDUSTRIES INC 129,300 129,300
DALLAS SEMICONDUCTOR CORP 68,200 68,200
DELPHI AUTOMOTIVE SYSTEMS 158,800 158,800
DEXTER CORP 235,000 235,000
DOVER CORP 120,900 120,900
EATON CORP 45,500 45,500
ECOLAB INC 256,800 21,100 277,900
EI DUPONT DE NEMOURS & CO INC 100,000 100,000
ELANTEC SEMICONDUCTOR INC 14,200 14,200
EMULEX CORP 6,400 6,400
ENGELHARD CORPORATION 175,300 175,300
ESTERLINE TECHNOLOGIES CORP 87,700 87,700
ETHAN ALLEN INTERIORS INC 56,400 56,400
EXFO ELECTRO-OPTICAL ENGINEE 6,200 6,200
FLOWSERVE CORP 215,000 215,000
FMC CORP 66,000 66,000
FOSSIL INC 69,925 69,925
FULLER (H.B.) CO 20,000 20,000
FURNITURE BRANDS INTL INC 91,600 119,300 210,900
GEHL CO 90,600 90,600
GENERAL SEMICONDUCTOR INC 89,600 89,600
GENTEX CORP 74,000 74,000
GEON COMPANY 53,000 53,000
GEORGIA PACIFIC CORP 130,000 91,200 221,200
GLATFELTER (P.H.) CO 110,600 110,600
GLENAYRE TECHNOLOGIES INC 127,000 127,000
GRANT PRIDECO INC 103,800 103,800
HAIN CELESTIAL GROUP INC 59,000 59,000
HANNA CO 169,800 169,800
HARLEY DAVIDSON 118,000 118,000
HARMAN INTERNATIONAL INC NEW 43,000 43,000
HARRIS CORPORATION DEL 49,300 49,300
HARSCO CORP 41,700 41,700
HAVERTY FURNITURE 10,000 10,000
HELIX TECHNOLOGY CORP 6,800 6,800
HORMEL FOODS CORP 137,400 137,400
IDEC PHARMACEUTICALS CORP 17,000 17,000
IMATION CORP 55,600 55,600
IMMUNEX CORP 14,500 14,500
IMPERIAL CHEM IND INC ADR 375,400 375,400
INFOCUS CORP 70,200 70,200
INGERSOLL RAND CO 157,100 157,100
INTEGRATED DEVICES TECH INC 46,800 36,100 82,900
INTERNATIONAL HOME FOODS INC 115,100 115,100
INTERNATIONAL RECTIFIER CORP 73,000 73,000
INTERSTATE BAKERIES 181,700 181,700
INTL BUSINESS MACHINES CORP 60,000 60,000
INTUIT INC 84,300 84,300
IVAX CORP 158,850 158,850
JDS UNIPHASE CORP 22,000 22,000
JOHNSON CONTROLS INC 92,500 92,500
JONES PHARMA INC 51,150 51,150
KELLWOOD CO 37,700 37,700
KEMET CORP 20,400 20,400
KENNAMETAL INC 43,800 43,800
KNIGHT RIDDER INC 30,300 88,100 118,400
LAFARGE CORP 78,000 78,000
LAM RESEARCH CORP 35,400 35,400
LATTICE SEMICONDUCTOR CORP 6,300 6,300
LEAR CORP 157,000 119,200 276,200
LINEAR TECHNOLOGY CORP 97,100 97,100
LITTLEFUSE INC 495,000 495,000
LOCKHEED MARTIN CORP 153,200 153,200
LONGVIEW FIBRE CO 152,500 152,500
LSI LOGIC CORP 51,400 51,400
LUBRIZOL CORP 69,800 170,800 240,600
</TABLE>
<TABLE>
<CAPTION>
STEIN ROE LIBERTY LIBERTY
DISCIPLINED SMALL CAP SELECT VALUE PRO FORMA
STOCK PORT. VALUE FUND FUND MARKET COMBINED
MARKET VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
COMMON STOCKS
CORN PRODUCTS INTL INC 1,200,450 1,200,450
CREE INC 841,050 841,050
CROWN CORK AND SEAL CO. INC. 2,116,500 2,116,500
CYMER INC 1,637,825 1,637,825
CYPRESS SEMICONDUCTOR CORP 1,284,400 1,935,050 3,219,450
CYTEC INDUSTRIES INC 3,192,094 3,192,094
DALLAS SEMICONDUCTOR CORP 2,779,150 2,779,150
DELPHI AUTOMOTIVE SYSTEMS 2,312,525 2,312,525
DEXTER CORP 11,280,000 11,280,000
DOVER CORP 4,904,006 4,904,006
EATON CORP 3,048,500 3,048,500
ECOLAB INC 10,031,250 824,219 10,855,469
EI DUPONT DE NEMOURS & CO INC 4,375,000 4,375,000
ELANTEC SEMICONDUCTOR INC 988,675 988,675
EMULEX CORP 420,400 420,400
ENGELHARD CORPORATION 2,991,056 2,991,056
ESTERLINE TECHNOLOGIES CORP 1,304,538 1,304,538
ETHAN ALLEN INTERIORS INC 1,353,600 1,353,600
EXFO ELECTRO-OPTICAL ENGINEE 272,025 272,025
FLOWSERVE CORP 3,238,438 3,238,438
FMC CORP 3,828,000 3,828,000
FOSSIL INC 1,359,167 1,359,167
FULLER (H.B.) CO 911,250 911,250
FURNITURE BRANDS INTL INC 1,385,450 1,804,413 3,189,863
GEHL CO 1,291,050 1,291,050
GENERAL SEMICONDUCTOR INC 1,321,600 1,321,600
GENTEX CORP 1,859,250 1,859,250
GEON COMPANY 980,500 980,500
GEORGIA PACIFIC CORP 3,412,500 2,394,000 5,806,500
GLATFELTER (P.H.) CO 1,126,738 1,126,738
GLENAYRE TECHNOLOGIES INC 1,341,438 1,341,438
GRANT PRIDECO INC 2,595,000 2,595,000
HAIN CELESTIAL GROUP INC 2,164,563 2,164,563
HANNA CO 1,528,200 1,528,200
HARLEY DAVIDSON 4,543,000 4,543,000
HARMAN INTERNATIONAL INC NEW 2,623,000 2,623,000
HARRIS CORPORATION DEL 1,614,575 1,614,575
HARSCO CORP 1,063,350 1,063,350
HAVERTY FURNITURE 85,000 85,000
HELIX TECHNOLOGY CORP 265,200 265,200
HORMEL FOODS CORP 2,310,038 2,310,038
IDEC PHARMACEUTICALS CORP 1,994,313 1,994,313
IMATION CORP 1,633,250 1,633,250
IMMUNEX CORP 716,844 716,844
IMPERIAL CHEM IND INC ADR 11,567,013 11,567,013
INFOCUS CORP 2,259,563 2,259,563
INGERSOLL RAND CO 6,323,275 6,323,275
INTEGRATED DEVICES TECH INC 2,802,150 2,161,488 4,963,638
INTERNATIONAL HOME FOODS INC 2,409,906 2,409,906
INTERNATIONAL RECTIFIER CORP 4,088,000 4,088,000
INTERSTATE BAKERIES 2,543,800 2,543,800
INTL BUSINESS MACHINES CORP 6,573,750 6,573,750
INTUIT INC 3,487,913 3,487,913
IVAX CORP 6,592,275 6,592,275
JDS UNIPHASE CORP 2,637,250 2,637,250
JOHNSON CONTROLS INC 4,746,406 4,746,406
JONES PHARMA INC 2,042,803 2,042,803
KELLWOOD CO 796,413 796,413
KEMET CORP 511,275 511,275
KENNAMETAL INC 938,963 938,963
KNIGHT RIDDER INC 1,611,581 4,685,819 6,297,400
LAFARGE CORP 1,638,000 1,638,000
LAM RESEARCH CORP 1,327,500 1,327,500
LATTICE SEMICONDUCTOR CORP 435,488 435,488
LEAR CORP 3,140,000 2,384,000 5,524,000
LINEAR TECHNOLOGY CORP 6,208,331 6,208,331
LITTLEFUSE INC 24,255,000 24,255,000
LOCKHEED MARTIN CORP 3,801,275 3,801,275
LONGVIEW FIBRE CO 1,687,031 1,687,031
LSI LOGIC CORP 2,782,025 2,782,025
LUBRIZOL CORP 1,465,800 3,586,800 5,052,600
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE LIBERTY
DISCIPLINED SMALL CAP LIBERTY
STOCK VALUE SELECT PRO FORMA
PORTFOLIO FUND VALUE FUND COMBINED
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
COMMON STOCKS
LUXOTTICA GROU SPA-SPON ADR 50,200 50,200
LYONDELL PETRO 321,500 321,500
MALLINCKRODT INC 130,000 130,000
MANITOWOC INC 66,100 66,100
MATTSON TECHNOLOGY INC 16,100 16,100
MAXIM INTEGRATED PRODUCTS INC 64,300 64,300
MCCORMICK & CO 96,800 96,800
MERITOR AUTOMOTIVE INC 281,900 281,900
MICHAEL FOODS INC 59,700 59,700
MICROCHIP TECHNOLOGY 45,000 45,000
MICRON TECHNOLOGY INCORPORATED 26,000 26,000
MILACRON INC 86,400 86,400
MILLENNIUM CHEMICALS INC 234,100 234,100
MKS INSTRUMENTS INC 34,000 34,000
MRV COMMUNICATIONS INC 20,600 20,600
MUELLER INDUSTRIES INC 85,100 148,000 233,100
MYLAN LABORATORIES, INC 125,000 125,000
NACCO INDUSTRIES INC CL A 31,200 31,200
NATIONAL SEMICONDUCTOR CORP 46,900 46,900
NAVISTAR INTERNATIONAL 129,600 129,600
NEW YORK TIMES CO CLASS A 115,000 115,000
NORTEK INC. 63,800 63,800
NORTHROP GRUMMAN CORP 35,400 35,400
NOVELLUS SYSTEMS INC 98,400 98,400
NUCOR CORP 70,200 70,200
OCEANEERING INTL INC 44,000 44,000
OM GROUP INC 369,500 369,500
OSHKOSH TRUCK CORP 32,850 32,850
PACCAR INC 50,900 50,900
PARK ELECTROCHEMICAL CORP 77,900 77,900
PARKER HANNIFIN CORP 39,800 39,800
PE CORP-CELERA GENOMICS GRP 26,400 26,400
PE CORP-PE BIOSYSTEMS GROUP 28,800 28,800
PENNZOIL-QUAKER STATE CO 91,800 91,800
PENTAIR INC 40,400 40,400
PEPSI BOTTLING GROUP 193,200 193,200
PHELPS DODGE CORP 65,908 65,908
PHILLIPS VAN HEUSEN CORP 97,500 97,500
PHOTON DYNAMICS INC 8,600 8,600
PLEXUS CORP 21,500 21,500
PPG INDUSTRIES INC 102,100 102,100
PRAXAIR INC 130,000 130,000
PRECISION CASTPARTS CORP 22,500 22,500
PROTEIN DESIGN LABS INC 10,500 10,500
QUANEX CORP 72,700 72,700
REYNOLDS & REYNOLDS CO 280,000 280,000
RUSS BERRIE & CO INC 61,600 61,600
RYERSON TULL INC 93,598 93,598
SABRE HOLDINGS CORP 72,265 72,265
SANMINA CORPX 77,400 77,400
SEAGATE TECHNOLOGY INC 145,800 145,800
SEMTECH CORP 25,800 25,800
SHIRE PHARMACEUTICALS-ADR 32,184 32,184
SILICON VALLEY GROUP INC 95,100 95,100
SPRINGS INDUSTRIES INC 22,100 22,100
SPS TECHNOLOGIES, IN 26,300 26,300
STORAGENETWORKS INC 11,700 11,700
STURM RUGER & CO INC 181,300 181,300
SUPERIOR INDUSTRIES INTL 250,200 72,100 322,300
TEKTRONIX INC 19,700 19,700
TELCOM SEMICONDUCTOR INC 19,300 19,300
TEMPLE INLAND INC 34,500 34,500
TERADYNE INC 84,598 84,598
TEREX CORP 84,900 84,900
TESORO PETROLEUM CORP 141,500 141,500
TEXAS INDUSTRIES INC 60,500 60,500
TIME WARNER TELECOM-CL A 9,400 9,400
TIMKEN CO 97,100 97,100
TOPPS COMPANY 133,100 133,100
TORO CO 44,700 44,700
TOSCO CORP 159,600 159,600
</TABLE>
<TABLE>
<CAPTION>
STEIN ROE LIBERTY LIBERTY
DISCIPLINED SMALL CAP SELECT VALUE PRO FORMA
STOCK PORT. VALUE FUND FUND MARKET COMBINED
MARKET VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
COMMON STOCKS
LUXOTTICA GROU SPA-SPON ADR 611,813 611,813
LYONDELL PETRO 5,385,125 5,385,125
MALLINCKRODT INC 5,646,875 5,646,875
MANITOWOC INC 1,768,175 1,768,175
MATTSON TECHNOLOGY INC 523,250 523,250
MAXIM INTEGRATED PRODUCTS INC 4,368,381 4,368,381
MCCORMICK & CO 3,146,000 3,146,000
MERITOR AUTOMOTIVE INC 3,100,900 3,100,900
MICHAEL FOODS INC 1,462,650 1,462,650
MICROCHIP TECHNOLOGY 2,621,953 2,621,953
MICRON TECHNOLOGY INCORPORATED 2,289,625 2,289,625
MILACRON INC 1,252,800 1,252,800
MILLENNIUM CHEMICALS INC 3,979,700 3,979,700
MKS INSTRUMENTS INC 1,330,250 1,330,250
MRV COMMUNICATIONS INC 1,385,350 1,385,350
MUELLER INDUSTRIES INC 2,382,800 4,144,000 6,526,800
MYLAN LABORATORIES, INC 2,281,250 2,281,250
NACCO INDUSTRIES INC CL A 1,095,900 1,095,900
NATIONAL SEMICONDUCTOR CORP 2,661,575 2,661,575
NAVISTAR INTERNATIONAL 4,025,700 4,025,700
NEW YORK TIMES CO CLASS A 4,542,500 4,542,500
NORTEK INC. 1,260,050 1,260,050
NORTHROP GRUMMAN CORP 2,345,250 2,345,250
NOVELLUS SYSTEMS INC 5,565,750 5,565,750
NUCOR CORP 2,329,763 2,329,763
OCEANEERING INTL INC 836,000 836,000
OM GROUP INC 16,258,000 16,258,000
OSHKOSH TRUCK CORP 1,174,388 1,174,388
PACCAR INC 2,020,094 2,020,094
PARK ELECTROCHEMICAL CORP 2,809,269 2,809,269
PARKER HANNIFIN CORP 1,363,150 1,363,150
PE CORP-CELERA GENOMICS GRP 2,468,400 2,468,400
PE CORP-PE BIOSYSTEMS GROUP 1,897,200 1,897,200
PENNZOIL-QUAKER STATE CO 1,107,338 1,107,338
PENTAIR INC 1,434,200 1,434,200
PEPSI BOTTLING GROUP 5,639,025 5,639,025
PHELPS DODGE CORP 2,450,954 2,450,954
PHILLIPS VAN HEUSEN CORP 926,250 926,250
PHOTON DYNAMICS INC 642,313 642,313
PLEXUS CORP 2,429,500 2,429,500
PPG INDUSTRIES INC 4,524,306 4,524,306
PRAXAIR INC 4,866,875 4,866,875
PRECISION CASTPARTS CORP 1,018,125 1,018,125
PROTEIN DESIGN LABS INC 1,732,008 1,732,008
QUANEX CORP 1,081,413 1,081,413
REYNOLDS & REYNOLDS CO 5,110,000 5,110,000
RUSS BERRIE & CO INC 1,185,800 1,185,800
RYERSON TULL INC 971,079 971,079
SABRE HOLDINGS CORP 2,059,553 2,059,553
SANMINA CORPX 6,617,700 6,617,700
SEAGATE TECHNOLOGY INC 8,019,000 8,019,000
SEMTECH CORP 1,973,297 1,973,297
SHIRE PHARMACEUTICALS-ADR 1,669,546 1,669,546
SILICON VALLEY GROUP INC 2,460,713 2,460,713
SPRINGS INDUSTRIES INC 711,344 711,344
SPS TECHNOLOGIES, IN 1,079,944 1,079,944
STORAGENETWORKS INC 1,055,925 1,055,925
STURM RUGER & CO INC 1,609,038 1,609,038
SUPERIOR INDUSTRIES INTL 6,442,650 1,856,575 8,299,225
TEKTRONIX INC 1,457,800 1,457,800
TELCOM SEMICONDUCTOR INC 779,238 779,238
TEMPLE INLAND INC 1,449,000 1,449,000
TERADYNE INC 6,217,953 6,217,953
TEREX CORP 1,199,213 1,199,213
TESORO PETROLEUM CORP 1,432,688 1,432,688
TEXAS INDUSTRIES INC 1,746,938 1,746,938
TIME WARNER TELECOM-CL A 605,125 605,125
TIMKEN CO 1,808,488 1,808,488
TOPPS COMPANY 1,530,650 1,530,650
TORO CO 1,472,306 1,472,306
TOSCO CORP 4,518,675 4,518,675
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE LIBERTY
DISCIPLINED SMALL CAP LIBERTY
STOCK VALUE SELECT PRO FORMA
PORTFOLIO FUND VALUE FUND COMBINED
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
COMMON STOCKS
TOWER AUTOMOTIVE INC 76,100 76,100
TRIQUINT SEMICONDUCTOR INC 9,900 9,900
TUPPERWARE CORPORATION 86,800 166,100 252,900
ULTRAMAR DIAMOND SHAMROCK CORP 65,600 65,600
UNIFI INC 145,475 145,475
UNISYS CORP 181,500 181,500
US INDUSTRIES INC 252,500 252,500
USG CORP NEW 123,200 123,200
USX-US STEEL GROUP 44,400 44,400
VALASSIS COMM. INC 105,250 129,700 234,950
VARIAN INC 16,700 16,700
VERTEX PHARMACEUTICALS INC 12,500 12,500
VICAL INC 43,800 43,800
VISHAY INTERTECHNOLOGY 158,400 158,400
VITESSE SEMICONDUCTOR CORP 72,100 72,100
W R GRACE & CO 132,900 189,000 321,900
WATERS CORPORATION 48,900 48,900
WATSON PHARMACEUTICALS 67,900 67,900
WEATHERFORD INTERNATIONAL 103,800 103,800
WESTVACO CORP 169,800 169,800
WHIRLPOOL CORP 51,700 51,700
WILLAMETTE IND INC 90,600 90,600
WINNEBAGO INDUSTRIES 40,900 40,900
WOLVERINE WORLD WIDE INC 546,000 546,000
WORTHINGTON INDUSTRIES 205,200 205,200
XILINIX INC 63,000 63,000
ZEBRA TECHNOLOGIES CORP-CL A 24,100 24,100
Mining & Energy
BJ SERVICES CO 81,700 81,700
CROSS TIMBER OIL CO 768,725 768,725
DIAMOND OFFSHORE DRILLING 130,000 130,000
FALCON DRILLING COMPANY INC 43,700 244,000 287,700
F-PORT MCMORAN COP & GOLD 200,000 200,000
HS RESOURCES INC 100,100 100,100
NOBLE DRILLING CORP 143,600 143,600
OCCIDENTAL PETROLEUM 122,200 122,200
PARKER DRILLING CO 356,200 356,200
PATTERSON ENERGY INC 140,000 140,000
PETROLEUM GEO SERVICES ADR 322,400 231,900 554,300
PRIDE PETROLEUM INTERNATIONAL 219,200 219,200
REALNETWORKS INC 20,400 20,400
RGS ENERGY GROUP INC 103,000 103,000
SOUTHWESTERN ENERGY COMPANY 140,000 140,000
TRANSOCEAN SEDCO FOREX INC 87,700 87,700
VECTREN CORPORATION 54,000 54,000
VERITAS DGC INC 131,900 131,900
VINTAGE PETROLEUM INC 176,800 176,800
Retail Trade
ABERCROMBIE & FITCH CO-CL A 140,500 140,500
BEST BUY INC 79,200 79,200
BJ'S WHOLESALE CLUB INC 122,500 122,500
BORDERS GROUP INC 290,000 290,000
BRINKER INTERNATIONAL INC 78,500 78,500
CEC ENTERTAINMENT INC 150,870 150,870
CIRCUIT CITY STORES INC 70,100 70,100
DOLLAR THRIFTY AUTOMOTIVE GP 41,100 41,100
FEDERATED DEPT STORES INC NEW 180,000 61,100 241,100
JACK IN THE BOX INC 64,800 64,800
MUSICLAND STORES CORP 92,300 92,300
ROSS STORES 75,400 209,800 285,200
SONIC CORP 42,000 42,000
TIMBERLAND COMPANY-CL A 12,000 12,000
TJX COMPANIES, INC 400,000 400,000
</TABLE>
<TABLE>
<CAPTION>
STEIN ROE LIBERTY LIBERTY
DISCIPLINED SMALL CAP SELECT VALUE PRO FORMA
STOCK PORT. VALUE FUND FUND MARKET COMBINED
MARKET VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
COMMON STOCKS
TOWER AUTOMOTIVE INC 951,250 951,250
TRIQUINT SEMICONDUCTOR INC 947,306 947,306
TUPPERWARE CORPORATION 1,909,600 3,654,200 5,563,800
ULTRAMAR DIAMOND SHAMROCK CORP 1,627,700 1,627,700
UNIFI INC 1,800,253 1,800,253
UNISYS CORP 2,643,094 2,643,094
US INDUSTRIES INC 3,061,563 3,061,563
USG CORP NEW 3,742,200 3,742,200
USX-US STEEL GROUP 824,175 824,175
VALASSIS COMM. INC 4,012,656 4,944,813 8,957,469
VARIAN INC 770,288 770,288
VERTEX PHARMACEUTICALS INC 1,317,188 1,317,188
VICAL INC 843,150 843,150
VISHAY INTERTECHNOLOGY 6,009,300 6,009,300
VITESSE SEMICONDUCTOR CORP 5,303,856 5,303,856
W R GRACE & CO 1,611,413 2,291,625 3,903,038
WATERS CORPORATION 6,103,331 6,103,331
WATSON PHARMACEUTICALS 3,649,625 3,649,625
WEATHERFORD INTERNATIONAL 4,132,538 4,132,538
WESTVACO CORP 4,213,163 4,213,163
WHIRLPOOL CORP 2,410,513 2,410,513
WILLAMETTE IND INC 2,468,850 2,468,850
WINNEBAGO INDUSTRIES 534,256 534,256
WOLVERINE WORLD WIDE INC 5,391,750 5,391,750
WORTHINGTON INDUSTRIES 2,154,600 2,154,600
XILINIX INC 5,201,438 5,201,438
ZEBRA TECHNOLOGIES CORP-CL A 1,067,931 1,067,931
------------- ------------- ------------- --------------
228,498,628 162,391,894 297,574,612 688,465,135
------------- ------------- ------------- --------------
Mining & Energy
BJ SERVICES CO 5,106,250 5,106,250
CROSS TIMBER OIL CO 17,008,041 17,008,041
DIAMOND OFFSHORE DRILLING 4,566,250 4,566,250
FALCON DRILLING COMPANY INC 1,029,681 5,749,250 6,778,931
F-PORT MCMORAN COP & GOLD 1,850,000 1,850,000
HS RESOURCES INC 3,003,000 3,003,000
NOBLE DRILLING CORP 5,914,525 5,914,525
OCCIDENTAL PETROLEUM 2,573,838 2,573,838
PARKER DRILLING CO 2,203,988 2,203,988
PATTERSON ENERGY INC 3,990,000 3,990,000
PETROLEUM GEO SERVICES ADR 5,500,950 3,956,794 9,457,744
PRIDE PETROLEUM INTERNATIONAL 5,425,200 5,425,200
REALNETWORKS INC 1,031,475 1,031,475
RGS ENERGY GROUP INC 2,291,750 2,291,750
SOUTHWESTERN ENERGY COMPANY 875,000 875,000
TRANSOCEAN SEDCO FOREX INC 4,686,469 4,686,469
VECTREN CORPORATION 931,500 931,500
VERITAS DGC INC 3,429,400 3,429,400
VINTAGE PETROLEUM INC 3,989,050 3,989,050
------------- ------------- ------------- --------------
24,358,991 27,168,569 33,584,850 85,112,409
------------- ------------- ------------- --------------
Retail Trade
ABERCROMBIE & FITCH CO-CL A 1,712,344 1,712,344
BEST BUY INC 5,009,400 5,009,400
BJ'S WHOLESALE CLUB INC 4,042,500 4,042,500
BORDERS GROUP INC 4,513,125 4,513,125
BRINKER INTERNATIONAL INC 2,296,125 2,296,125
CEC ENTERTAINMENT INC 3,866,044 3,866,044
CIRCUIT CITY STORES INC 2,326,444 2,326,444
DOLLAR THRIFTY AUTOMOTIVE GP 757,781 757,781
FEDERATED DEPT STORES INC NEW 6,075,000 2,062,125 8,137,125
JACK IN THE BOX INC 1,595,700 1,595,700
MUSICLAND STORES CORP 686,481 686,481
ROSS STORES 1,286,513 3,579,713 4,866,225
SONIC CORP 1,233,750 1,233,750
TIMBERLAND COMPANY-CL A 849,750 849,750
TJX COMPANIES, INC 7,500,000 7,500,000
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE LIBERTY
DISCIPLINED SMALL CAP LIBERTY
STOCK VALUE SELECT PRO FORMA
PORTFOLIO FUND VALUE FUND COMBINED
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
COMMON STOCKS
TRICON GLOBAL RESTAURANTS 114,200 114,200
WPS RESOURCES 34,100 34,100
ZALE CORP 36,100 26,100 62,200
Services
ADOBE SYSTEMS INC 32,300 32,300
ADVO INC 59,100 59,100
AFFILIATED COMPUTER SVCS INC-A 201,800 201,800
ANCHOR GAMING 38,800 38,800
BARRA INC 25,900 25,900
CINTAS CORP 117,500 117,500
COMDISCO INC 127,000 127,000
CONVERGYS CORP 119,300 119,300
COVENTRY HEALTH CARE INC 107,800 107,800
CURATIVE HEALTH SERVICES INC 151,500 151,500
DENDRITE INTERNATIONAL INC 66,550 66,550
DEVRY INC 470,000 470,000
DST SYSTEMS INC 53,400 53,400
DUN & BRADSTREET CORP 91,800 91,800
ECCS INC 53,200 53,200
ESS TECHNOLOGY 35,800 35,800
FIRST HEALTH GROUP CORP 445,200 35,700 26,200 507,100
HALL KINION & ASSOCIATES INC 59,600 59,600
HARRAH'S ENTERTAINMENT INC 169,000 169,000
HEALTH MGMT SYSTEMS INC 175,000 175,000
HERTZ CORP-CL A 90,000 87,000 177,000
HOOPER HOLMES INC 98,200 98,200
IDEXX LABS INC 54,000 54,000
IMS HEALTH INC 91,400 91,400
INPRISE CORPORATION 94,100 94,100
INTERIM SERVICES INC 550,000 103,270 653,270
INTERPUBLIC GROUP COS INC 69,400 69,400
ISLE OF CAPRI CASINOS 118,200 118,200
JACOBS ENGINEERING GROUP INC 56,600 56,600
KRONOS INC 31,300 31,300
LINCARE HOLDINGS INC 121,300 121,300
MERCURY INTERACTIVE CORP 11,600 11,600
MICROS SYSTEMS INC 28,900 28,900
NATIONAL COMPUTER SYS INC 40,200 40,200
NATURAL MICROSYSTEMS CORP 9,500 9,500
NEOPHARM INC 40,000 40,000
OMNICOM GROUP 45,000 45,000
PACIFICARE HEALTH SYSTEMS - A 18,400 18,400
PARK PLACE ENTERTAINMENT 230,000 230,000
PAYCHEX INC 175,968 175,968
PITTSTON BRINKS GROUP 540,200 540,200
PORTAL SOFTWARE 29,700 29,700
PROGRESS SOFTWARE CORP 71,800 71,800
QUEST DIAGNOSTICS 53,300 53,300
REHABCARE GROUP INC 139,600 139,600
REMEDY CORP 12,900 12,900
RENT-A-CENTER INC 73,300 73,300
ROBERT HALF INTL INC 50,200 50,200
RSA SECURITY INC 12,600 12,600
SALTON INC 13,700 13,700
SENSORMATIC ELECTRONICS CORP 36,300 36,300
SERENA SOFTWARE INC 29,700 29,700
SIEBEL SYSTEMS INC 29,900 29,900
SYBASE INC 107,500 107,500
SYMANTEC CORP 69,500 69,500
UNIVERSAL HEALTH SERVICES - B 28,600 28,600
USA NETWORKS INC 57,240 62,100 119,340
VERITAS SOFTWRE 49,600 49,600
WESTWOOD ONE INC 58,900 58,900
XTRA CORP 40,000 40,000
</TABLE>
<TABLE>
<CAPTION>
STEIN ROE LIBERTY LIBERTY
DISCIPLINED SMALL CAP SELECT VALUE PRO FORMA
STOCK PORT. VALUE FUND FUND MARKET COMBINED
MARKET VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
COMMON STOCKS
TRICON GLOBAL RESTAURANTS 3,226,150 3,226,150
WPS RESOURCES 1,025,131 1,025,131
ZALE CORP 1,317,650 952,650 2,270,300
------------- ------------- ------------- --------------
18,088,125 12,618,800 25,207,450 55,914,375
------------- ------------- ------------- --------------
Services
ADOBE SYSTEMS INC 4,199,000 4,199,000
ADVO INC 2,482,200 2,482,200
AFFILIATED COMPUTER SVCS INC-A 6,672,013 6,672,013
ANCHOR GAMING 1,859,975 1,859,975
BARRA INC 1,283,669 1,283,669
CINTAS CORP 4,310,781 4,310,781
COMDISCO INC 2,833,688 2,833,688
CONVERGYS CORP 6,188,688 6,188,688
COVENTRY HEALTH CARE INC 1,436,772 1,436,772
CURATIVE HEALTH SERVICES INC 913,734 913,734
DENDRITE INTERNATIONAL INC 2,216,947 2,216,947
DEVRY INC 12,425,625 12,425,625
DST SYSTEMS INC 4,065,075 4,065,075
DUN & BRADSTREET CORP 2,627,775 2,627,775
ECCS INC 264,338 264,338
ESS TECHNOLOGY 519,100 519,100
FIRST HEALTH GROUP CORP 14,608,125 1,171,406 859,688 16,639,219
HALL KINION & ASSOCIATES INC 1,985,425 1,985,425
HARRAH'S ENTERTAINMENT INC 3,538,438 3,538,438
HEALTH MGMT SYSTEMS INC 546,875 546,875
HERTZ CORP-CL A 2,525,625 2,441,438 4,967,063
HOOPER HOLMES INC 785,600 785,600
IDEXX LABS INC 1,235,250 1,235,250
IMS HEALTH INC 1,645,200 1,645,200
INPRISE CORPORATION 576,363 576,363
INTERIM SERVICES INC 9,762,500 1,833,043 11,595,543
INTERPUBLIC GROUP COS INC 2,984,200 2,984,200
ISLE OF CAPRI CASINOS 1,603,088 1,603,088
JACOBS ENGINEERING GROUP INC 1,850,113 1,850,113
KRONOS INC 813,800 813,800
LINCARE HOLDINGS INC 2,987,013 2,987,013
MERCURY INTERACTIVE CORP 1,122,300 1,122,300
MICROS SYSTEMS INC 536,456 536,456
NATIONAL COMPUTER SYS INC 1,979,850 1,979,850
NATURAL MICROSYSTEMS CORP 1,068,156 1,068,156
NEOPHARM INC 784,375 784,375
OMNICOM GROUP 4,007,813 4,007,813
PACIFICARE HEALTH SYSTEMS - A 1,107,450 1,107,450
PARK PLACE ENTERTAINMENT 2,803,125 2,803,125
PAYCHEX INC 7,390,656 7,390,656
PITTSTON BRINKS GROUP 7,393,988 7,393,988
PORTAL SOFTWARE 1,897,088 1,897,088
PROGRESS SOFTWARE CORP 1,287,913 1,287,913
QUEST DIAGNOSTICS 3,814,281 3,814,281
REHABCARE GROUP INC 3,804,100 3,804,100
REMEDY CORP 719,175 719,175
RENT-A-CENTER INC 1,649,250 1,649,250
ROBERT HALF INTL INC 1,430,700 1,430,700
RSA SECURITY INC 872,550 872,550
SALTON INC 505,188 505,188
SENSORMATIC ELECTRONICS CORP 573,994 573,994
SERENA SOFTWARE INC 1,348,566 1,348,566
SIEBEL SYSTEMS INC 4,890,519 4,890,519
SYBASE INC 2,472,500 2,472,500
SYMANTEC CORP 3,748,656 3,748,656
UNIVERSAL HEALTH SERVICES - B 1,887,600 1,887,600
USA NETWORKS INC 1,237,815 1,342,913 2,580,728
VERITAS SOFTWRE 5,605,575 5,605,575
WESTWOOD ONE INC 2,009,963 2,009,963
XTRA CORP 1,577,500 1,577,500
------------- ------------- ------------- --------------
57,698,656 50,619,264 70,604,656 178,922,576
------------- ------------- ------------- --------------
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE LIBERTY
DISCIPLINED SMALL CAP LIBERTY
STOCK VALUE SELECT PRO FORMA
PORTFOLIO FUND VALUE FUND COMBINED
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
COMMON STOCKS
Transportation, Communications,
Electric, Gas and Sanitary Services
ADVANCED FIBRE COMMUNICATION 34,500 34,500
ALLEGHENY ENERGY IN COM 158,500 158,500
ALPHA INDUSTRIES INC 26,400 26,400
AMR CORP 120,000 120,000
ARCH COMMUNICATIONS GROUP 120,000 120,000
ARKANSAS BEST CORP 135,900 135,900
AVIS GROUP HOLDINGS INC 92,900 92,900
BELL ATLANTIC CORP 125,000 125,000
BOSTON COMMUNICATIONS GROUP 84,200 84,200
CALPINE CORPORATION 92,000 92,000
CANADIAN PACIFIC LTD 104,500 104,500
CENTURYTEL INC 83,950 83,950
CHRIS-CRAFT INDUSTRIES INC 29,497 29,497
CIRCLE INTERNATIONAL 65,400 65,400
CITIZENS COMMUNICATIONS CO 45,800 45,800
CLEAR CHANNEL COMMUNICATIONS 20,000 20,000
CMP GROUP INC 211,900 211,900
CNF TRANSPORTATION INC 24,000 155,700 179,700
COLUMBIA ENERGY GROUP 63,000 63,000
CONECTIV INC 276,200 276,200
CONTINENTAL AIRLINES CL B 100,000 100,000
COVAD COMMUNICATIONS GROUP 105,000 105,000
DELTA AIR LINES INC 92,900 92,900
DOMINION RESOURCES INC 31,531 31,531
EL PASO ENERGY CORP 150,000 84,500 234,500
ENERGEN CORP 117,900 117,900
ENERGY EAST CORPORATION 224,600 224,600
ENTERGY CORP 147,100 147,100
EXAR CORP 7,400 7,400
FLORIDA PROGRESS CORP 96,900 96,900
GETTHERE.COM INC 71,200 71,200
GPU INC 122,600 122,600
IDACORP INC 77,100 77,100
INCO LTD 216,000 216,000
KANSAS CITY SOUTHN INDS INC 155,000 155,000
LIGHTBRIDGE INC 51,500 51,500
METROCALL INC 75,800 75,800
MINNESOTA POWER INC 85,520 284,800 370,320
MIPS TECHNOLOGIES INC CL-B 3 3
NEXTLINK COMMUNICATIONS-A 87,000 87,000
NORTHEAST UTILITIES 97,000 97,000
</TABLE>
<TABLE>
<CAPTION>
STEIN ROE LIBERTY LIBERTY
DISCIPLINED SMALL CAP SELECT VALUE PRO FORMA
STOCK PORT. VALUE FUND FUND MARKET COMBINED
MARKET VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
COMMON STOCKS
Transportation, Communications,
Electric, Gas and Sanitary Services
ADVANCED FIBRE COMMUNICATION 1,563,281 1,563,281
ALLEGHENY ENERGY IN COM 4,338,938 4,338,938
ALPHA INDUSTRIES INC 1,163,250 1,163,250
AMR CORP 3,172,500 3,172,500
ARCH COMMUNICATIONS GROUP 780,000 780,000
ARKANSAS BEST CORP 1,350,506 1,350,506
AVIS GROUP HOLDINGS INC 1,741,875 1,741,875
BELL ATLANTIC CORP 6,351,563 6,351,563
BOSTON COMMUNICATIONS GROUP 1,178,800 1,178,800
CALPINE CORPORATION 6,049,000 6,049,000
CANADIAN PACIFIC LTD 2,736,594 2,736,594
CENTURYTEL INC 2,413,563 2,413,563
CHRIS-CRAFT INDUSTRIES INC 1,948,646 1,948,646
CIRCLE INTERNATIONAL 1,643,175 1,643,175
CITIZENS COMMUNICATIONS CO 790,050 790,050
CLEAR CHANNEL COMMUNICATIONS 1,500,000 1,500,000
CMP GROUP INC 6,211,319 6,211,319
CNF TRANSPORTATION INC 546,000 3,542,175 4,088,175
COLUMBIA ENERGY GROUP 4,134,375 4,134,375
CONECTIV INC 4,298,363 4,298,363
CONTINENTAL AIRLINES CL B 4,700,000 4,700,000
COVAD COMMUNICATIONS GROUP 1,693,125 1,693,125
DELTA AIR LINES INC 4,697,256 4,697,256
DOMINION RESOURCES INC 1,351,892 1,351,892
EL PASO ENERGY CORP 7,640,625 4,304,219 11,944,844
ENERGEN CORP 2,571,694 2,571,694
ENERGY EAST CORPORATION 4,281,438 4,281,438
ENTERGY CORP 3,999,281 3,999,281
EXAR CORP 645,188 645,188
FLORIDA PROGRESS CORP 4,542,188 4,542,188
GETTHERE.COM INC 752,050 752,050
GPU INC 3,317,863 3,317,863
IDACORP INC 2,486,475 2,486,475
INCO LTD 3,321,000 3,321,000
KANSAS CITY SOUTHN INDS INC 13,746,563 13,746,563
LIGHTBRIDGE INC 1,229,563 1,229,563
METROCALL INC 682,200 682,200
MINNESOTA POWER INC 1,480,565 4,930,600 6,411,165
MIPS TECHNOLOGIES INC CL-B 116 116
NEXTLINK COMMUNICATIONS-A 3,300,563 3,300,563
NORTHEAST UTILITIES 2,109,750 2,109,750
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE LIBERTY
DISCIPLINED SMALL CAP LIBERTY
STOCK VALUE SELECT PRO FORMA
PORTFOLIO FUND VALUE FUND COMBINED
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
COMMON STOCKS
NORTHWEST NATURAL GAS CO 112,000 112,000
NTL INC 23,375 23,375
NUI CORP 48,200 48,200
ODETICS INC-CL A 53,700 53,700
ONEOK INC 89,300 89,300
P G & E CORP 173,200 173,200
P P & L RESOURCES INC 142,400 142,400
PECO ENERGY CO 98,900 98,900
PEOPLES ENERGY CORP 75,000 75,000
PINNACLE HOLDINGS INC 9,500 9,500
PINNACLE WEST CAPITAL CORP 41,600 41,600
PMC-SIERRA INC 11,100 11,100
POTOMAC ELECTRIC POWER CO 87,100 87,100
POWERWAVE TECHNOLOGIES INC 29,400 26,400 55,800
PRICE COMMUNICATIONS CORP 56,500 56,500
PUBLIC SERVICE CO NEW MEX 125,800 125,800
PUBLIC SERVICE ENTER GROUP INC 80,600 80,600
PUGET SOUND ENERGY INC 103,700 103,700
RELIANT ENERGY INC 99,700 99,700
SEMPRA ENERGY 79,500 79,500
SIERRA PACIFIC RESOURCES 137,800 137,800
SKYWEST INC 47,800 47,800
TELEPHONE & DATA 143,000 48,000 191,000
TOLLGRADE COMMUNICATIONS INC 8,400 8,400
TRUE NORTH COMMUNICATIONS 37,900 37,900
TXU CORP 89,800 89,800
U G I CORP 127,600 127,600
UAL INC 39,400 39,400
UNICOM CORPORATION 142,000 142,000
UNITED ILLUMINATING CO 32,800 32,800
UNIVISION COMMUNICATIONS CL A 52,000 52,000
USFREIGHTWAYS CORPORATION 68,500 63,100 131,600
UTILICORP UNITED INC 129,100 129,100
Wholesale Trade
ANIXTER INTERNATIONAL INC 80,700 80,700
ARROW ELECTRONICS INC 238,800 43,300 282,100
BINDLEY WESTERN INDUSTRIES INC 74,800 74,800
BRIGHTPOINT INC 142,900 142,900
HANDLEMAN CO 72,000 72,000
OWENS & MINOR INC HLDG CO 130,100 130,100
PATTERSON DENTAL CO 30,210 86,350 116,560
RICHARDS ELEC LTD 83,300 83,300
SUIZA FOODS CORP 38,500 38,500
U.S. CAN CORPORATION 71,000 71,000
ULTRAMED 450,000 450,000
UNITED STATIONERS INC 91,900 91,900
Total Common Stocks
CORPORATE FIXED INCOME BONDS & NOTES
Finance, Insurance & Real Estate Par Par Par
IMPAC MORTGAGE HOLDINGS 11%, 2/15/04 $ 2,426,500 $ 2,426,500
SHORT-TERM OBLIGATIONS
ASSOCIATES FIRST CAPITAL 0.00% 7/3/2000 $ 23,665,000 23,665,000
RELIANT ENERGY-CP 0.00% 7/5/2000 23,600,000 23,600,000
WARBURG REPURCHASE AGREEMENT 7,628,000 $ 19,027,000 26,655,000
Total Short-Term Obligations
TOTAL INVESTMENTS
(COST OF $381,825,159, $379,406,041,
$606,431,283 AND $1,367,662,483,
RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
STEIN ROE LIBERTY LIBERTY
DISCIPLINED SMALL CAP SELECT VALUE PRO FORMA
STOCK PORT. VALUE FUND FUND MARKET COMBINED
MARKET VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
COMMON STOCKS
NORTHWEST NATURAL GAS CO 2,506,000 2,506,000
NTL INC 1,399,578 1,399,578
NUI CORP 1,301,400 1,301,400
ODETICS INC-CL A 778,650 778,650
ONEOK INC 2,316,219 2,316,219
P G & E CORP 4,265,050 4,265,050
P P & L RESOURCES INC 3,123,900 3,123,900
PECO ENERGY CO 3,986,906 3,986,906
PEOPLES ENERGY CORP 2,428,125 2,428,125
PINNACLE HOLDINGS INC 513,000 513,000
PINNACLE WEST CAPITAL CORP 1,409,200 1,409,200
PMC-SIERRA INC 1,972,331 1,972,331
POTOMAC ELECTRIC POWER CO 2,177,500 2,177,500
POWERWAVE TECHNOLOGIES INC 1,293,600 1,161,600 2,455,200
PRICE COMMUNICATIONS CORP 1,331,281 1,331,281
PUBLIC SERVICE CO NEW MEX 1,942,038 1,942,038
PUBLIC SERVICE ENTER GROUP INC 2,790,775 2,790,775
PUGET SOUND ENERGY INC 2,210,106 2,210,106
RELIANT ENERGY INC 2,947,381 2,947,381
SEMPRA ENERGY 1,351,500 1,351,500
SIERRA PACIFIC RESOURCES 1,731,113 1,731,113
SKYWEST INC 1,771,588 1,771,588
TELEPHONE & DATA 14,335,750 4,812,000 19,147,750
TOLLGRADE COMMUNICATIONS INC 1,113,000 1,113,000
TRUE NORTH COMMUNICATIONS 1,667,600 1,667,600
TXU CORP 2,649,100 2,649,100
U G I CORP 2,615,800 2,615,800
UAL INC 2,292,588 2,292,588
UNICOM CORPORATION 5,493,625 5,493,625
UNITED ILLUMINATING CO 1,435,000 1,435,000
UNIVISION COMMUNICATIONS CL A 5,382,000 5,382,000
USFREIGHTWAYS CORPORATION 1,682,531 1,549,894 3,232,425
UTILICORP UNITED INC 2,565,863 2,565,863
------------- ------------- ------------- --------------
51,447,116 50,024,759 128,069,897 229,541,771
------------- ------------- ------------- --------------
Wholesale Trade
ANIXTER INTERNATIONAL INC 2,138,550 2,138,550
ARROW ELECTRONICS INC 7,402,800 1,342,300 8,745,100
BINDLEY WESTERN INDUSTRIES INC 1,977,525 1,977,525
BRIGHTPOINT INC 1,236,978 1,236,978
HANDLEMAN CO 900,000 900,000
OWENS & MINOR INC HLDG CO 2,236,094 2,236,094
PATTERSON DENTAL CO 1,540,710 4,403,850 5,944,560
RICHARDS ELEC LTD 1,338,006 1,338,006
SUIZA FOODS CORP 1,881,688 1,881,688
U.S. CAN CORPORATION 1,233,625 1,233,625
ULTRAMED 0 0
UNITED STATIONERS INC 2,975,263 2,975,263
------------- ------------- ------------- --------------
7,402,800 17,458,438 5,746,150 30,607,388
------------- ------------- ------------- --------------
Total Common Stocks 434,593,234 396,907,063 691,054,177 1,522,554,474
------------- ------------- ------------- --------------
CORPORATE FIXED INCOME BONDS & NOTES
Finance, Insurance & Real Estate
IMPAC MORTGAGE HOLDINGS 11%, 2/15/04 1,941,200 1,941,200
------------- --------------
SHORT-TERM OBLIGATIONS
ASSOCIATES FIRST CAPITAL 0.00% 7/3/2000 23,655,863 23,655,863
RELIANT ENERGY-CP 0.00% 7/5/2000 23,580,989 23,580,989
WARBURG REPURCHASE AGREEMENT 7,628,000 19,027,000 26,655,000
------------- ------------- ------------- --------------
Total Short-Term Obligations 47,236,852 7,628,000 19,027,000 73,891,852
------------- ------------- ------------- --------------
TOTAL INVESTMENTS
(COST OF $381,825,159, $379,406,041,
$606,431,283 AND $1,367,662,483,
RESPECTIVELY) $ 481,830,086 $ 406,476,263 $ 710,081,177 $1,598,387,526
============= ============= ============= ==============
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Stein Roe Stein Roe Liberty
Disciplined Disciplined Small Cap Liberty
Stock Stock Value Select Value Pro Forma Pro Forma
Portfolio Fund Fund Fund Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Investments, at value $481,830,086 $484,399,223 $406,476,263 $710,081,177 $(484,399,223)(a) $1,598,387,526
Cash - - - - - -
Receivable for investments sold - - - - - -
Payable for investments purchased - - - - - -
Other assets less other
liabilities 2,731,499 (146,180) 9,931,124 (337,122) (755,440)(b) 11,423,881
Net assets $484,561,585 $484,253,043 $416,407,387 $709,744,055 $(485,154,663) $1,609,811,407
Shares outstanding 25,325,082 (25,325,082)(c) -
Net asset value $ 19.12
Class A:
Net assets $138,969,129 $388,214,593 (239,237) $ 526,944,485
Shares outstanding 4,268,643 17,372,786 1,946,059 23,587,488
Net asset value $ 32.56 $ 22.35 $ 22.34
Class B:
Net assets $238,607,222 $298,824,770 (235,656) $ 537,196,336
Shares outstanding 7,786,282 14,029,006 3,417,043 25,232,331
Net asset value $ 30.64 $ 21.30 $ 21.29
Class C:
Net assets $ 27,400,025 $ 21,661,061 (21,036) $ 49,040,050
Shares outstanding 869,870 991,551 384,003 2,245,424
Net asset value $ 31.50 $ 21.85 $ 21.84
Class Z:
Net assets $ 11,431,011 $ 1,043,631 (4,970) $ 12,469,672
Shares outstanding 346,276 46,541 163,616 556,433
Net asset value $ 33.01 $ 22.42 $ 22.41
Class S:
Net assets (92,179) $ 484,160,864
Shares outstanding 21,604,679 (c) 21,604,679
Net asset value $ 22.41
</TABLE>
Footnotes to pro forma statement of assets and liabilities
(a) - Adjustment represents the elimination of Stein Roe Disciplined Stock
Fund's investment in the Portfolio, as the master/feeder structure will be
dissolved, with the securities held by the Portfolio withdrawn from the
Portfolio by Stein Roe Disciplined Stock Fund prior to the merger.
(b) - Adjustment reflects a payable to the general partner of the Portfolio
for its remaining net assets after withdrawal of Stein Roe Disciplined
Stock Fund's investment in the Portfolio of $162,362 in addition to one
time proxy, accounting, legal and other costs of the reorganization of
$162,927, $92,179 and $337,972 to be borne by Liberty Small-Cap Value
Fund, Stein Roe Disciplined Stock Fund and Liberty Select Value Fund
respectively.
(c) - Stein Roe Disciplined Stock Fund shares are exchanged for new Class S
shares of Liberty Select Value Fund, to be established upon consummation
of the merger. Initial per share value of Class S shares is presumed to
equal that of current Class Z shares.
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTH
PERIOD ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
STEIN ROE
DISCIPLINED STEIN ROE LIBERTY LIBERTY
STOCK DISCIPLINED SMALL CAP SELECT
PORTFOLIO STOCK FUND FUND VALUE
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends 5,893,642 5,821,792 4,583,067 8,174,225
Interest 3,064,826 3,133,889 1,187,526 1,184,633
----------- ----------- ----------- -----------
Total investment income 8,958,468 8,955,680 5,770,592 9,358,859
EXPENSES
Management fee 4,167,035 - 3,988,196 5,223,265
Administration fee - 830,666 - -
Service fee - Class A, B, C - - 1,214,205 1,861,867
Distribution fee - Class B - - 1,974,223 2,384,795
Distribution fee - Class C - - 229,724 164,376
Transfer agent fee 6,000 1,218,310 1,323,581 1,620,653
Bookkeeping fee 37,640 37,594 183,984 270,663
Trustees fee 12,900 8,100 20,766 28,901
Expenses allocated from Stein Roe Disciplined Stock Portfolio 4,249,412 -
All other expenses 25,837 407,666 669,140 884,431
----------- ----------- ----------- -----------
Total operating expenses 4,249,412 6,751,748 9,603,819 12,438,951
----------- ----------- ----------- -----------
Expense reimbursement - - - -
----------- ----------- ----------- -----------
Net Expenses 4,249,412 6,751,748 9,603,819 12,438,951
NET INVESTMENT INCOME (LOSS) 4,709,056 2,203,932 (3,833,227) (3,080,092)
NET REALIZED & UNREALIZED GAIN (LOSS)
Net realized gain on:
Investments 26,447,704 27,136,826 83,353,135 113,063,056
Closed futures contracts - - - -
Foreign currency transactions (0) 0 - (1)
----------- ----------- ----------- -----------
Net Realized Gain 26,447,704 27,136,827 83,353,135 113,063,055
Change in net unrealized appreciation/depreciation
during the period on:
Investments (35,970,362) (36,662,338) (55,231,387) (57,406,602)
Open futures contracts - - - -
Foreign currency transactions (2,334) - - 424
----------- ----------- ----------- -----------
Net Change in Unrealized Appreciation/Depreciation (35,972,696) (36,662,338) (55,231,387) (57,406,178)
----------- ----------- ----------- -----------
Net Gain(Loss) (9,524,993) (9,525,512) 28,121,748 55,656,877
----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets from Operations (4,815,937) (7,321,580) 24,288,521 52,576,785
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
-----------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends - (5,893,642)(c) 18,579,083
Interest - (3,064,826)(c) 5,506,048
---- ------------
Total investment income - (8,958,468) 24,085,131
EXPENSES
Management fee - (1,188,359)(a) 12,190,137
Administration fee - (830,666)(a) -
Service fee - Class A, B, C - - (a) 3,076,072
Distribution fee - Class B - - (a) 4,359,018
Distribution fee - Class C - - (a) 394,100
Transfer agent fee - (751,427)(e) 3,417,117
Bookkeeping fee - 29,240 (a) 559,121
Trustees fee - (7,261)(b) 63,406
Expenses allocated from Stein Roe Disciplined Stock Portfolio (4,249,412)(c) -
All other expenses - (881,535)(d) 1,105,539
---- ------------
Total operating expenses - (7,879,420) 25,164,510
---- ----------- ------------
Expense reimbursement - - -
---- ----------- ------------
Net Expenses - (7,879,420) 25,164,510
NET INVESTMENT INCOME (LOSS) - (1,079,048) (1,079,379)
NET REALIZED & UNREALIZED GAIN (LOSS)
Net realized gain on:
Investments - (26,447,704)(c) 223,553,017
Closed futures contracts - - -
Foreign currency transactions - - (1)
---- ----------- ------------
Net Realized Gain - (26,447,704) 223,553,016
Change in net unrealized appreciation/depreciation
during the period on:
Investments - 35,970,362 (c) (149,300,327)
Open futures contracts - - -
Foreign currency transactions - 2,334 (c) 424
---- ----------- ------------
Net Change in Unrealized Appreciation/Depreciation - 35,972,696 (149,299,903)
---- ----------- ------------
Net Gain(Loss) - 9,524,992 74,253,113
---- ----------- ------------
Increase (Decrease) in Net Assets from Operations - 8,445,945 73,173,735
</TABLE>
(a) Based on contract in effect for the surviving fund.
(b) Based on trustee compensation plan for the surviving fund.
(c) Due to elimination of master/feeder structure.
(d) Decrease due to the elimination of duplicative expenses achieved by merging
the funds.
(e) Based on the contract in effect for the surviving fund. Note that a new
transfer agent fee structure was implemented for Liberty Select Value Fund
effective January 1, 2000. The pro forma combined transfer agent fee shown
assumes this new agreement was in effect for the entire twelve-month period
ended June 30, 2000.
<PAGE>
LIBERTY FUNDS TRUST III
THE LIBERTY FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 8, 2000
This Statement of Additional Information (the "SAI") relates to the
proposed Acquisition (the "Acquisition") of the Liberty Strategic Balanced Fund
(the "Acquired Fund"), a series of Liberty Funds Trust III, by The Liberty 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 8,
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 or by calling 1-800-426-3750.
Table of Contents
<TABLE>
<S> <C>
I. Additional Information about the Acquiring Fund and the Acquired Fund.......................
II. Financial Statements........................................................................
</TABLE>
<PAGE>
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 28, 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 each of the Acquiring Fund and the Acquired Fund, which reports contain
historical financial information regarding such Funds. Such reports have been
filed with the Securities and Exchange Commission and are incorporated herein by
reference.
-2-
<PAGE>
LIBERTY FUNDS TRUST III
LIBERTY SPECIAL FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 8, 2000
This Statement of Additional Information (the "SAI") relates to the
proposed Acquisition (the "Acquisition") of the Liberty Contrarian Small-Cap
Fund (the "Acquired Fund"), a series of Liberty Funds Trust III, by the Liberty
Special 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 8,
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 or by calling 1-800-426-3750.
Table of Contents
<TABLE>
<S> <C>
I. Additional Information about the Acquiring Fund and the Acquired Fund.......................
II. Financial Statements........................................................................
</TABLE>
<PAGE>
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 28, 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>
Pro Forma Financial Statements (Unaudited)
Pro forma combining condensed statement of assets and liabilities
As of April 28, 2000 (Unaudited)
<TABLE>
<CAPTION>
Liberty
Contrarian Liberty
Small Cap Special Pro Forma Pro Forma
Fund Fund Adjustments Combined
---- ---- ----------- --------
<S> <C> <C> <C> <C>
Investments, at market value $ 29,794,167 $ 46,530,943 76,325,110
Cash -- -- --
Receivable for investments sold -- -- --
Payable for investments purchased -- -- --
Other assets less other liabilities 360,857 (2,032,082) (74,531) (a) (1,745,756)
Net assets $ 30,155,024 $ 44,498,861 $ 74,579,354
Net Assets - Class A $ 6,382,596 $ 44,498,861 $ (53,815) 50,827,642
Shares - Class A 581,392 4,779,249 104,697 5,465,338
Net asset value per share - Class A $ 10.98 $ 9.31 $ 9.30
Net Assets - Class I $ 23,772,428 $ (20,716) 23,751,712
Shares - Class I* 2,146,233 404,971 2,551,204
Net asset value per share - Class I $ 11.08 $ 9.31
</TABLE>
* Determined based on Class A share price.
(a) Adjustment reflects one time proxy, accounting, legal and other costs of the
reorganization of $26,278 and $48,253 to be borne by the Small Cap Fund and the
Special Fund respectively.
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTH
PERIOD ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Liberty
Contrarian Small Liberty Special Pro Forma Pro Forma
Cap Fund Fund Adjustments Combined
-------- ---- ----------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends 177,023 401,562 -- 578,585
Interest 59,149 47,015 -- 106,164
----------- ----------- -------- -----------
Total investment income 236,172 448,577 -- 684,749
EXPENSES
Management fee 401,819 605,187 (1,050) (a) 1,005,956
Administration fee 20,091 30,259 -- (a) 50,350
Service fee - Class A 19,239 151,297 -- (a) 170,536
Transfer agent fee - Class A 17,172 136,781 (25,437) (e) 128,516
Transfer agent fee - Class I 812 -- -- (a) 812
Bookkeeping fee 27,000 30,682 (12,937) (a) 44,745
Trustees fee 6,845 8,607 (7,740) (b) 7,712
Interest expense 7,094 546,476 (553,570) (c) --
All other expenses 106,532 151,036 (54,568) (d) 203,000
----------- ----------- -------- -----------
Total operating expenses 606,604 1,660,325 (655,302) 1,611,627
----------- ----------- -------- -----------
Expense reimbursement (166,306) (752,544) 655,302 (a) (263,548)
----------- ----------- -------- -----------
Net Expenses 440,298 907,781 -- 1,348,079
NET INVESTMENT LOSS (204,126) (459,204) -- (663,330)
NET REALIZED & UNREALIZED GAIN (LOSS)
Net realized loss on investments (21,444,124) (27,836,420) -- (49,280,544)
Change in net unrealized appreciation
during the period on investments 30,897,958 32,355,006 -- 63,252,964
----------- ----------- -------- -----------
Net Gain 9,453,834 4,518,586 -- 13,972,420
----------- ----------- -------- -----------
Increase in Net Assets from Operations 9,249,708 4,059,382 -- 13,309,090
</TABLE>
(a) Based on the contract in effect for the surviving fund.
(b) Based on trustee compensation plan for the surviving fund.
(c) The surviving fund is no longer party to a line of credit agreement.
(d) Decrease due to the elimination of duplicative expenses achieved by merging
the funds.
(e) Based on the contract in effect for the surviving fund. Note that a new
transfer agent fee structure was implemented for Liberty Special Fund
effective January 1, 2000. The pro forma combined transfer agent fee shown
assumes this new agreement was in effect for the entire twelve-month period
ended April 30, 2000.
<PAGE>
Schedule of Investments (Unaudited)
April 28, 2000
<TABLE>
<CAPTION>
Liberty Contrarian
Small Cap Fund
---------------------------
Shares Value
<S> <C> <C>
COMMON STOCKS - 100.3%
FINANCE, INSURANCE & REAL ESTATE - 9.9%
INSURANCE CARRIERS - 9.9%
Fidelity National Financial, Inc. 33,900 $ 500,025
Mid Atlantic Medical Services, Inc.(a) 99,600 927,525
Risk Capital Holdings, Inc. 32,000 492,500
StanCorp Financial Group, Inc. 28,200 821,325
-----------
2,741,375
MANUFACTURING - 41.1%
APPAREL - 3.7%
Phillips-Van Heusen 91,400 771,188
The Warnaco Group, Inc., Class A 38,600 410,125
-----------
1,181,313
CHEMICALS & ALLIED PRODUCTS - 2.0%
Barr Laboratories, Inc.(a) 9,700 418,918
Wellman, Inc. 15,500 331,313
-----------
750,231
ELECTRICAL INDUSTRIAL EQUIPMENT - 3.0%
Actel Corp.(a) 24,700 909,269
-----------
909,269
ELECTRONIC & ELECTRICAL EQUIPMENT - 2.6%
Checkpoint Systems, Inc. 77,900 696,231
UCAR International, Inc.(a) 14,100 185,944
-----------
882,175
ELECTRONIC COMPONENTS - 2.3%
HMT Technology Corp.(a) 155,900 353,211
Rayovac Corp.(a) 29,700 619,987
-----------
973,198
MACHINERY & COMPUTER EQUIPMENT - 4.3%
Auspex Systems, Inc.(a) 118,400 902,800
-----------
902,800
MEASURING & ANALYZING INSTRUMENTS - 5.8%
Flanders Corp.(a) 56,600 155,650
Input/Output, Inc.(a) 93,100 686,613
Oakley, Inc.(a) 111,200 1,278,800
-----------
2,121,063
PAPER PRODUCTS - 5.6%
Longview Fibre Co. 38,400 489,600
-----------
489,600
PRIMARY METAL - 6.8%
Century Aluminum Co. 59,300 830,200
Ispat International NV 56,600 661,513
-----------
1,491,713
PRINTING & PUBLISHING - 1.4%
Mail-Well, Inc.(a) 71,900 642,606
-----------
642,606
RUBBER & PLASTIC - 0.5%
Cooper Tire & Rubber Co. 27,600 372,600
TRANSPORTATION EQUIPMENT - 3.1%
Wabash National Corp. 40,500 589,781
-----------
589,781
MINING & ENERGY - 17.5%
OIL & GAS EXTRACTION - 14.8%
Forest Oil Corp.(a) 63,200 707,050
Grey Wolf, Inc.(a) 358,200 1,455,187
Santa Fe Corp.(a) 79,700 732,244
Tom Brown, Inc.(a) 18,600 353,400
-----------
3,247,881
OIL & GAS FIELD SERVICES - 2.7%
Nuevo Energy Co.(a) 35,500 621,250
-----------
</TABLE>
<TABLE>
<CAPTION>
Liberty Pro-forma
Special Fund Combined Fund
---------------------------- -----------------------------
Shares Value Shares Value
<S> <C> <C> <C> <C>
COMMON STOCKS - 100.3%
FINANCE, INSURANCE & REAL ESTATE - 9.9%
INSURANCE CARRIERS - 9.9%
Fidelity National Financial, Inc. 33,900 $ 500,025
Mid Atlantic Medical Services, Inc.(a) 195,300 $ 1,818,731 294,900 2,746,256
Risk Capital Holdings, Inc. 144,700 2,227,023 176,700 2,719,523
StanCorp Financial Group, Inc. 20,000 582,500 48,200 1,403,825
------------ ------------
4,628,254 7,369,629
MANUFACTURING - 41.1%
APPAREL - 3.7%
Phillips-Van Heusen 186,000 1,569,375 277,400 2,340,563
The Warnaco Group, Inc., Class A 38,600 410,125
------------ ------------
1,569,375 2,750,688
CHEMICALS & ALLIED PRODUCTS - 2.0%
Barr Laboratories, Inc.(a) 9,700 418,918
Wellman, Inc. 34,600 739,575 50,100 1,070,888
------------ ------------
739,575 1,489,806
ELECTRICAL INDUSTRIAL EQUIPMENT - 3.0%
Actel Corp.(a) 37,000 1,362,063 61,700 2,271,332
------------ ------------
1,362,063 2,271,332
ELECTRONIC & ELECTRICAL EQUIPMENT - 2.6%
Checkpoint Systems, Inc. 119,900 1,071,606 197,800 1,767,837
UCAR International, Inc.(a) 14,100 185,944
------------ ------------
1,071,606 1,953,781
ELECTRONIC COMPONENTS - 2.3%
HMT Technology Corp.(a) 331,400 750,828 487,300 1,104,039
Rayovac Corp.(a) 29,700 619,987
------------ ------------
750,828 1,724,026
MACHINERY & COMPUTER EQUIPMENT - 4.3%
Auspex Systems, Inc.(a) 300,000 2,287,500 418,400 3,190,300
------------ ------------
2,287,500 3,190,300
MEASURING & ANALYZING INSTRUMENTS - 5.8%
Flanders Corp.(a) 56,600 155,650
Input/Output, Inc.(a) 93,100 686,613
Oakley, Inc.(a) 194,300 2,234,450 305,500 3,513,250
------------ ------------
2,234,450 4,355,513
PAPER PRODUCTS - 5.6%
Longview Fibre Co. 287,300 3,663,075 325,700 4,152,675
------------ ------------
3,663,075 4,152,675
PRIMARY METAL - 6.8%
Century Aluminum Co. 151,900 2,126,600 211,200 2,956,800
Ispat International NV 126,000 1,472,625 182,600 2,134,138
------------ ------------
3,599,225 5,090,938
PRINTING & PUBLISHING - 1.4%
Mail-Well, Inc.(a) 43,300 386,994 115,200 1,029,600
------------ ------------
386,994 1,029,600
RUBBER & PLASTIC - 0.5%
Cooper Tire & Rubber Co. 27,600 372,600
TRANSPORTATION EQUIPMENT - 3.1%
Wabash National Corp. 118,000 1,718,375 158,500 2,308,156
------------ ------------
1,718,375 2,308,156
MINING & ENERGY - 17.5%
OIL & GAS EXTRACTION - 14.8%
Forest Oil Corp.(a) 194,200 2,172,613 257,400 2,879,663
Grey Wolf, Inc.(a) 924,900 3,757,406 1,283,100 5,212,593
Santa Fe Corp.(a) 199,965 1,837,178 279,665 2,569,422
Tom Brown, Inc.(a) 18,600 353,400
------------ ------------
7,767,197 11,015,078
OIL & GAS FIELD SERVICES - 2.7%
Nuevo Energy Co.(a) 82,000 1,435,000 117,500 2,056,250
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
621,250
RETAIL TRADE - 0.6%
Miscellaneous Retail - 0.6%
Omnicare, Inc. 29,900 454,106
SERVICES - 16.1%
Amusement & Recreation - 0.4%
Anchor Gaming(a) 6,400 257,600
Business Services - 0.4%
Daleen Technologies, Inc.(a) 20,500 269,063
Computer Related Services - 7.6%
Mentor Graphics Corp.(a) 64,200 842,625
Sensormatic Electronics Corp. 46,700 779,306
Sitel Corp.(a) 37,800 259,875
Vysis, Inc.(a) 75,100 558,556
-----------
2,440,362
Computer Software - 0.5%
CCC Information Services Group Inc.(a) 10,800 149,850
Unova, Inc.(a) 14,600 204,400
-----------
354,250
Educational Services - 0.6%
ITT Educational Services, Inc.(a) 23,800 425,425
Health Services - 5.8%
Covance, Inc.(a) 18,300 168,131
Coventry Health Care Inc.(a) 86,900 923,313
IDEXX Labs, Inc.(a) 21,100 553,875
-----------
1,645,319
Motion Pictures - 0.5%
Hollywood Entertainment Corp.(a) 50,800 355,600
Personal Services - 0.3%
Regis Corp. 17,200 201,025
TRANSPORTATION, COMMUNICATION,
ELECTRICITY, GAS, & SANITARY SERVICES - 12.0%
Air Transportation - 0.6%
Alaska Air Group 15,800 454,250
Gas Services - 0.6%
Western Gas Resources, Inc. 26,788 447,025
Motor Freight & Warehousing - 6.8%
Budget Group, Inc. Class A(a) 53,900 252,656
J.B. Hunt transport Services, Inc. 23,900 394,350
Yellow Corp. 46,800 892,125
-----------
1,539,131
Transportation Services - 0.5%
Fritz Companies, Inc.(a) 37,900 364,788
Telecommunication - 3.5%
E. Spire Communications, Inc.(a) 55,000 278,437
Frontier Airlines, Inc.(a) 31,400 478,850
PictureTel Corp.(a) 137,700 761,213
Weblink Wireless, Inc.(a)
-----------
1,518,500
WHOLESALE TRADE - 3.1%
Nondurable Goods - 3.1%
Fleming Co, Inc. 41,300 678,868
-----------
678,868
TOTAL COMMON STOCKS (cost $33,971,624, 29,322,167
$50,884,324 and $84,855,948)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1,435,000 2,056,250
RETAIL TRADE - 0.6%
Miscellaneous Retail - 0.6%
Omnicare, Inc. 29,900 454,106
SERVICES - 16.1%
Amusement & Recreation - 0.4%
Anchor Gaming(a) 6,400 257,600
Business Services - 0.4%
Daleen Technologies, Inc.(a) 20,500 269,063
Computer Related Services - 7.6%
Mentor Graphics Corp.(a) 105,600 1,386,000 169,800 2,228,625
Sensormatic Electronics Corp. 87,000 1,451,813 133,700 2,231,119
Sitel Corp.(a) 37,800 259,875
Vysis, Inc.(a) 61,500 457,406 136,600 1,015,962
------------ ------------
3,295,219 5,735,581
Computer Software - 0.5%
CCC Information Services Group Inc.(a) 10,800 149,850
Unova, Inc.(a) 14,600 204,400
------------
354,250
Educational Services - 0.6%
ITT Educational Services, Inc.(a) 23,800 425,425
Health Services - 5.8%
Covance, Inc.(a) 18,300 168,131
Coventry Health Care Inc.(a) 200,000 2,125,000 286,900 3,048,313
IDEXX Labs, Inc.(a) 23,400 614,250 44,500 1,168,125
------------ ------------
2,739,250 4,384,569
Motion Pictures - 0.5%
Hollywood Entertainment Corp.(a) 50,800 355,600
Personal Services - 0.3%
Regis Corp. 17,200 201,025
TRANSPORTATION, COMMUNICATION,
ELECTRICITY, GAS, & SANITARY SERVICES - 12.0%
Air Transportation - 0.6%
Alaska Air Group 15,800 454,250
Gas Services - 0.6%
Western Gas Resources, Inc. 26,788 447,025
Motor Freight & Warehousing - 6.8%
Budget Group, Inc. Class A(a) 53,900 252,656
J.B. Hunt transport Services, Inc. 60,400 996,600 84,300 1,390,950
Yellow Corp. 132,600 2,527,688 179,400 3,419,813
------------ ------------
3,524,288 5,063,419
Transportation Services - 0.5%
Fritz Companies, Inc.(a) 37,900 364,788
Telecommunication - 3.5%
E. Spire Communications, Inc.(a) 55,000 278,437
Frontier Airlines, Inc.(a) 31,400 478,850
PictureTel Corp.(a) 137,700 761,213
Weblink Wireless, Inc.(a) 201,600 1,125,413 201,600 1,125,413
------------ ------------
1,125,413 2,643,913
WHOLESALE TRADE - 3.1%
Nondurable Goods - 3.1%
Fleming Co, Inc. 100,700 1,655,256 142,000 2,334,124
------------ ------------
1,655,256 2,334,124
TOTAL COMMON STOCKS (cost $33,971,624, 45,552,943 74,875,110
$50,884,324 and $84,855,948)
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATIONS - 1.9% Par Par
<S> <C> <C> <C> <C>
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 $482,882, $1,005,549 and $1,488,431,
respectively, (repurchase proceeds $472,225, $978,465,
and $1,450,690 respectively) 472,000 472,000 978,000 978,000
----------- ------------
472,000 978,000
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATIONS - 1.9% Par
<S> <C> <C>
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 $482,882, $1,005,549 and $1,488,431,
respectively, (repurchase proceeds $472,225, $978,465,
and $1,450,690 respectively) 1,450,000 1,450,000
------------
1,450,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Total Investments - 102.2% 29,794,167 46,530,943
Other Assets & Liabilities, net - (2.2%) 360,857 (2,032,082
----------- ------------
Net Assets - 100.0% $30,155,024 $ 44,498,861
=========== ============
</TABLE>
<TABLE>
<S> <C>
Total Investments - 102.2% 76,325,110
Other Assets & Liabilities, net - (2.2%) (1,745,756)(b)
------------
Net Assets - 100.0% $ 74,579,354 (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 $26,278 and $48,253 to be borne by the Small Cap Fund and
the Special Fund, respectively.
<PAGE>
LIBERTY FUNDS TRUST III
LIBERTY CONTRARIAN EQUITY FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 8, 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 8,
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 or by calling 1-800-426-3750.
Table of Contents
I. Additional Information about the Acquiring Fund and the Acquired Fund..
II. Financial Statements...................................................
<PAGE>
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>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 28, 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 (61,369) (a) 655,726
Net assets $ 41,955,190 $ 101,291,500 $ 143,185,321
Net Assets - Class A $ 27,781,136 $ 89,923,387 $(48,383) 117,656,140
Shares - Class A 2,168,730 4,803,141 (687,129) 6,284,450
Net asset value per share - Class A $ 12.81 $ 18.72 $ 18.72
Net Assets - Class B $ 29,756 $ 481,057 $(182) 510,631
Shares - Class B 2,326 25,986 (719) 27,583
Net asset value per share - Class B $ 12.79 $ 18.51 $ 18.51
Net Assets - Class C $ 3,215 $ 11,102 $(6) 14,311
Shares - Class C 251 600 (78) 773
Net asset value per share - Class C $ 12.79 $ 18.52 $ 18.51
Net Assets - Class I $ 14,141,083 $ 10,875,954 $(12,798) 25,004,239
Shares - Class I 1,105,633 578,080 (354,407) 1,329,306
Net asset value per share - Class I $ 12.79 $ 18.81 $ 18.81
</TABLE>
(a) Adjustment reflects one time proxy, accounting, legal and other costs of
the reorganization of $27,035 and $34,334 to be borne by Liberty Contrarian
Balanced Fund and Liberty Contrarian Equity Fund respectively.
<PAGE>
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTH
PERIOD ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
LIBERTY LIBERTY
CONTRARIAN CONTRARIAN PRO FORMA PRO FORMA
BALANCED FUND EQUITY 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 agreement 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.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Unaudited) LIBERTY CONTRARIAN LIBERTY CONTRARIAN PRO-FORMA
APRIL 28, 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>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RESTAURANTS - 2.2%
Darden Restaurants, Inc. 32,100 591,844 133,200 2,455,875 165,300 3,047,719
SERVICES - 15.3%
AUTO REPAIR, RENTAL & PARKING - 1.4%
Hertz Corp., Class A 12,600 392,963 52,400 1,634,225 65,000 2,027,188
COMPUTER RELATED SERVICES - 6.7%
Ariba, Inc. 8,100 600,918 32,900 2,440,769 41,000 3,041,687
At Home Corp. Series A(a) 5,700 106,163 23,800 443,275 29,500 549,438
Commerce One, Inc.(a) 3,100 189,294 12,900 787,706 16,000 977,000
Convergys Corp.(a) 10,400 457,600 43,100 1,896,400 53,500 2,354,000
Deluxe Corp. 19,900 501,231 82,400 2,075,450 102,300 2,576,681
---------- ---------- ----------
1,855,206 7,643,600 9,498,806
COMPUTER SOFTWARE - 1.8%
Microsoft Corp.(a) 4,400 306,900 18,400 1,283,400 22,800 1,590,300
PeopleSoft, Inc.(a) 14,300 199,305 59,100 823,706 73,400 1,023,011
---------- ---------- ----------
506,205 2,107,106 2,613,311
HEALTH SERVICES - 5.4%
Health Management Associates, Inc.(a) 40,000 637,500 166,100 2,647,218 206,100 3,284,718
Healthsouth Corp.(a) 50,900 410,381 211,200 1,702,800 262,100 2,113,181
Tenet Healthcare Corp.(a) 18,200 464,100 75,700 1,930,350 93,900 2,394,450
---------- ---------- ----------
1,511,981 6,280,368 7,792,349
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 32,500 1,710,313
ELECTRIC SERVICES - 2.4%
Duke Power Co. 9,700 557,750 40,200 2,311,500 49,900 2,869,250
P G & E Corp. 4,100 106,343 17,200 446,124 21,300 552,467
---------- ---------- ----------
664,093 2,757,624 3,421,717
GAS SERVICES - 2.5%
Columbia Energy Group 7,200 451,800 30,000 1,882,500 37,200 2,334,300
El Paso Energy Corp. 5,800 246,500 23,900 1,015,750 29,700 1,262,250
---------- ---------- ----------
698,300 2,898,250 3,596,550
SANITARY SERVICES - 0.3%
Waste Management, Inc. 5,200 82,550 21,500 341,313 26,700 423,863
TELECOMMUNICATION - 2.2%
MediaOne Group(a) 8,250 623,906 34,100 2,578,813 42,350 3,202,719
WATER TRANSPORTATION - 0.9%
Carnival Corp. 10,100 251,238 42,500 1,057,188 52,600 1,308,426
WHOLESALE TRADE - 1.1%
DURABLE GOODS - 1.1%
Grainger (W.W.) Inc. 6,700 290,613 27,800 1,205,825 34,500 1,496,438
---------- ---------- ----------
TOTAL COMMON STOCKS (COST $19,641,676,
$82,455,803 AND $102,097,479) 23,011,276 95,134,583 118,145,859
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
CORPORATE FIXED INCOME BONDS - 5.2% RATE MATURITY PAR
<S> <C> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 1.5%
INSURANCE CARRIERS - 0.6%
Conesco, Inc. 7.875% 12/15/2000 400,000 304,000
Lincoln National Corp. 6.500% 3/15/2008 630,000 566,131
--------------
870,131
NONDEPOSITORY CREDIT INSTITUTIONS - 0.5%
General Motors Acceptance Corp. 9.000% 10/15/2002 655,000 676,792
SECURITY BROKERS & DEALERS - 0.4%
Bear Sterns Cos. Inc. 6.875% 10/1/2005 580,000 552,108
MANUFACTURING - 1.7%
CHEMICALS & ALLIED PRODUCTS - 0.4%
E.I. DuPont de Nemours & Co. 8.250% 9/15/2006 20,000 20,603
Eli Lilly & Co. 8.375% 12/1/2006 550,000 574,745
--------------
595,348
FABRICATED METAL - 0.4%
Snap-on, Inc. 6.625% 10/1/2005 550,000 526,405
FOOD & KINDRED PRODUCTS - 0.4%
Anheuser Busch Cos. Inc. 7.000% 9/1/2005 550,000 529,765
RUBBER & PLASTIC - 0.2%
Premark International, Inc. 6.875% 11/15/2008 300,000 286,752
STONE, CLAY, GLASS & CONCRETE - 0.3%
Ownes-Illinois, Inc. 7.350% 5/15/2008 400,000 354,724
RETAIL TRADE - 0.3%
</TABLE>
<TABLE>
<CAPTION>
CORPORATE FIXED INCOME BONDS - 5.2% PAR PAR
<S> <C> <C> <C>
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>
<TABLE>
<S> <C> <C> <C> <C>
FOOD STORES - 0.3%
Kroger Co. 7.000% 5/1/2018 550,000 467,594
GENERAL MERCHANDISE STORES - 0.0%
Wal-Mart Stores, Inc. 8.000% 9/15/2006 30,000 30,738
TRANSPORTATION, COMMUNICATION, ELECTRICITY,
GAS, & SANITARY SERVICES - 1.7%
ELECTRIC SERVICES - 0.1%
PacifiCorp. 6.375% 5/15/2008 200,000 182,916
TELECOMMUNICATION - 1.6%
CBS Corp. 7.150% 5/20/2005 650,000 628,348
GTE South, Inc. 6.000% 2/15/2008 590,000 526,386
SBC Communications, Inc. 6.250% 3/1/2005 550,000 519,772
US West Communications 6.625% 9/15/2005 660,000 625,337
--------------
2,299,843
WHOLESALE TRADE - 0.0%
NONDURABLE GOODS - 0.0%
Sysco Corp. 7.000% 5/1/2006 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% 7/15/2019 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
--------------
TOTAL INVESTMENTS - 99.5% 41,590,012
--------------
OTHER ASSETS & LIABILITIES, NET - 0.5% 365,178
--------------
NET ASSETS - 100.0% $ 41,955,190
==============
</TABLE>
<TABLE>
<S> <C> <C> <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) 5,805,000 5,805,000 7,303,000 7,303,000
--------------- -------------
TOTAL INVESTMENTS - 99.5% 100,939,583 142,529,595
--------------- -------------
OTHER ASSETS & LIABILITIES, NET - 0.5% 351,917 655,726(b)
--------------- -------------
NET ASSETS - 100.0% $ 101,291,500 $ 143,185,321(b)
=============== =============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
ADR American Depository Receipts
(b) Adjusted for one time proxy, accounting, legal and other costs of the
reorganization of $27,035 and $34,334 to be borne by the Balanced Fund and the
Equity Fund, respectively.
<PAGE>
Part C. OTHER INFORMATION
Item 15.
Indemnification Article VIII of the Registrant's Agreement and Declaration of
Trust, as amended, provides for indemnification of the Registrant's Trustees and
officers. The effect of the relevant section of Article VIII of the Registrant's
Agreement and Declaration of Trust, as amended, is to provide indemnification
for each of the Registrant's Trustees and officers against liabilities and
counsel fees reasonably incurred in connection with the defense of any legal
proceeding in which such Trustee or officer may be involved by reason of being
or having been a Trustee or officer, except with respect to any matter as to
which such Trustee or officer shall have been adjudicated not to have acted in
good faith in the reasonable belief that such Trustee's or officer's action was
in the best interest of the Registrant, and except that no Trustee or officer
shall be indemnified against any liability to the Registrant or its shareholders
to which such Trustee or officer shall otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Trustee's or officer's office.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to Trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 16. Exhibits
(1)(a) Amendment No. 3 to the Agreement and Declaration of Trust (1)
(b) Amendment No. 4 to the Agreement and Declaration of Trust (2)
(c) Amendment No. 5 to the Agreement and Declaration of Trust (3)
(2)(c) By-Laws, as amended (3)
(3) Not Applicable
(4)(a) Form of Agreement and Plan of Reorganization between Stein Roe
Disciplined Stock Fund and Liberty Select Value Fund
(b) Form of Agreement and Plan of Reorganization between Liberty
Small-Cap Value Fund and Liberty Select Value Fund
(c) Form of Agreement and Plan of Reorganization between Liberty
Strategic Balanced Fund and The Liberty Fund
(d) Form of Agreement and Plan of Reorganization between Liberty
Contrarian Small Cap Fund and Liberty Special Fund
(e) Form of Agreement and Plan of Reorganization between Liberty
Contrarian Balanced Fund and Liberty Contrarian Balanced Fund
(5) Article III, Section 4, Article V, Section 1, Article VIII
Section 4 and Article IX Sections 1 and 7 of the Agreement
and Declaration of Trust, as amended, and Sections 2.1, 2.3
and 2.5 of the By-Laws, as amended, each define the rights
of shareholders
(6)(a) Form of Management Agreement (The Liberty Fund) (4)
(b) Form of Management Agreement (Liberty Select Value Fund) (5)
(c) Form of Management Agreement (Liberty Special Fund)(6)
(d) Form of Management Agreement (Liberty Contrarian Equity
Fund)(6)
<PAGE>
(7)(a) Distribution Agreement (incorporated herein by reference to
Exhibit (e)(1) to Post-Effective Amendment No. 17 to the
Registration Statement of Liberty Funds Trust VI (formerly
Colonial Trust VI), Registration Nos. 33-45117 and 811-6529
filed with the Commission on May 24, 1999)
(b) Appendix I to the Distribution Agreement between the Registrant
and Liberty Funds Distributor, Inc. - filed as Exhibit (e)(2)
in Part C, Item 23 of Post-Effective Amendment No. 63 to the
Registration Statement on Form N-1A of Liberty Funds Trust I
(File Nos. 2-41251 & 811-2214), filed with the Commission on or
about July 19, 2000, and is hereby incorporated by reference
and made a part of this Registration Statement
(e) Form of Selling Agreement with Liberty Funds Distributor, Inc.
(incorporated herein by reference to Exhibit 6.(b) to Post-
Effective Amendment No. 49 to the Registration Statement
of Liberty Funds Trust VI (formerly Colonial Trust VI),
Registration Nos. 33-45117 and 811-6529 filed with the
Commission on November 10, 1998)
(f) Form of Asset Retention Agreement (incorporated herein by
reference to Exhibit 6(d) to Post-Effective Amendment No. 10
to the Registration Statement of Liberty Funds Trust VI
(formerly Colonial Trust VI), Registration Nos. 33-45117 and
811-6529, filed with the Commission on September 27, 1996)
(8) Discussion of trustee compensation is incorporated by reference
from the second paragraph under the sub-caption "Trustee
Compensation" in the Proxy/Prospectus filed herewith.
(9)(a) Global Custody Agreement with The Chase Manhattan Bank
(incorporated herein by reference to Exhibit 8. to Post-
Effective Amendment No. 13 to the Registration Statement of
Liberty Funds Trust VI (formerly Colonial Trust VI),
Registration Nos. 33-45117 and 811-6529, filed with the
Commission on or about October 24, 1997)
(b) Amendment No. 13 to Appendix A of Global Custody Agreement with
The Chase Manhattan Bank - filed as Exhibit (g)(2) in Part C,
Item 23 of Post-Effective Amendment No. 63 to the Registration
Statement on Form N-1A of Liberty Funds Trust I (File Nos.
2-41251 & 811-2214), filed with the Commission on or about July
19, 2000, and is hereby incorporated by reference and made a
part of this Registration Statement
(c) Form of Custody Agreement with State Street Bank and Trust
Company(6)
(10)(a) Rule 12b-1 Distribution Plan - filed as Exhibit (m) in Part C,
Item 23 of Post-Effective Amendment No. 63 to the Registration
Statement on Form N-1A of Liberty Funds Trust I (File Nos.
2-41251 & 811-2214), filed with the Commission on or about July
19, 2000, and is hereby incorporated by reference and made a part
of this Registration Statement
(b) 12b-1 Plan Implementing Agreement between the Registrant and
Liberty Funds Distributor, Inc. - filed as Exhibit 6.(b) in Part
C, Item 24(b) of Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A of Liberty Funds Trust VI
(File Nos. 33-45117 and 811-6529), filed with the Commission on
or about May 24, 1999, and is hereby incorporated by reference
and made a part of this Registration Statement
(c) Appendix I to the 12b-1 Plan Implementing Agreement between
the Registrant and Liberty Funds Distributor, Inc. - filed as
Exhibit (e)(4) in Part C, Item 23 of Post-Effective Amendment No.
63 to the Registration Statement on Form N-1A of Liberty Funds
Trust I (File Nos. 2-41251 & 811-2214), filed with the Commission
on or about July 19, 2000, and is hereby incorporated by
reference and made a part of this Registration Statement
(d) Plan pursuant to Rule 18f-3(d) under the Investment Company Act
of 1940 - filed as Exhibit (o) in Part C, Item 23 of
Post-Effective Amendment No. 63 to the Registration Statement on
Form N-1A of Liberty Funds Trust I (File Nos. 2-41251 &
811-2214), filed with the Commission on or about July 19, 2000,
and is hereby incorporated by reference and made a part of this
Registration Statement
(11)(a) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Stein Roe Disciplined Stock Fund
(b) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Small Cap Value Fund
(c) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Strategic Balanced Fund
(d) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Contrarian Small Cap Fund
(e) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Contrarian Balanced Fund
(12)(a) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Bell, Boyd & Lloyd with respect
to the Acquisition of Stein Roe Disciplined Stock Fund
(b) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Stein Roe Disciplined Stock Fund
(c) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Small Cap Value Fund
(d) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Strategic Balanced Fund
(e) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Contrarian Small Cap Fund
(f) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Contrarian Balanced Fund
(13) Not Applicable
(14)(a) Consent of Independent Accountants (Arthur Andersen)
(b) Consent of Independent Accountants (PWC)
(c) Consent of Independent Auditors (E&Y)
(d) Consent of Independent Accountants (KPMG)
(15) Not Applicable
(16)(a) Power of Attorney for: Tom Bleasdale, Lora S. Collins, James E.
Grinnell, Richard W. Lowry, Salvatore Macera, William E. Mayer,
James L. Moody, Jr., John J. Neuhauser, Thomas E. Stitzel and
Anne-Lee Verville - filed with Part C, Item 23 of Post-Effective
Amendment No. 62 to the Registration Statement on Form N-1A of
Liberty Funds Trust I (File Nos. 2-41251 and 811-2214), filed
with the Commission on or about May 17, 2000 and is hereby
incorporated by reference and made a part of this Registration
Statement
(b) Power of Attorney for Joseph R. Palombo - filed with Part C,
Item 23 of Post-Effective Amendment No. 27 to the Registration
Statement on Form N-1A of Liberty Funds Trust V (File Nos.
33-12109 and 811-5030), filed with the Commission on or about
August 31, 2000 and is hereby incorporated by reference and made
a part of this Registration Statement
(17)(a) Amended and Restated Shareholders' Servicing and Transfer Agent
Agreement as amended - filed as Exhibit 9(b) to Part C, Item
24(b) of Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A of Liberty Funds Trust VI (File Nos.
33-45117 and 811-6529), filed with the Commission on or about
September 27, 1996, and is hereby incorporated by reference and
made a part of this Registration Statement
(b) Amendment No. 18 to Schedule A of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as amended
- filed as Exhibit (h)(2) in Part C, Item 23 of Post-Effective
Amendment No. 62 to the Registration Statement on Form N-1A of
Liberty Funds Trust I (File Nos. 2-41251 and 811-2214), filed
with the Commission on or about May 17, 2000, and is hereby
incorporated by reference and made a part of this Registration
Statement
(c) Amendment No. 23 to Appendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as amended
- filed as Exhibit (h)(3) in Part C, Item 23 of Post-Effective
Amendment No. 63 to the Registration Statement on Form N-1A of
Liberty Funds Trust I (File Nos. 2-41251 & 811-2214), filed with
the Commission on or about July 19, 2000, and is hereby
incorporated by reference and made a part of this Registration
Statement
(d) Pricing and Bookkeeping Agreement - filed as Exhibit 9(b) in
Part C, Item 24(b) of Post-Effective Amendment No. 10 to the
Registration Statement of Form N-1A of Liberty Funds Trust VI
(File Nos. 33-45117 and 811-6529) Filed with the Commission on or
about September 27, 1996, and is hereby incorporated by reference
and made a part of this Registration Statement
(e) Amendment to Appendix I of Pricing and Bookkeeping Agreement -
filed as Exhibit (h)(5) in Part C, Item 23 of Post-Effective
Amendment No. 63 to the Registration Statement on Form N-1A of
Liberty Funds Trust I (File Nos. 2-41251 & 811-2214), filed with
the Commission on or about July 19, 2000, and is hereby
incorporated by reference and made a part of this Registration
Statement
(f) Amended and Restated Credit Agreement with Bank of America -
filed as Exhibit (h)(8) in Part C, Item 23 of Post-Effective
Amendment No. 110 to the Registration Statement on Form N-1A of
Liberty Funds Trust III (File Nos. 2-15184 and 811-881), filed
with the Commission on or about August 12, 1999, and is hereby
incorporated by reference and made part of this Registration
Statement
(g) Amendment dated June 30, 2000 to the Amended and Restated Credit
Agreement with Bank of America filed as Exhibit (h)(8) in Part C,
Item 23 of Post-Effective Amendment No. 115 to the Registration
Statement on Form N-1A of Liberty Funds Trust III (File Nos.
2-15184 and 811-881), filed with the Commission on or about
October 4, 2000, and is hereby incorporated by reference and
made a part of this Registration Statement
(h) Code of Ethics of The Liberty Funds, Colonial Management
Associates, Inc., Stein Roe & Farnham Incorporated, Newport Fund
Management, Inc., Liberty Funds Distributor, Inc. - filed in
Part C, Item 23 of Post-Effective Amendment No. 27 to the
Registration Statement of Liberty Funds Trust V, (File Nos.
33-12109 and 811-5030), filed with the Commission on or about
August 31, 2000, and is hereby incorporated and made a part of
this Registration Statement
(i) Form of Proxy Card and Proxy Insert
(Stein Roe Disciplined Stock Fund)
(j) Form of Proxy Card and Proxy Insert
(Liberty Small Cap Value Fund)
(k) Form of Proxy Card and Proxy Insert
(Liberty Strategic Balanced Fund)
(l) Form of Proxy Card and Proxy Insert
(Liberty Contrarian Small Cap Fund)
(m) Form of Proxy Card and Proxy Insert
(Liberty Contrarian Balanced Fund)
(n) The following documents, each filed via EDGAR and listed with
their filing accession number, are incorporated by reference
into the Proxy/Prospectus and the Statement of Additional
Information for the funds referenced below:
o The Prospectus of the Disciplined Stock Fund dated February 1, 2000 -
0000773757-00-000004
o As supplemented on February 11, 2000 - 0000773757-00-000016
o As supplemented on April 20, 2000 - 0000773757-00-000023
o As supplemented on June 5, 2000 - 0000021832-00-000100
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on July 14, 2000 - 0000021832-00-000123
o As supplemented on August 2, 2000 - 0000021832-00-000175
o As supplemented on August 11, 2000 - 0000021832-00-000179
o As supplemented on August 28, 2000 - 0000021832-00-000209
o As supplemented on September 1, 2000- 0000021832-00-000219
o The Prospectuses of the Small Cap Fund dated November 1, 1999 -
0000021832-99-000045
o As supplemented on December 28, 1999 - 0000276716-99-000023
o As supplemented on August 2, 2000 - 0000021832-00-000174
o As supplemented on August 15, 2000 - 0000021832-00-000185
o The Statement of Additional Information of the Disciplined Stock Fund dated
February 1, 2000 - 0000773757-00-000004
o As supplemented on June 23, 2000 - 0000021832-00-000114
o The Statement of Additional Information of the Small Cap Fund dated
November 1, 1999 - 0000021832-99-000045
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000021832-00-000188
o The Statement of Additional Information of the Select Value Fund dated
March 1, 2000 - 0000021832-00-000046
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000021832-00-000188
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Disciplined Stock Fund dated
September 30, 1999 - 0000891804-99-002507
o The financial statements included in the Disciplined Stock Fund's
Semi-Annual Report to Shareholders dated March 31, 2000 -
0000891804-00-001050
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Small Cap Fund dated June 30, 2000
- 0000950156-00-000463
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Select Value Fund dated
October 31, 1999 - 0000950156-99-000765
o The financial statements included in the Select Value Fund's
Semi-Annual Report to Shareholders dated April 30, 2000 -
0000950135-00-003563
o The Statement of Additional Information of the Select Value Fund dated
November 8, 2000 relating to the Acquisitions.
o The Prospectus of the Strategic Fund dated March 1, 2000 -
0000883163-00-000016
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on and August 1, 2000 - 0000883163-00-000069
o The Statement of Additional Information of the Strategic Fund dated March
1, 2000 - 0000883163-00-000016
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000021832-00-000188
o The Statement of Additional Information of the Liberty Fund dated March 1,
2000 - 0000276716-00-000013
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000021832-00-000188
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Strategic Fund dated October 31,
1999 - 0000950146-00-000026
o The financial statements included in the Strategic Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0001005477-00-005056
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Liberty Fund dated October 31,
1999 - 0000950146-00-000030
o The financial statements included in the Liberty Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0001005477-00-005057
o The Statement of Additional Information of the Liberty Fund dated November
8, 2000 relating to the Acquisition.
o The Prospectuses of the Small Cap Fund dated March 1, 2000 -
0000276716-00-000014
o As supplemented on May 5, 2000 - 0000021832-00-000075
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 1, 2000 - 0000883163-00-000069
o The Statement of Additional Information of the Small Cap Fund dated March
1, 2000 - 0000276716-00-000014
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000883163-00-000084
o The Statement of Additional Information of the Special Fund dated March 1,
2000 - 0000276716-00-000014
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000883163-00-000084
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Small Cap Fund dated October 31,
1999 - 0000950146-00-000038
o The financial statements included in the Small Cap Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0000950135-00-003559
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Special Fund dated October 31,
1999 - 0000950146-00-000038
o The financial statements included in the Special Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0000950135-00-003559
o The Statement of Additional Information of the Special Fund dated November
8, 2000 relating to the Acquisition.
o The Prospectuses of the Balanced Fund dated March 1, 2000 -
0000276716-00-000014
o As supplemented on May 5, 2000 - 0000021832-00-000075
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 1, 2000 - 0000883163-00-000069
o The Statement of Additional Information of the Balanced Fund dated March 1,
2000 - 0000276716-00-000014
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000883163-00-000084 o The Statement
of Additional Information of the Equity Fund dated March 1, 2000 -
0000276716-00-000014
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000883163-00-000084
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Balanced Fund dated October 31,
1999 - 0000950146-00-000038
o The financial statements included in the Balanced Fund's Semi-Annual Report
to Shareholders dated April 30, 2000 - 0000950135-00-003559
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Equity Fund dated October 31,
1999 - 0000950146-00-000038
o The financial statements included in the Equity Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0000950135-00-003559
o The Statement of Additional Information of the Equity Fund dated November
8, 2000 relating to the Acquisition.
o Post-Effective Amendment No. 115 to the Registration Statement of Liberty
Funds Trust III relating to the Prospectus and Statement of Additional
Information of Liberty Select Value Fund, Class S and Liberty Special
Fund, Class I - 0000021832-00-000251
-----------------
(1) Incorporated by reference to Post-Effective Amendment No. 97 to Form N-1A
filed on or about February 13, 1997.
(2) Incorporated by reference to Post-Effective Amendment No. 104 to Form N-1A
filed on or about October 30, 1998.
(3) Incorporated by reference to Post-Effective Amendment No. 110 to Form N-1A
filed on or about August 12, 1999.
(4) Incorporated by reference to Post-Effective Amendment No. 94 to Form N-1A
filed on or about July 28, 1995.
(5) Incorporated by reference to Post-Effective Amendment No. 107 to Form N-1A
filed on or about December 31, 1998.
(6) Incorporated by reference to Post-Effective Amendment No. 101 to Form N-1A
filed on or about July 24, 1998.
(7) Incorporated by reference to Post-Effective Amendment No. 113 to Form N-1A
filed on or about February 17, 2000.
(8) Incorporated by reference to Post-Effective Amendment No. 109 to Form N-1A
filed on or about March 1, 1999.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering
prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to this Registration Statement and will not be used until
the amendment is effective, and that, in determining any liability
under the 1933 Act, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust of Liberty Funds Trust III
(Trust), as amended, is on file with the Secretary of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by officers of the Trust as officers and by
its Trustees as trustees and not individually, and the obligations of or arising
out of this Registration Statement are not binding upon any of the Trustees,
officers or shareholders of the Trust individually but are binding only upon the
assets and property of Liberty Funds Trust III.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant, in the City of Boston and Commonwealth of
Massachusetts, on the 5th day of October, 2000.
LIBERTY FUNDS TRUST III
By:/s/STEPHEN E. GIBSON
---------------------------------
Stephen E. Gibson
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/STEPHEN E. GIBSON President (chief October 5, 2000
-----------------
Stephen E. Gibson executive officer)
/s/PAMELA A. MCGRATH Treasurer and Chief Financial Officer October 5, 2000
-----------------
Pamela A. McGrath (principal financial and accounting
officer)
<PAGE>
/s/TOM BLEASDALE* Trustee
-------------------
Tom Bleasdale
/s/LORA S. COLLINS* Trustee
-------------------
Lora S. Collins
/s/JAMES E. GRINNELL* Trustee
---------------------
James E. Grinnell
/s/RICHARD W. LOWRY* Trustee
--------------------
Richard W. Lowry
/s/SALVATORE MACERA* Trustee
--------------------
Salvatore Macera
*/s/ WILLIAM J. BALLOU
----------------------
William J. Ballou
/s/WILLIAM E. MAYER* Trustee Attorney-in-fact
-------------------- For each Trustee
William E. Mayer October 5, 2000
/s/JAMES L. MOODY, JR. * Trustee
------------------------
James L. Moody, Jr.
/s/JOHN J. NEUHAUSER* Trustee
---------------------
John J. Neuhauser
/s/JOSEPH R. PALOMBO* Trustee
---------------------
Joseph R. Palombo
/s/THOMAS E. STITZEL* Trustee
---------------------
Thomas E. Stitzel
/s/ANNE-LEE VERVILLE* Trustee
---------------------
Anne-Lee Verville
EXHIBIT INDEX
Exhibit Item
(4)(a) Form of Agreement and Plan of Reorganization between Stein Roe
Disciplined Stock Fund and Liberty Select Value Fund
(b) Form of Agreement and Plan of Reorganization between Liberty
Small-Cap Value Fund and Liberty Select Value Fund
(c) Form of Agreement and Plan of Reorganization between Liberty
Strategic Balanced Fund and The Liberty Fund
(d) Form of Agreement and Plan of Reorganization between Liberty
Contrarian Small Cap Fund and Liberty Special Fund
(e) Form of Agreement and Plan of Reorganization between Liberty
Contrarian Balanced Fund and Liberty Contrarian Balanced Fund
(11)(a) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Stein Roe Disciplined Stock Fund
(b) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Small Cap Value Fund
(c) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Strategic Balanced Fund
(d) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Contrarian Small Cap Fund
(e) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Contrarian Equity Fund
(12)(a) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Bell, Boyd & Lloyd with respect
to the Acquisition of Stein Roe Disciplined Stock Fund
(b) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Stein Roe Disciplined Stock Fund
(c) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Small Cap Value Fund
(d) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Strategic Balanced Fund
(e) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Contrarian Small Cap Fund
(f) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Contrarian Balanced Fund
(14)(a) Consent of Independent Accountants (Arthur Andersen)
(b) Consent of Independent Accountants (PWC)
(c) Consent of Independent Auditors (E&Y)
(d) Consent of Independent Accountants (KPMG)
(17)(i) Form of Proxy Card and Proxy Insert
(Stein Roe Disciplined Stock Fund)
(j) Form of Proxy Card and Proxy Insert
(Liberty Small Cap Value Fund)
(k) Form of Proxy Card and Proxy Insert
(Liberty Strategic Balanced Fund)
(l) Form of Proxy Card and Proxy Insert
(Liberty Contrarian Small Cap Fund)
(m) Form of Proxy Card and Proxy Insert
(Liberty Contrarian Balanced Fund)
