<PAGE> 1
LIBERTY MUTUAL FUNDS
STEIN ROE MUTUAL FUNDS
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111-2621
Dear Shareholder:
Your Fund will hold a special meeting on December 27, 2000 at 10:00 a.m.
Eastern Time, at the offices of Colonial Management Associates, Inc. You will be
asked to vote on the acquisition of your Fund and on the election of eleven
Trustees. A formal Notice of Special Meeting of Shareholders appears on the next
page, followed by the combined Prospectus/Proxy Statement which explains in more
detail the proposals to be considered. We hope that you can attend the Meeting
in person; however, we urge you in any event to vote your shares at your
earliest convenience.
Your Fund is part of one of several proposed acquisitions and liquidations
of funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial
Companies, Inc., the indirect parent of each of the investment advisors to the
Liberty and Stein Roe Funds. The overall purposes of these acquisitions and
liquidations include streamlining the product offerings of the Liberty and Stein
Roe Funds, potentially reducing fund expense ratios by creating larger funds and
permitting the Liberty Financial organization to concentrate its portfolio
management resources on a more focused group of portfolios. Please review the
enclosed Prospectus/Proxy Statement for a more detailed description of the
proposed acquisition of your Fund and the specific reasons it is being proposed.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU CAN
VOTE EASILY AND QUICKLY BY MAIL, BY FAX (NOT AVAILABLE FOR ALL SHAREHOLDERS;
REFER TO ENCLOSED PROXY INSERT), BY PHONE OR IN PERSON. A SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE. PLEASE HELP YOUR
FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
Your Fund is using Shareholder Communications Corporation ("SCC"), a
professional proxy solicitation firm, to assist shareholders in the voting
process. As the date of the special meeting approaches, if we have not yet
received your vote, you may receive a telephone call from SCC reminding you to
exercise your right to vote.
Please take a few moments to review the details of each proposal. If you
have any questions regarding the combined Prospectus/Proxy Statement, please
feel free to call the contact number listed in the enclosed Prospectus/Proxy
Statement.
We appreciate your participation and prompt response in these matters and
thank you for your continued support.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson, President
November 17, 2000
G-60/602D-1000
<PAGE> 2
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 27, 2000
LIBERTY FUNDS TRUST III
LIBERTY NEWPORT GLOBAL EQUITY FUND
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of the
Liberty Newport Global Equity Fund will be held at 10:00 a.m. Eastern Time on
Wednesday, December 27, 2000, at the offices of Colonial Management Associates,
Inc., the Liberty Newport Global Equity Fund's advisor, One Financial Center,
Boston, Massachusetts 02111-2621, for these purposes:
1. To approve an Agreement and Plan of Reorganization providing for the
sale of all of the assets of the Liberty Newport Global Equity Fund to,
and the assumption of all of the liabilities of the Liberty Newport
Global Equity Fund by, the Liberty Newport Global Utilities Fund in
exchange for shares of the Liberty Newport Global Utilities Fund and
the distribution of such shares to the shareholders of the Liberty
Newport Global Equity Fund in complete liquidation of the Liberty
Newport Global Equity Fund.
2. To elect eleven Trustees.
3. To consider and act upon any other matters that properly come before
the meeting and any adjourned session of the meeting.
Shareholders of record at the close of business on September 29, 2000 are
entitled to notice of and to vote at the meeting and any adjourned session.
By order of the Board of Trustees,
William J. Ballou, Secretary
November 17, 2000
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU
CAN VOTE EASILY AND QUICKLY BY PHONE, BY MAIL, BY FAX (NOT AVAILABLE FOR
ALL SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT) OR IN PERSON. PLEASE
HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
<PAGE> 3
COMBINED PROSPECTUS AND PROXY STATEMENT
NOVEMBER 17, 2000
ACQUISITION OF THE ASSETS AND LIABILITIES OF
LIBERTY NEWPORT GLOBAL EQUITY FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111-2621
1-800-426-3750
BY AND IN EXCHANGE FOR SHARES OF
LIBERTY NEWPORT GLOBAL UTILITIES FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111-2621
1-800-426-3750
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS....................................... 3
PROPOSAL 1 -- Acquisition of the Liberty Newport Global
Equity Fund by the Liberty Newport Global
Utilities Fund................................ 8
Principal Investment Risks................................ 8
Information about the Acquisition......................... 8
PROPOSAL 2 -- Election of Trustees.......................... 14
GENERAL..................................................... 17
Voting Information........................................ 17
Appendix A -- Agreement and Plan of Reorganization.......... A-1
Appendix B -- Fund Information.............................. B-1
Appendix C -- Capitalization................................ C-1
Appendix D -- Management's Discussion of Fund Performance
for the Liberty Newport Global Utilities
Fund.......................................... D-1
</TABLE>
This combined Prospectus/Proxy Statement contains information you should
know before voting on the proposed acquisition of the Liberty Newport Global
Equity Fund (the "Global Equity Fund") by the Liberty Newport Global Utilities
Fund (the "Global Utilities Fund") or voting on the other proposals to be
considered at a Special Meeting of Shareholders of the Global Equity Fund (the
"Meeting"), which will be held at 10:00 a.m. Eastern Time on December 27, 2000,
at the offices of Colonial Management Associates, Inc. ("Colonial"), One
Financial Center, Boston, Massachusetts 02111-2621. Please read this
Prospectus/Proxy Statement and keep it for future reference.
Proposal 1 in this Prospectus/Proxy Statement relates to the proposed
acquisition of the Global Equity Fund by the Global Utilities Fund (the
"Acquisition"). If the Acquisition occurs, you will become a shareholder of the
Global Utilities Fund. The Global Utilities Fund seeks long-term growth of
capital and income and current income. If the Agreement and Plan of
Reorganization is approved by the shareholders of the Global Equity Fund and the
Acquisition occurs, the Global Equity Fund will transfer all of the assets and
liabilities attributable to each class of its shares to the Global Utilities
Fund in exchange for shares of the same class of the Global Utilities Fund with
the same aggregate net asset value as the assets and liabilities transferred.
After that exchange, shares of each class received by the Global Equity Fund
will be distributed pro rata to its shareholders of the same class. After the
Acquisition, the Global Utilities Fund expects to change its name to "Liberty
Newport Global Equity Fund."
Proposal 2 in this Prospectus/Proxy Statement relates to the election of
Trustees of Liberty Funds Trust III ("Trust III"), of which the Global Equity
Fund is a series.
1
<PAGE> 4
Please review the enclosed Prospectus of the Global Utilities 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 Prospectus of the Global Equity Fund dated March 1, 2000, as
supplemented on June 5, 2000, June 23, 2000, August 1, 2000, October 23,
2000 and October 26, 2000.
- The Statement of Additional Information of the Global Equity Fund dated
March 1, 2000, as supplemented on June 5, 2000, June 23, 2000, August 21,
2000 and October 23, 2000.
- The Statement of Additional Information of the Global Utilities Fund
dated March 1, 2000, as supplemented on June 5, 2000, June 23, 2000,
August 21, 2000 and October 23, 2000.
- The Report of Independent Accountants and financial statements included
in the Annual Report to Shareholders of the Global Equity Fund dated
October 31, 1999.
- The financial statements included in the Global Equity Fund's Semi-Annual
Report to Shareholders dated April 30, 2000.
- The Statement of Additional Information of the Global Utilities Fund
dated November 17, 2000 relating to the Acquisition.
The Global Equity 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 Global Equity Fund
and Global Utilities Fund documents can be viewed online or downloaded from the
Edgar database on the SEC's internet site at www.sec.gov. You can review and
copy information about the Funds by visiting the following location, and you can
obtain copies, upon payment of a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the Public Reference
Room, U.S. Securities and Exchange Commission, Washington, DC 20549-0102.
Information on the operation of the Public Reference Room may be obtained by
calling 202-942-8090.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 5
QUESTIONS AND ANSWERS
THE FOLLOWING QUESTIONS AND ANSWERS PROVIDE AN OVERVIEW OF KEY FEATURES OF THE
ACQUISITION AND OF THE OTHER MATTERS TO BE CONSIDERED AT THE MEETING AND OF THE
INFORMATION CONTAINED IN THIS COMBINED PROSPECTUS/ PROXY STATEMENT. PLEASE
REVIEW THE FULL PROSPECTUS/PROXY STATEMENT PRIOR TO CASTING YOUR VOTE.
1. WHAT IS BEING PROPOSED?
First, the Trustees of Trust III are recommending in Proposal 1 that the Global
Utilities Fund acquire the Global Equity Fund. This means that the Global
Utilities Fund would acquire all of the assets and liabilities of the Global
Equity Fund in exchange for shares of the Global Utilities Fund representing the
aggregate net asset value of Global Equity Fund's assets and liabilities. If
Proposal 1 is approved, you will receive shares of the Global Utilities Fund
with an aggregate net asset value equal to the aggregate net asset value of your
Global Equity Fund shares as of the business day before the closing of the
Acquisition. The Acquisition is currently scheduled to take place on or around
January 29, 2001.
In addition, the Trustees of Trust III are recommending in Proposal 2 that you
vote in favor of eleven nominees for Trustees.
2. WHY IS THE ACQUISITION BEING PROPOSED?
The Trustees of Trust III recommend approval of the Acquisition. In reviewing
the Acquisition, the Trustees considered that the Acquisition offers
shareholders of the Global Equity Fund an investment in a larger fund with
somewhat similar investment goals and strategies and with an expected reduction
in the fees and expenses payable by the Global Equity Fund. In addition, the
Trustees considered the expected 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.
SHAREHOLDERS OF THE GLOBAL EQUITY FUND SHOULD NOTE THAT THE GLOBAL UTILITIES
FUND CURRENTLY INVESTS PRIMARILY IN SECURITIES OF U.S. AND FOREIGN UTILITY
COMPANIES, NOT IN EQUITY SECURITIES OF COMPANIES IN A BROAD VARIETY OF
INDUSTRIES LIKE THE GLOBAL EQUITY FUND.
3. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE AND WHAT ARE
THEY ESTIMATED TO BE FOLLOWING THE ACQUISITION?
The following tables allow you to compare the sales charges and management fees
and expenses of the Global Equity Fund and the Global Utilities Fund and to
analyze the estimated expenses that Liberty Financial Companies, Inc. ("Liberty
Financial"), the indirect parent of each Fund's investment advisor, expects the
combined fund to bear in the first year following the Acquisition. The
shareholder fees presented below for the Global Utilities Fund apply both before
and after giving effect to 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's assets. They include
management and administration fees, 12b-1 fees and administrative costs,
including pricing and custody services. The Annual Fund Operating Expenses shown
in the table below represent expenses incurred by each Fund for its fiscal year
ended October 31, 1999.
3
<PAGE> 6
SHAREHOLDER FEES(1)
(paid directly from your investment)
<TABLE>
<CAPTION>
GLOBAL EQUITY FUND GLOBAL UTILITIES FUND
------------------ ---------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <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 5.75 0.00 0.00
-----------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
on redemptions (%) (as a percentage
of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00 1.00(2) 5.00 1.00
-----------------------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage
of amount redeemed, if applicable) (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>
GLOBAL EQUITY FUND GLOBAL UTILITIES FUND
------------------ ---------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Management fee(4)(5) (%) 0.95 0.95 0.95 0.65 0.65 0.65
-----------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees
(%)................................ 0.25 1.00 1.00 0.25 1.00 1.00
-----------------------------------------------------------------------------------------------------
Other expenses (%) 0.55 0.55 0.55 0.42 0.42 0.42
-----------------------------------------------------------------------------------------------------
Total annual fund operating
expenses(4)(%) 1.75 2.50 2.50 1.32 2.07 2.07
</TABLE>
<TABLE>
<CAPTION>
GLOBAL UTILITIES FUND (PRO FORMA COMBINED)
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee(5) (%) 0.65 0.65 0.65
-------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
-------------------------------------------------------------------------------------------
Other expenses (%) 0.42 0.42 0.42
-------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.32 2.07 2.07
</TABLE>
---------------
(4) The Global Equity Fund's investment advisor has voluntarily agreed to waive
advisory fees and reimburse the Fund for certain expenses so that the total
annual fund operating expenses (exclusive of distribution and service fees,
brokerage commissions, interest, taxes and extraordinary expenses, if any)
will not exceed 1.40%. As a result, the actual management fee for each share
class would be 0.85% and total annual fund operating expenses for Class A, B
and C shares would be 1.65%, 2.40% and 2.40%, respectively. This arrangement
may be modified or terminated by the investment advisor at any time.
(5) The Global Utilities Fund's management fee includes both the management fee
and administration fee charged to the Fund.
4
<PAGE> 7
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in the Global Equity
Fund and the Global Utilities 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>
GLOBAL EQUITY FUND
Class A $743 $1,094 $1,469 $2,519
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $253 $ 779 $1,331 $2,652
sold all your shares at end of period $753 $1,079 $1,531 $2,652
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $253 $ 779 $1,331 $2,836
sold all your shares at end of period $353 $ 779 $1,331 $2,836
--------------------------------------------------------------------------------------------------
GLOBAL UTILITIES FUND
Class A $702 $ 969 $1,257 $2,074
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $210 $ 649 $1,114 $2,208
sold all your shares at end of period $710 $ 949 $1,314 $2,208
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $210 $ 649 $1,114 $2,400
sold all your shares at end of period $310 $ 649 $1,114 $2,400
--------------------------------------------------------------------------------------------------
GLOBAL UTILITIES FUND
(pro forma combined)
Class A $702 $ 969 $1,257 $2,074
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $210 $ 649 $1,114 $2,208
sold all your shares at end of period $710 $ 949 $1,314 $2,208
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $210 $ 649 $1,114 $2,400
sold all your shares at end of period $310 $ 649 $1,114 $2,400
</TABLE>
Significant assumptions underlying the pro forma Annual Fund Operating Expenses
and Example Expenses are as follows: (1) the current contractual agreements will
remain in place; (2) certain duplicate costs involved in operating the Global
Equity Fund are eliminated; and (3) expense ratios are based on pro forma
combined average net assets for the twelve months ended April 30, 2000.
5
<PAGE> 8
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE GLOBAL EQUITY
FUND AND THE GLOBAL UTILITIES FUND COMPARE?
This table shows the current investment goal and primary investment strategies
of each Fund:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
THE GLOBAL EQUITY FUND THE GLOBAL UTILITIES FUND
-------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT GOAL: The Global Equity INVESTMENT GOALS: The Global
Fund seeks long-term growth by Utilities Fund seeks long-term
investing primarily in global growth of capital and income and
equities. current income.
-------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Global Equity Fund seeks to The Global Utilities Fund seeks to
achieve its goal as follows: achieve its goals as follows:
- The Fund invests at least 65% of - The Fund invests at least 65% of
its total assets in U.S. and its total assets in U.S. and
foreign equity securities. foreign securities of utility
- The Fund generally will have companies.
exposure to at least three - The Fund has exposure to at least
countries, including the U.S. three countries, including the
- The Fund will invest in other U.S.
investment companies. - The Fund invests primarily in
stocks of larger utility companies
with established records.
- Up to 35% of the Fund's total
assets may be invested in equity
securities and investment grade
debt securities that are not
issued by utility companies.
-------------------------------------------------------------------------------
</TABLE>
The following compares the primary investment strategies that each Fund uses to
achieve its investment goal or goals:
- While the Global Equity Fund invests primarily (at least 65% of its total
assets) in U.S. and foreign equity securities, the Global Utilities Fund
invests primarily (at least 65% of its total assets) in U.S. and foreign
securities of utility companies. Up to 35% of the Global Utilities Fund's
total assets may be invested in equity securities and investment grade
debt securities that are not issued by utility companies.
- Both Funds generally will be invested in securities of issuers in at
least three countries, including the U.S., and will therefore have
exposure to at least three countries.
- Unlike the Global Utilities Fund, the Global Equity Fund invests in other
investment companies as a primary investment strategy, which involves the
payment of duplicate fees because the Fund, as a shareholder, indirectly
pays a portion of the other investment company's fund expenses.
The current fundamental and non-fundamental investment policies of the Global
Equity Fund and the Global Utilities Fund are similar, except as follows:
- The Global Equity Fund is not permitted to invest more than 25% of its
total assets in any one industry, while the Global Utilities Fund is
permitted to invest without limit in the securities of companies in the
public utilities industry.
- The Global Utilities Fund, unlike the Global Equity Fund, is not
permitted to purchase or sell interests in oil, gas or mineral leases,
commodities or commodity contracts.
6
<PAGE> 9
Because utility companies are the primary investment focus of the Global
Utilities Fund, the Fund is especially affected by changes in interest rates, as
well as by general competitive and market forces in the industry. You may be
subject to greater potential risk by becoming a shareholder of the Global
Utilities Fund due to its susceptibility to the risks associated with utility
company securities.
After the Acquisition, the Global Utilities Fund will change its investment
program, strategies and policies to invest under normal market conditions at
least 50% of its total assets (rather than 65% of its total assets currently) in
U.S. and foreign securities of utility companies. After the Acquisition, up to
50% of the Global Utilities Fund's total assets (rather than 65% of its total
assets currently) may be invested in U.S. and foreign equity securities and
investment grade debt securities that are not issued by utility companies. As is
the case currently, the Fund's investment advisor also intends to diversify the
Fund's investments among a number of developed countries and market sectors and
the Fund will have exposure to at least three countries, including the U.S.
Please see "Principal Investment Risks" in Proposal 1 for a discussion of the
principal risks of the Global Utilities Fund.
In addition, as described in "Proposal 1 -- Information about the Proposed New
Management Agreement," the shareholders of the Global Utilities Fund will meet
to vote on a new management agreement between the Fund and Newport Fund
Management, Inc ("Newport"). Please see that section for a description of the
New Management Agreement and the management of the Global Utilities Fund after
the Acquisition.
5. WHAT CLASS OF SHARES WILL YOU RECEIVE IN THE GLOBAL UTILITIES FUND IF THE
ACQUISITION OCCURS?
You will receive the same class of shares that you currently own in the Global
Equity Fund. The shares will have the same exchange rights and will bear the
same contingent deferred sales charges ("CDSCs"), if applicable, as your current
shares. The shares will also have the same distribution, purchase and redemption
procedures as your current shares.
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION?
The Acquisition is expected to be tax free to you for federal income tax
purposes. This means that no gain or loss will be recognized by the Global
Equity Fund or its shareholders as a result of the Acquisition.
The cost basis and holding period of your Global Equity Fund shares are expected
to carry over to your new shares in the Global Utilities Fund.
7
<PAGE> 10
PROPOSAL 1 -- ACQUISITION OF THE LIBERTY NEWPORT GLOBAL EQUITY FUND
BY THE LIBERTY NEWPORT GLOBAL UTILITIES 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 this Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Global Equity Fund by the Global Utilities Fund under the Agreement and Plan
of Reorganization.
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the Global Utilities Fund, and how
do they compare with the Global Equity Fund?
Because the Funds have somewhat similar goals and strategies, the principal
risks associated with each Fund are similar. Both Funds are subject to market
risk and the risks associated with foreign securities, which include the
volatility of foreign markets, fluctuations in currency exchange rates and more
limited liquidity than domestic securities. Furthermore, by becoming a
shareholder of the Global Utilities Fund, as presently constituted, you will be
subject to greater risks relating to investments in utility company securities
due to the Global Utilities Fund's focus on such investments. Utility company
securities are especially affected by changes in interest rates, as well as by
general competitive and market forces in the industry. In addition, utility
companies are affected by changes in government regulation. In particular, the
profitability of utilities may in the future be adversely affected by increased
competition from deregulation. For more information about the principal
investment risks of the Global Utilities Fund, please see the enclosed
Prospectus of the Global Utilities Fund. 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.
After the Acquisition, the Global Utilities Fund will change the
requirement to invest more than 65% in the utilities sector to investing at
least 50% in the utilities sector. Under the Global Utilities Fund's proposed
new investment strategy, up to 50% of the Global Utilities Fund's assets may be
invested in equity securities and investment grade debt securities that are not
issued by utility companies. The Global Utilities Fund also plans to change its
name to "Liberty Newport Global Equity Fund."
INFORMATION ABOUT THE ACQUISITION
Terms of the Agreement and Plan of Reorganization
If approved by the shareholders of the Global Equity Fund, the Acquisition
is expected to occur on or around January 29, 2001 under the Agreement and Plan
of Reorganization, a form of which is attached as Appendix A to this combined
Prospectus/Proxy Statement. Please review Appendix A. The following is a brief
summary of the principal terms of the Agreement and Plan of Reorganization:
- The Global Equity Fund will transfer all of the assets and liabilities
attributable to each class of shares of the Global Equity Fund to the
Global Utilities Fund in exchange for shares of the same class of the
Global Utilities Fund with an aggregate net asset value equal to the net
asset value of the transferred assets and liabilities.
- The Acquisition will occur on the next business day after the time
(currently scheduled to be 4:00 p.m. Eastern Time on January 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 Global Utilities Fund received by the
Global Equity Fund will be distributed to the shareholders of the same
class of the Global Equity Fund pro rata in accordance with their
percentage ownership of each class of the Global Equity Fund in full
liquidation of the Global Equity Fund.
8
<PAGE> 11
- After the Acquisition, the Global Equity Fund will be terminated, and its
affairs will be wound up in an orderly fashion.
- The Acquisition requires approval by the Global Equity Fund's
shareholders and satisfaction of a number of other conditions; the
Acquisition may be terminated at any time with the approval of the
Trustees of Trust III.
A shareholder who objects to the Acquisition will not be entitled under
Massachusetts law or the Declaration of Trust of Trust III (the "Declaration")
to demand payment for, or an appraisal of, his or her shares. However,
shareholders should be aware that the Acquisition as proposed is not expected to
result in recognition of gain or loss to shareholders for federal income tax
purposes and that, if the Acquisition is consummated, shareholders will be free
to redeem the shares which they receive in the transaction at their then-current
net asset value, plus any applicable CDSC. In addition, shares may be redeemed
(at net asset value plus any applicable CDSC) at any time prior to the
consummation of the Acquisition.
Shares You Will Receive
If the Acquisition occurs, you will receive shares in the Global Utilities
Fund of the same class as the shares that you currently own in the Global Equity
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 Valuation Date.
- If applicable, your Global Utilities 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 Global
Equity 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 Global Utilities Fund.
Information concerning the capitalization of each of the Funds is contained
in Appendix C.
Reasons for the Acquisition
The Trustees of Trust III, including all Trustees who are not "interested
persons" of the Trust, have determined that the Acquisition would be in the best
interests of each Fund, on balance in light of all relevant factors, and that
the interests of existing shareholders of each Fund would not be diluted as a
result of the Acquisition. For these reasons, the Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the Agreement and Plan of Reorganization, a form of which is
attached as Appendix A to this Prospectus/Proxy Statement. Each shareholder
should carefully consider whether remaining a shareholder of the Global
Utilities Fund after the Acquisition is consistent with that shareholder's
financial needs and circumstances.
The Acquisition is one of several proposed acquisitions and liquidations of
funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial,
the indirect parent of each of the investment advisors to the Liberty and Stein
Roe Funds. The overall purposes of these acquisitions and liquidations include
streamlining the product offerings of the Liberty and Stein Roe Funds,
potentially reducing fund expense ratios by creating larger funds and permitting
the Liberty Financial organization to concentrate its portfolio management
resources on a more focused group of portfolios.
9
<PAGE> 12
In proposing the Acquisition, Liberty Financial presented to the Trustees
the following reasons for the Global Equity Fund to enter into the Acquisition:
- The Acquisition is expected to create a larger fund with somewhat similar
investment goals and strategies to the Global Equity Fund, but with lower
operating expenses as a percentage of fund assets. This expense ratio
reduction would benefit Global Equity 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
Global Equity and Global Utilities Funds on July 31, 2000 and the Funds'
current expense structures, the Global Utilities Fund's annualized
expense ratio (excluding 12b-1 fees) immediately after the Acquisition
would be about 0.47% lower than the Global Equity Fund's current expense
ratio (for example, for Class A shares, a 1.09% expense ratio for the
Global Utilities Fund, as compared to 1.56% for the Global Equity Fund if
the limitation were discontinued and 1.40% if it continued). Note that
the 12b-1 fees on Class A, B and C shares of each Fund are 0.25%, 1.00%
and 1.00%, respectively.
- The Acquisition is intended to permit the Global Equity Fund's
shareholders to exchange their investment for an investment in the Global
Utilities Fund without recognizing gain or loss for federal income tax
purposes. By contrast, if a Global Equity Fund shareholder redeemed his
or her shares to invest in another fund, like the Global Utilities Fund,
the transaction would likely be a taxable event for such shareholder.
Similarly, if the Global Equity 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 Global Utilities 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 increase for
Global Equity Fund shareholders in the combined fund's utilities holdings
immediately after the Acquisition and the change in investment program for
Global Utilities Fund shareholders as a result of the Acquisition. The Trustees
determined, despite these considerations, that on balance the Acquisition is in
the best interests of the Global Equity Fund shareholders.
The Trustees also considered the differences in the Funds' investment
objectives, policies and strategies and the related risks. In addition, the
Trustees considered the relative Fund performance results which are based on the
factors and assumptions set forth below under "Performance Information." No
assurance can be given that the Global Utilities Fund will achieve any
particular level of performance after the Acquisition.
The projected post-Acquisition expense reductions presented above are based
on the Global Equity Fund's current expense structure and the projected
post-Acquisition assets of the combined Fund. The projected reductions are
further based upon numerous material assumptions, including that: (1) the
current contractual agreements will remain in place; and (2) certain duplicate
costs involved in operating the Global Equity 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 Global Utilities
Fund or Liberty Financial.
Information about the Proposed New Management Agreement
Subject to the approval of the existing shareholders of the Global
Utilities Fund, which will be sought in a separate proxy statement, the Global
Utilities Fund will enter into a new management agreement (the "New Management
Agreement") with Newport. The New Management Agreement is expected to take
effect on or about the date of the Acquisition.
Under the New Management Agreement, the current portfolio managers of the
Global Utilities Fund, each of whom is currently a dual employee of Stein Roe &
Farnham Incorporated ("Stein Roe") and Newport, will continue to manage the
Fund. The current management and administration fees payable by the
10
<PAGE> 13
Global Utilities Fund will not change pursuant to the New Management Agreement,
and the terms of the New Management Agreement will be the same as the terms of
the current management agreement between the Fund and Stein Roe, except that the
effective and termination dates will change and Newport will serve as the
investment advisor instead of Stein Roe. If the New Management Agreement is not
approved, the current portfolio managers of the Global Utilities Fund will
continue to manage the Fund and will remain dual employees of Stein Roe and
Newport.
Newport is located at 580 California Street, Suite 1960, San Francisco,
California 94104. Newport is a direct majority-owned subsidiary of Newport
Pacific Management, Inc. ("Newport Pacific"), 580 California Street, San
Francisco, CA 94104. Newport Pacific is a direct wholly-owned subsidiary of
Liberty Newport Holdings, Limited ("Liberty Newport"), which in turn is a direct
wholly-owned subsidiary of Liberty Financial, which in turn is a direct majority
owned subsidiary of Liberty Corporate Holdings, Inc., which in turn is a direct
wholly-owned subsidiary of LFC Holdings, Inc., which in turn is a direct
wholly-owned subsidiary of Liberty Mutual Equity Corporation, which in turn is a
direct wholly-owned subsidiary of Liberty Mutual Insurance Company ("Liberty
Mutual"). Liberty Mutual is an underwriter of workers' compensation insurance
and a property and casualty insurer in the United States. Liberty Financial's
address is 600 Atlantic Avenue, Boston, MA 02210. Liberty Mutual's address is
175 Berkeley Street, Boston, MA 02117. As of August 31, 2000, Newport managed
$2.1 billion in assets.
Performance Information
The charts below show the percentage gain or loss in each calendar year for
the period from the Funds' inception to December 31, 1999 for the Class A shares
of the Global Equity Fund and the Class A shares of the Global Utilities Fund.
They should give you a general idea of how each Fund's return has varied from
year to year. The charts include the effects of Fund expenses, but not sales
charges. Returns would be lower if applicable sales charges were included. The
calculations of total return assume the reinvestment of all dividends and
capital gain distributions on the reinvestment date. Past performance is not an
indication of future results. Performance results include the effect of expense
reduction arrangements, if any. If these arrangements were not in place, then
the performance results would have been lower. Any expense reduction
arrangements may be discontinued at any time.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, which are incorporated by reference in this Prospectus/Proxy
Statement.
GLOBAL EQUITY FUND
[GLOBAL EQUITY BAR CHART]
<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
------------------
<S> <C>
1993 35.2%
1994 -1.62%
1995 16.45%
1996 19.03%
1997 14.55%
1998 17.12%
1999 15.84%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was -8.47%.
For period shown in bar chart:
Best quarter: Fourth quarter 1998, +17.77%
Worst quarter: Third quarter 1998, -14.74%
11
<PAGE> 14
GLOBAL UTILITIES FUND
GLOBAL UILITIES BAR CHART
<TABLE>
<CAPTION>
GLOBAL UTILITIES FUND
---------------------
<S> <C>
1992 10.36%
1993 15.04%
1994 -6.85%
1995 18.05%
1996 12.69%
1997 22.46%
1998 17.44%
1999 26.87%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was -5.00%.
For period shown in bar chart:
Best quarter: Fourth quarter 1999, +25.44%
Worst quarter: Third quarter 1998, -7.41%
The following tables list each Fund's average annual total return for each
class of its shares for the one-year, five-year and life of the Fund periods
ending December 31, 1999, including the applicable sales charges. These tables
are intended to provide you with some indication of the risks of investing in
the Funds. At the bottom of each table, you can compare the Funds' performance
with one or more indices or averages.
GLOBAL EQUITY FUND*
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND
<S> <C> <C> <C>
Class A (%) 9.18 15.21 13.40
-----------------------------------------------------------------------------------------------
Class B (%) 9.98 15.45 13.38
-----------------------------------------------------------------------------------------------
Class C (%) 13.96 15.68(1) 13.38(1)
-----------------------------------------------------------------------------------------------
MSCI Index (%) 27.26 19.01 15.55(2)
-----------------------------------------------------------------------------------------------
Lipper Global Average (%) 33.68 18.40 15.73(2)
</TABLE>
GLOBAL UTILITIES FUND+
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND
<S> <C> <C> <C>
Class A (%) 19.57 18.00 13.54
-----------------------------------------------------------------------------------------------
Class B (%) 20.85 20.54(3) 13.86(3)
-----------------------------------------------------------------------------------------------
Class C (%) 24.84 18.54(3) 13.86(3)
-----------------------------------------------------------------------------------------------
MSCI Index ND (%) 24.93 19.76 14.77(4)
-----------------------------------------------------------------------------------------------
S&P Index (%) (8.88) 13.66 10.72(4)
-----------------------------------------------------------------------------------------------
Lipper Average (%) 14.53 18.83 13.47(4)
</TABLE>
---------------
* The Global Equity Fund's return is compared to the Morgan Stanley Capital
International World (GDP) Index ("MSCI Index"), an unmanaged index that
tracks the performance of global 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 Global Equity
Fund's return is also compared to the average return of the funds included
in the Lipper Global Funds category average ("Lipper Global Average"). This
Lipper Global 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 Global Average.
12
<PAGE> 15
+ The Global Utilities Fund's return is compared to the Morgan Stanley Capital
International World Index ND ("MSCI Index ND"), an unmanaged index that
tracks the performance of global stocks. The Global Utilities Fund's return
is also compared to the Standard & Poor's Utilities Index ("S&P Index"), an
unmanaged index that tracks the performance of domestic utility 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 Global Utilities Fund's return is also compared to the average
return of the funds included in the Lipper Utility Fund category average
("Lipper Average"). This Lipper Average, which is calculated by Lipper,
Inc., is composed of funds with similar investment objectives to the Global
Utilities Fund. Sales charges are not reflected in the Lipper Average.
(1) Class C is a newer class of shares. Its performance information includes
returns of the Global Equity Fund's Class B shares (the oldest existing fund
class with similar cost structure) for periods prior to the inception of the
newer class of shares. The Class B share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class B shares
and the newer class of shares. Class A shares were initially offered on June
8, 1992, Class B shares were initially offered on June 8, 1992, and Class C
shares were initially offered on August 1, 1997.
(2) Performance information is from June 30, 1992.
(3) Class B and Class C are newer classes of shares. Their performance
information includes returns of the Global Utilities 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
October 15, 1991, Class B shares were initially offered on March 27, 1995
and Class C shares were initially offered on March 27, 1995.
(4) Performance information is from October 31, 1991.
Federal Income Tax Consequences
The Acquisition is intended to be a tax-free reorganization. Ropes & Gray
has delivered to the Global Equity Fund and the Global Utilities Fund an
opinion, and the closing of the Acquisition will be conditioned on receipt of a
letter from Ropes & Gray confirming such opinion, to the effect that, on the
basis of existing law under specified sections of the Internal Revenue Code of
1986, as amended (the "Code"), for federal income tax purposes:
- under Section 361 or Section 354 of the Code, respectively, no gain or
loss will be recognized by the Global Equity Fund or the shareholders of
the Global Equity Fund as a result of the Acquisition;
- under Section 358 of the Code, the tax basis of the Global Utilities Fund
shares you receive will be the same, in the aggregate, as the aggregate
tax basis of your Global Equity Fund shares;
- under Section 1223(1) of the Code, your holding period for the Global
Utilities Fund shares you receive will include the holding period for
your Global Equity Fund shares if you hold Global Equity Fund shares as a
capital asset;
- under Section 1032 of the Code, no gain or loss will be recognized by the
Global Utilities Fund as a result of the Acquisition;
- under Section 362(b) of the Code, the Global Utilities Fund's tax basis
in the assets that the Global Utilities Fund receives from the Global
Equity Fund will be the same as the Global Equity Fund's basis in such
assets; and
- under Section 1223(2) of the Code, the Global Utilities Fund's holding
period in such assets will include the Global Equity Fund's holding
period in such assets.
The opinion is, and the confirmation letter will be, based on certain
factual certifications made by officers of Trust III. The opinion is not a
guarantee that the tax consequences of the Acquisition will be as described
above.
Prior to the closing of the Acquisition, the Global Equity Fund and the
Global Utilities Fund will each distribute to their shareholders all of their
respective investment company taxable income and net realized capital gains that
have not previously been distributed to shareholders. Such distributions will be
taxable to the shareholders of the respective Funds.
13
<PAGE> 16
This description of the federal income tax consequences of the Acquisition
does not take into account your particular facts and circumstances. Consult your
own tax advisor about the effect of state, local, foreign and other tax laws.
THE TRUSTEES OF TRUST III UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND
PLAN OF REORGANIZATION.
The Declaration establishing Trust III provides that any series of Trust
III (such as the Global Equity 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 Global Equity Fund may be
terminated by majority vote of the Global Equity Fund's shares entitled to vote
(or by Trustee notice to shareholders), and will so amend the Declaration if a
majority of the Global Equity Fund's shareholders entitled to vote on the
proposal vote in favor of such proposal.
Required Vote for Proposal 1
Approval of the Agreement and Plan of Reorganization dated October 26, 2000
among Trust III on behalf of the Global Equity Fund, Trust III on behalf of the
Global Utilities Fund, and Liberty Financial will require the affirmative vote
of a majority of the shares of the Global Equity 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 Global Equity Fund is a series. All of the nominees listed below,
except for the proposed four new members (Ms. Kelly and Messrs. Hacker, Nelson
and Theobald), are currently members of the Board of Trustees of Trust III, as
well as nine Liberty closed-end funds and seven other Liberty open-end trusts
(or, in the case of Messrs. Lowry, Mayer and Neuhauser, eleven Liberty
closed-end funds and eight other Liberty open-end trusts (collectively, the
"Liberty Mutual Funds")), and have served in that capacity continuously since
originally elected or appointed. All of the currently serving members, other
than Mr. Palombo, have been previously elected by the shareholders of Trust III.
The proposed four new members currently serve on the Board of Trustees of two
Stein Roe closed-end funds and seven Stein Roe open-end trusts (collectively,
the "Stein Roe Mutual Funds"), and were recommended for election as Trustees of
the Liberty Mutual Funds by the Board of Trustees at meetings held on October 25
and 26, 2000. Each of the nominees elected will serve as a Trustee of Trust III
until the next meeting of shareholders of Trust III called for the purpose of
electing a Board of Trustees, and until a successor is elected and qualified or
until death, retirement, resignation or removal.
Currently, two different boards of trustees are responsible for overseeing
substantially all of the Liberty and Stein Roe Mutual Funds. Liberty Financial
and 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 Mutual Funds. Creation of a
single, consolidated board should also provide certain administrative
efficiencies for Liberty Financial and potential future cost savings for both
the Liberty and Stein Roe Mutual Funds and Liberty Financial. The nominees
listed below will be the members of the single, consolidated Board of Trustees.
The persons named in the enclosed proxy card intend to vote at the Meeting in
favor of the election of the nominees named below as Trustees of Trust III (if
so instructed). If
14
<PAGE> 17
any nominee listed below becomes unavailable for election, the proxy may be
voted for a substitute nominee in the discretion of the proxy holder(s).
INFORMATION ABOUT THE NOMINEES
Set forth below is information concerning each of the nominees.
<TABLE>
<CAPTION>
NOMINEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
Douglas A. Hacker Executive Vice President and Chief Financial Officer New nominee
(43) of UAL, Inc. (airline) since July 1999; Senior Vice
President and Chief Financial Officer of UAL, Inc.
prior thereto.
Janet Langford Kelly Executive Vice President -- Corporate Development, New nominee
(41) General Counsel, and Secretary of Kellogg Company
(food, beverage and tobacco producer) since
September 1999; Senior Vice President, Secretary and
General Counsel of Sara Lee Corporation (branded,
packaged, consumer-products manufacturer) prior
thereto.
Richard W. Lowry Private Investor since 1987. (Formerly Chairman and 1995
(64) Chief Executive Officer of U.S. Plywood Corporation
(building products producer) from August 1985 to
August 1987.)
Salvatore Macera Private Investor since 1981. (Formerly Executive 1998
(69) Vice President and Director of Itek Corporation
(electronics) from 1975 to 1981.)
William E. Mayer(2) Partner, Park Avenue Equity Partners (venture 1994
(60) capital), since November 1996; Dean, College of
Business and Management, University of Maryland,
prior thereto; Director, Johns Manville (building
products producer), Lee Enterprises (print and
on-line media) and WR Hambrecht + Co. (financial
services provider).
Charles R. Nelson Van Voorhis Professor, Department of Economics, New nominee
(57) University of Washington; Consultant on economic and
statistical matters.
John J. Neuhauser Academic Vice President and Dean of Faculties, 1985
(57) Boston College, since August 1999; Dean, Boston
College School of Management, prior thereto.
Joseph R. Palombo(3) Trustee of the Stein Roe Mutual Funds since October 2000
(47) 2000; Executive Vice President and Director of
Colonial and Stein Roe since April 1999; Executive
Vice President and Chief Administrative Officer of
Liberty Funds Group LLC since April 1999; Director
of AlphaTrade Inc. (broker-dealer), Colonial
Advisory Services, Inc., Liberty Funds Distributor,
Inc. and Liberty Funds Services, Inc. since April
1999. (Formerly Vice President of the Stein Roe
Mutual Funds from April 1999 to October 2000, Vice
President of the Liberty Mutual Funds from April
1999 to August 2000, and Chief Operating Officer of
Putnam Mutual Funds (investments) from 1994 to
1998.)
Thomas E. Stitzel Business Consultant since 1999; Professor of Finance 1998
(64) and Dean, College of Business, Boise State
University, prior thereto; Chartered Financial
Analyst.
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
NOMINEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
Thomas C. Theobald Managing Director, William Blair Capital Partners New nominee
(62) (private equity investing), since 1994; Chief
Executive Officer and Chairman of the Board of
Directors of Continental Bank Corporation (banking
services) prior thereto.
Anne-Lee Verville Consultant since 1997; General Manager, Global 1998
(55) Education Industry (global education applications),
prior thereto. (Formerly President, Applications
Solutions Division, IBM Corporation (global
education and global applications), from 1991 to
1994.)
</TABLE>
---------------
(1) Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
(2) Mr. Mayer is not affiliated with Liberty Financial, but is an "interested
person," as defined in the 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.
The following persons who are currently serving on the Board of Trustees of
Trust III are not standing for reelection:
<TABLE>
<CAPTION>
TRUSTEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
Tom Bleasdale Retired (formerly Chairman of the Board and 1987
(70) Chief Executive Officer, Shore Bank & Trust
Company (banking services) from 1992 to
1993); Director, Empire Co. (food
distributor).
Lora S. Collins Attorney (formerly Attorney, Kramer Levin 1991
(65) Naftalis & Frankel LLP (law firm) from 1986
to 1996).
James E. Grinnell Private investor since November 1986. 1995
(72)
James L. Moody, Jr. Retired (formerly Chairman of the Board, 1986
(70) Hannaford Bros. Co. (food retailer) from 1984
to 1997 and Chief Executive Officer prior
thereto).
</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.
TRUSTEES' COMPENSATION
The members of the Board of Trustees will serve as Trustees of the Liberty
and Stein Roe Mutual Funds, for which service each Trustee, except for Mr.
Palombo, will receive an annual retainer of $45,000, and attendance fees of
$8,000 for each regular joint meeting and $1,000 for each special joint meeting.
The Board of Trustees is expected to hold six regular joint meetings each year.
Committee chairs will receive an additional annual retainer of $5,000, and
receive $1,000 for each special meeting attended on a day other than a regular
joint meeting day. Committee members will receive an additional annual retainer
of $1,000, and receive $1,000 for each special meeting attended on a day other
than a regular joint meeting day. Two-thirds of the Trustees' fees are allocated
among the Liberty and Stein Roe Mutual Funds based on each Fund's relative net
assets, and one-third of the fees is divided equally among the Liberty and Stein
Roe Mutual Funds.
The Liberty Mutual Funds do not currently provide pension or retirement
plan benefits to the Trustees. However, certain Trustees currently serving on
the Board of Trustees of the Liberty Mutual Funds who are not continuing on the
combined Board of Trustees of the Liberty and Stein Roe Mutual Funds will
receive payments at an annual rate equal to their 1999 Trustee compensation for
the lesser of two years or until the date they would otherwise have retired at
age 72. These payments will be made quarterly, beginning in 2001.
16
<PAGE> 19
Liberty Financial and the Liberty Mutual Funds will each bear one-half of the
cost of the payments; the Liberty Mutual Funds' portion of the payments will be
allocated among the Liberty Mutual Funds based on each fund's share of the
Trustee fees for 2000.
Further information concerning the Trustees' compensation is included in
Appendix B.
MEETINGS AND CERTAIN COMMITTEES
Composition. The current Board of Trustees of the Liberty Mutual Funds
consists of two interested and nine non-interested Trustees. Mr. Mayer is not
affiliated with Liberty Financial or any of its investment advisor affiliates,
but is considered interested as a result of his affiliation with a
broker-dealer. Mr. Palombo is an interested person because of his affiliation
with Liberty Financial.
Audit Committee. The Audit Committee of the Liberty Mutual Funds,
consisting of Ms. Verville (Chairperson) and Messrs. Bleasdale, Grinnell, Lowry,
Macera and Moody, all of whom are non-interested Trustees, recommends to the
Board of Trustees the independent accountants to serve as auditors, reviews with
the independent accountants the results of the auditing engagement and internal
accounting procedures and considers the independence of the independent
accountants, the range of their audit services and their fees.
Compensation Committee. The Compensation Committee of the Liberty Mutual
Funds, consisting of Messrs. Neuhauser (Chairman), Grinnell and Stitzel and Ms.
Collins, all of whom are non-interested Trustees, reviews compensation of the
Board of Trustees.
Governance Committee. The Governance Committee of the Liberty Mutual
Funds, consisting of Messrs. Bleasdale (Chairman), Lowry, Mayer 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 investment advisor
affiliates), recommends to the Board of Trustees, among other things, nominees
for trustee and for appointments to various committees. The Committee will
consider candidates for trustee recommended by shareholders. Written
recommendations with supporting information should be directed to the Committee
in care of Trust III, Attention: Secretary, One Financial Center, Boston,
Massachusetts 02111-2621.
Record of Board and Committee Meetings. During the fiscal year ended
October 31, 2000, the Board of Trustees of Trust III (excluding the Liberty
Federal Securities Fund, which has a different fiscal year end) held six
meetings, the Audit Committee held four meetings, the Compensation Committee
held two meetings, and the Governance Committee held five meetings.
During the most recently completed fiscal year, each of the current
Trustees attended more than 75% of the meetings of the Board of Trustees and the
committees of which such Trustee was a member.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE GLOBAL EQUITY FUND
VOTE FOR EACH NOMINEE IN PROPOSAL 2.
Required Vote for Proposal 2
A plurality of the votes cast at the Meeting for Trust III, if a quorum is
represented, is required for the election of each Trustee to the Board of
Trustees of Trust III. Since the number of Trustees has been fixed at eleven,
this means that the eleven persons receiving the highest number of votes will be
elected.
GENERAL
VOTING INFORMATION
The Trustees of Trust III are soliciting proxies from the shareholders of
the Global Equity Fund in connection with the Meeting, which has been called to
be held at 10:00 a.m. Eastern Time on December 27, 2000 at Colonial's offices,
One Financial Center, Boston, Massachusetts 02111-2621. The meeting notice, this
17
<PAGE> 20
combined Prospectus/Proxy Statement and proxy cards and inserts are being mailed
to shareholders beginning on or about November 17, 2000.
Information About Proxies and the Conduct of the Meeting
Solicitation of Proxies. Proxies will be solicited primarily by mailing
this combined Prospectus/Proxy Statement and its enclosures, but proxies may
also be solicited through further mailings, telephone calls, personal interviews
or e-mail by officers of the Global Equity Fund or by employees or agents of
Stein Roe or Colonial and their affiliated companies. In addition, Shareholder
Communications Corporation ("SCC") has been engaged to assist in the
solicitation of proxies, at an estimated total cost of $700,000 for all of the
proposed acquisitions of funds in the Liberty and Stein Roe Mutual Fund groups
scheduled to take place in January 2001.
Voting Process
You can vote in any one of the following four ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, by calling toll-free 1-877-518-9416 between the hours of 9:00
a.m. and 11:00 p.m. Eastern Time and following the instructions;
c. By fax (not available for all shareholders; refer to enclosed proxy
insert); or
d. In person at the Meeting.
Shareholders who owned shares on the record date, September 29, 2000, are
entitled to vote at the Meeting. Shareholders are entitled to cast one vote for
each share owned on the record date. If you choose to vote by mail or by fax,
and you are an individual account owner, please sign exactly as your name
appears on the proxy card. Either owner of a joint account may sign the proxy
card, but the signer's name must exactly match the name that appears on the
card.
Costs. The estimated costs of the Meeting, including the costs of
soliciting proxies, and the costs of the Acquisition to be borne by the Global
Equity Fund and the Global Utilities Fund are approximately $117,000 and $0,
respectively. Liberty Financial is also bearing a portion of such costs. This
portion to be borne by Liberty Financial is in addition to the amounts to be
borne by the Global Equity Fund.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy card. If no instructions are
given, the proxy will be voted in favor of each Proposal. You can revoke your
proxy by sending a signed, written letter of revocation to the Secretary of the
Global Equity 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 Global Equity Fund as tellers for the Meeting (the "Tellers").
Thirty percent (30%) of the shares of the Global Equity 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 Global Equity Fund at the
Meeting. Shareholders of the Global Equity 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.
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Advisors', Underwriter's and Administrator's Addresses. The address of the
Global Equity Fund's investment advisor and the Global Utility Fund's
administrator, Colonial Management Associates, Inc., is One Financial Center,
Boston, Massachusetts 02111-2621. The address of the Global Utilities 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
02111-2621.
Information About Liberty Financial. On November 1, 2000, Liberty
Financial announced that it had retained CS First Boston to help it explore
strategic alternatives, including the possible sale of Liberty Financial.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists for the Global Equity 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 Global Utilities Fund the total number of shares outstanding as of
September 29, 2000, for each class of the Fund's shares. It also identifies
holders of more than 5% or 25% of any class of shares of each Fund, and contains
information about the executive officers and Trustees of Trust III and their
shareholdings in the Funds and Trust III.
Adjournments; Other Business. If the Global Equity Fund or Trust III, as
applicable, has not received enough votes by the time of the Meeting to approve
any Proposal, the persons named as proxies may propose that the Meeting be
adjourned one or more times to permit further solicitation of proxies. Any
adjournment requires the affirmative vote of a majority of the total number of
shares of the Global Equity 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 Global Equity Fund intends
to present or knows that others will present is Proposals 1 and 2. If any other
matters properly come before the Meeting, and on all matters incidental to the
conduct of the Meeting, the persons named as proxies intend to vote the proxies
in accordance with their judgment, unless the Secretary of the Global Equity
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 Global
Equity 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 Global Equity Fund or Trust III must be received by the
Global Equity Fund or Trust III in writing a reasonable amount of time before
the Trust solicits proxies for that meeting in order to be considered for
inclusion in the proxy materials for that meeting. Shareholder proposals should
be sent to the Global Equity Fund, care of Trust III, Attention: Secretary, One
Financial Center, Boston, Massachusetts 02111-2621.
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<PAGE> 22
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 26, 2000 is
by and among Liberty Funds Trust III (the "Trust"), a Massachusetts business
trust established under a Declaration of Trust dated May 30, 1986, as amended,
on behalf of Liberty Newport Global Equity 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 Newport Global Utilities 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 the Acquiring Fund of the liabilities of the Acquired Fund (other
than certain expenses of the reorganization contemplated hereby) and the
distribution of such Acquiring Shares to the shareholders of the Acquired Fund
in liquidation of the Acquired Fund, all upon the terms and conditions set forth
in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES
AND ACQUIRING SHARES AND LIQUIDATION OF ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein,
(a) The Trust, on behalf of the Acquired Fund, will transfer and deliver
to the Acquiring Fund, and the Acquiring Fund will acquire, all the
assets of the Acquired Fund as set forth in paragraph 1.2;
(b) The Acquiring Fund will assume all of the Acquired Fund's
liabilities and obligations of any kind whatsoever, whether
absolute, accrued, contingent or otherwise in existence on the
Closing Date (as defined in paragraph 1.2 hereof) (the
"Obligations"), except that expenses of reorganization contemplated
hereby to be paid by the Acquired Fund pursuant to paragraphs 1.5
and 9.2 shall not be assumed or paid by the Acquiring Fund; and
(c) The Acquiring Fund will issue and deliver to the Acquired Fund in
exchange for such assets the number of Acquiring Shares (including
fractional shares, if any) determined by dividing the net asset
value of the Acquired Fund, computed in the manner and as of the
time and date set forth in paragraph 2.1, by the net asset value of
one Acquiring Share, computed in the manner and as of the time and
date set forth in paragraph 2.2. Such transactions shall take place
at the closing provided for in paragraph 3.1 (the "Closing").
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all cash, securities, dividends and interest
receivable, receivables for shares sold and all other assets which are
owned by the Acquired Fund on the closing date provided in paragraph
3.1 (the "Closing Date") and any deferred expenses, other than
unamortized organizational expenses, shown as an asset on the books of
the Acquired Fund on the Closing Date.
1.3 As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to its shareholders of record
("Acquired Fund Shareholders"), determined as of the close of business
on the Valuation Date (as defined in paragraph 2.1), the Acquiring
Shares received by the Acquired Fund pursuant to
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paragraph 1.1. Such liquidation and distribution will be accomplished
by the transfer of the Acquiring Shares then credited to the account of
the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the Acquired
Fund Shareholders and representing the respective pro rata number of
Acquiring Shares due such shareholders. The Acquiring Fund shall not be
obligated to issue certificates representing Acquiring Shares in
connection with such exchange.
1.4 With respect to Acquiring Shares distributable pursuant to paragraph
1.3 to an Acquired Fund Shareholder holding a certificate or
certificates for shares of the Acquired Fund, if any, on the Valuation
Date, the Acquiring Trust will not permit such shareholder to receive
Acquiring Share certificates therefor, exchange such Acquiring Shares
for shares of other investment companies, effect an account transfer of
such Acquiring Shares, or pledge or redeem such Acquiring Shares until
the Acquiring Trust has been notified by the Acquired Fund or its agent
that such Acquired Fund Shareholder has surrendered all his or her
outstanding certificates for Acquired Fund shares or, in the event of
lost certificates, posted adequate bond.
1.5 [RESERVED]
1.6 As promptly as possible after the Closing Date, the Acquired Fund shall
be terminated pursuant to the provisions of the laws of the
Commonwealth of Massachusetts, and, after the Closing Date, the
Acquired Fund shall not conduct any business except in connection with
its liquidation.
2. VALUATION.
2.1 For the purpose of paragraph 1, the value of the Acquired Fund's assets
to be acquired by the Acquiring Fund hereunder shall be the net asset
value computed as of the close of regular trading on the New York Stock
Exchange on the business day next preceding the Closing (such time and
date being herein called the "Valuation Date") using the valuation
procedures set forth in the Declaration of Trust of the Acquiring Trust
and the then current prospectus or statement of additional information
of the Acquiring Fund, after deduction for the expenses of the
reorganization contemplated hereby to be paid by the Acquired Fund
pursuant to paragraphs 1.5, and shall be certified by the Acquired
Fund.
2.2 For the purpose of paragraph 2.1, the net asset value of an Acquiring
Share shall be the net asset value per share computed as of the close
of regular trading on the New York Stock Exchange on the Valuation
Date, using the valuation procedures set forth in the Declaration of
Trust of the Acquiring Trust and the then current prospectus or
prospectuses and the statement or statements of additional information
of the Acquiring Fund (collectively, as from time to time amended and
supplemented, the "Acquiring Fund Prospectus").
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be on January 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
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Rule 17f-5, as the case may be, under the Investment Company Act of
1940 (the "1940 Act") and accompanied by all necessary federal and
state stock transfer stamps or a check for the appropriate purchase
price thereof. The cash delivered shall be in the form of currency or
certified or official bank checks, payable to the order of "The Chase
Manhattan Bank, custodian for Acquiring Fund."
3.3 In the event that on the Valuation Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere
shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquired Fund or the Acquiring Fund is impracticable, the
Closing Date shall be postponed until the first business day after the
day when trading shall have been fully resumed and reporting shall have
been restored; provided that if trading shall not be fully resumed and
reporting restored within three business days of the Valuation Date,
this Agreement may be terminated by either of the Trust or the
Acquiring Trust upon the giving of written notice to the other party.
3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver
to the Acquiring Fund or its designated agent a list of the names and
addresses of the Acquired Fund Shareholders and the number of
outstanding shares of beneficial interest of the Acquired Fund owned by
each Acquired Fund Shareholder, all as of the close of business on the
Valuation Date, certified by the Secretary or Assistant Secretary of
the Trust. The Acquiring Trust will provide to the Acquired Fund
evidence satisfactory to the Acquired Fund that the Acquiring Shares
issuable pursuant to paragraph 1.1 have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. On the Liquidation
Date, the Acquiring Trust will provide to the Acquired Fund evidence
satisfactory to the Acquired Fund that such Acquiring Shares have been
credited pro rata to open accounts in the names of the Acquired Fund
shareholders as provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other such bills of
sale, instruments of assumption of liabilities, checks, assignments,
stock certificates, receipts or other documents as such other party or
its counsel may reasonably request in connection with the transfer of
assets, assumption of liabilities and liquidation contemplated by
paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Trust, on behalf of the Acquired Fund, represents and warrants the
following to the Acquiring Trust and to the Acquiring Fund as of the
date hereof and agrees to confirm the continuing accuracy and
completeness in all material respects of the following on the Closing
Date:
(a) The Trust is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Massachusetts;
(b) The Trust is a duly registered investment company classified as a
management company of the open-end type and its registration with
the Securities and Exchange Commission as an investment company
under the 1940 Act is in full force and effect, and the Acquired
Fund is a separate series thereof duly designated in accordance with
the applicable provisions of the Declaration of Trust of the Trust
and the 1940 Act;
(c) The Trust is not in violation in any material respect of any
provision of its Declaration of Trust or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust is a party or by which the Acquired
Fund is bound, and the execution, delivery and performance of this
Agreement will not result in any such violation;
(d) The Trust has no material contracts or other commitments (other than
this Agreement and such other contracts as may be entered into in
the ordinary course of its business) which if terminated may result
in material liability to the Acquired Fund or under which (whether
or not terminated) any material payments for periods subsequent to
the Closing Date will be due from the Acquired Fund;
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(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 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 or statements of additional information (collectively, as
amended or supplemented from time to time, the "Acquired Fund
Prospectus")), non-assessable by the
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Acquired Fund and will have been issued in compliance with all
applicable registration or qualification requirements of federal and
state securities laws. No options, warrants or other rights to
subscribe for or purchase, or securities convertible into, any
shares of beneficial interest of the Acquired Fund are outstanding
and none will be outstanding on the Closing Date (except that Class
B shares of the Acquired Fund convert automatically into Class A
shares, as set forth in the Acquired Fund Prospectus);
(k) The Acquired Fund's investment operations from inception to the date
hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in its
prospectus and statement of additional information as in effect from
time to time, except as previously disclosed in writing to the
Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has been
duly authorized by the Trustees of the Trust, and, upon approval
thereof by the required majority of the shareholders of the Acquired
Fund, this Agreement will constitute the valid and binding
obligation of the Acquired Fund enforceable in accordance with its
terms except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles;
(m) The Acquiring Shares to be issued to the Acquired Fund pursuant to
paragraph 1 will not be acquired for the purpose of making any
distribution thereof other than to the Acquired Fund Shareholders as
provided in paragraph 1.3;
(n) The information provided by the Acquired Fund for use in the
Registration Statement and Proxy Statement referred to in paragraph
5.3 shall be accurate and complete in all material respects and
shall comply with federal securities and other laws and regulations
applicable thereto;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement,
except such as may be required under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act and state insurance,
securities or "Blue Sky" laws (which term as used herein shall
include the laws of the District of Columbia and of Puerto Rico);
(p) At the Closing Date, the Trust, on behalf of the Acquired Fund, will
have good and marketable title to its assets to be transferred to
the Acquiring Fund pursuant to paragraph 1.1 and will have full
right, power and authority to sell, assign, transfer and deliver the
Investments (as defined below) and any other assets and liabilities
of the Acquired Fund to be transferred to the Acquiring Fund
pursuant to this Agreement. At the Closing Date, subject only to the
delivery of the Investments and any such other assets and
liabilities and payment therefor as contemplated by this Agreement,
the Acquiring Fund will acquire good and marketable title thereto
and will acquire the Investments and any such other assets and
liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof,
except as previously disclosed to the Acquiring Fund. As used in
this Agreement, the term "Investments" shall mean the Acquired
Fund's investments shown on the schedule of its investments as of
April 30, 2000 referred to in Section 4.1(f) hereof, as supplemented
with such changes in the portfolio as the Acquired Fund shall make,
and changes resulting from stock dividends, stock split-ups, mergers
and similar corporate actions through the Closing Date;
(q) At the Closing Date, the Acquired Fund will have sold such of its
assets, if any, as are necessary to assure that, after giving effect
to the acquisition of the assets of the Acquired Fund pursuant to
this Agreement, the Acquiring Fund will remain a "diversified
company" within the meaning of Section 5(b)(1) of the 1940 Act and
in compliance with such other mandatory investment restrictions as
are set forth in the Acquiring Fund Prospectus, as amended through
the Closing Date; and
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(r) No registration of any of the Investments would be required if they
were, as of the time of such transfer, the subject of a public
distribution by either of the Acquiring Fund or the Acquired Fund,
except as previously disclosed by the Acquired Fund to the Acquiring
Fund.
4.2 The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants the following to the Trust and to the Acquired Fund as of the
date hereof and agrees to confirm the continuing accuracy and
completeness in all material respects of the following on the Closing
Date:
(a) The Acquiring Trust is a business trust duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts;
(b) The Acquiring Trust is a duly registered investment company
classified as a management company of the open-end type and its
registration with the Securities and Exchange Commission as an
investment company under the 1940 Act is in full force and effect,
and the Acquiring Fund is a separate series thereof duly designated
in accordance with the applicable provisions of the Declaration of
Trust of the Acquiring Trust and the 1940 Act;
(c) The Acquiring Fund Prospectus conforms in all material respects to
the applicable requirements of the 1933 Act and the rules and
regulations of the Securities and Exchange Commission thereunder and
does not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading, and there are no material
contracts to which the Acquiring Fund is a party that are not
referred to in such Prospectus or in the registration statement of
which it is a part;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
(e) The Acquiring Trust is not in violation in any material respect of
any provisions of its Declaration of Trust or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Trust is a party or by which the
Acquiring Fund is bound, and the execution, delivery and performance
of this Agreement will not result in any such violation;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or
threatened against the Acquiring Fund or any of its properties or
assets. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects
its business or its ability to consummate the transactions
contemplated hereby;
(g) The statement of assets, the statement of operations, the statement
of changes in assets and the schedule of investments as at and for
the two years ended October 31, 1999 of the Acquiring Fund, audited
by 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;
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(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 and Class C shares each
having the characteristics described in the Acquiring Fund
Prospectus. All issued and outstanding shares of the Acquiring Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable (except as set forth in
the Acquiring Fund Prospectus) by the Acquiring Trust, and will have
been issued in compliance with all applicable registration or
qualification requirements of federal and state securities laws.
Except for Class B shares which convert to Class A shares after the
expiration of a period of time, no options, warrants or other rights
to subscribe for or purchase, or securities convertible into, any
shares of beneficial interest in the Acquiring Fund of any class are
outstanding and none will be outstanding on the Closing Date;
(l) The Acquiring Fund's investment operations from inception to the
date hereof have been in compliance in all material respects with
the investment policies and investment restrictions set forth in its
prospectus and statement of additional information as in effect from
time to time;
(m) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquiring
Trust, and this Agreement constitutes the valid and binding
obligation of the Acquiring Trust and the Acquiring Fund enforceable
in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles;
(n) The Acquiring Shares to be issued and delivered to the Acquired Fund
pursuant to the terms of this Agreement will at the Closing Date
have been duly authorized and, when so issued and delivered, will be
duly and validly issued Class A shares, Class B shares 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;
(o) The information to be furnished by the Acquiring Fund for use in the
Registration Statement and Proxy Statement referred to in paragraph
5.3 shall be accurate and complete in all material respects and
shall comply with federal securities and other laws and regulations
applicable thereto; and
(p) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this Agreement,
except such as may be required under 1933 Act, the 1934 Act, the
1940 Act and state insurance, securities or "Blue Sky" laws (which
term as used herein shall include the laws of the District of
Columbia and of Puerto Rico).
A-7
<PAGE> 29
5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND.
The Acquiring Trust, on behalf of the Acquiring Fund, and the Trust, on
behalf of the Acquired Fund, each hereby covenants and agrees with the other as
follows:
5.1 The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date, it
being understood that such ordinary course of business will include
regular and customary periodic dividends and distributions.
5.2 The Acquired Fund will call a meeting of its shareholders to be held
prior to the Closing Date to consider and act upon this Agreement and
take all other reasonable action necessary to obtain the required
shareholder approval of the transactions contemplated hereby.
5.3 In connection with the Acquired Fund shareholders' meeting referred to
in paragraph 5.2, the Acquired Fund will prepare a Proxy Statement for
such meeting, to be included in a Registration Statement on Form N-14
(the "Registration Statement") which the Acquiring Trust will prepare
and file for the registration under the 1933 Act of the Acquiring
Shares to be distributed to the Acquired Fund shareholders pursuant
hereto, all in compliance with the applicable requirements of the 1933
Act, the 1934 Act, and the 1940 Act.
5.4 The information to be furnished by the Acquired Fund for use in the
Registration Statement and the information to be furnished by the
Acquiring Fund for use in the Proxy Statement, each as referred to in
paragraph 5.3, shall be accurate and complete in all material respects
and shall comply with federal securities and other laws and regulations
thereunder applicable thereto.
5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any
time prior to the Closing Date the assets of the Acquired Fund include
any securities which the Acquiring Fund is not permitted to acquire.
5.6 Subject to the provisions of this Agreement, the Acquired Fund and the
Acquiring Fund will each take, or cause to be taken, all action, and do
or cause to be done, all things reasonably necessary, proper or
advisable to cause the conditions to the other party's obligations to
consummate the transactions contemplated hereby to be met or fulfilled
and otherwise to consummate and make effective such transactions.
5.7 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities or "Blue Sky" laws as it may deem
appropriate in order to continue its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Trust and the Acquiring Fund of all the obligations to be performed by
them hereunder on or before the Closing Date and, in addition thereto, to the
following further conditions:
6.1 The Acquiring Trust, on behalf of the Acquiring Fund, shall have
delivered to the Trust a certificate executed in its name by its
President or Vice President and its Treasurer or Assistant Treasurer,
in form satisfactory to the Trust and dated as of the Closing Date, to
the effect that the representations and warranties of the Acquiring
Trust on behalf of the Acquiring Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and that
the Acquiring Trust and the Acquiring Fund have complied with all the
covenants and agreements and satisfied all of the conditions on their
parts to be performed or satisfied under this Agreement at or prior to
the Closing Date.
A-8
<PAGE> 30
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 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 for the
consummation by the Acquiring Trust or the Acquiring Fund of the
transactions contemplated by this Agreement except such as may be
required under state securities or "Blue Sky" laws or such as have
been obtained; (g) except as previously disclosed, pursuant to
section 4.2(f) above, such counsel does not know of any legal or
governmental proceedings relating to the Acquiring Trust or the
Acquiring Fund existing on or before the date of mailing of the
Prospectus referred to in paragraph 5.3 or the Closing Date required
to be described in the Registration Statement referred to in
paragraph 5.3 which are not described as required; (h) the Acquiring
Trust is registered with the Securities and Exchange Commission as
an investment company under the 1940 Act; and (i) to the best
knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Acquiring Trust or
the Acquiring Fund or any of their properties or assets and neither
the Acquiring Trust nor the Acquiring Fund is a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its
business.
A-9
<PAGE> 31
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, to the following further conditions:
7.1 The Trust, on behalf of the Acquired Fund, shall have delivered to the
Acquiring Trust a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquiring Trust and dated the Closing
Date, to the effect that the representations and warranties of the
Acquired Fund made in this Agreement are true and correct at and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and that the Trust and the Acquired
Fund have complied with all the covenants and agreements and satisfied
all of the conditions on its part to be performed or satisfied under
this Agreement at or prior to the Closing Date.
7.2 The Acquiring Trust shall have received a favorable opinion from Ropes
& Gray, counsel to the Trust, dated the Closing Date and in a form
satisfactory to the Acquiring Trust, to the following effect:
(a) The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts and has
corporate power to own all of its properties and assets and to carry
on its business as presently conducted, and the Acquired Fund is a
separate series thereof duly constituted in accordance with the
applicable provisions of the 1940 Act and the Declaration of Trust
of the Trust; (b) this Agreement has been duly authorized, executed
and delivered on behalf of the Acquired Fund and, assuming the Proxy
Statement referred to in paragraph 5.3 complies with applicable
federal securities laws and assuming the due authorization,
execution and delivery of this Agreement by the Acquiring Trust on
behalf of the Acquiring Fund, is the valid and binding obligation of
the Acquired Fund enforceable against the Acquired Fund in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles; (c) the Acquired Fund has the power to sell,
assign, transfer and deliver the assets to be transferred by it
hereunder, and, upon consummation of the transactions contemplated
hereby, the Acquired Fund will have duly transferred such assets to
the Acquiring Fund; (d) the execution and delivery of this Agreement
did not, and the performance by the Trust and the Acquired Fund of
their respective obligations hereunder will not, violate the Trust's
Declaration of Trust or By-laws, or any provision of any agreement
known to such counsel to which the Trust or the Acquired Fund is a
party or by which either of them is bound or, to the knowledge of
such counsel, result in the acceleration of any obligation or the
imposition of any penalty under any agreement, judgment, or decree
to which the Trust or the Acquired Fund is a party or by which
either of them is bound; (e) to the knowledge of such counsel, no
consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Trust
or the Acquired Fund of the transactions contemplated by this
Agreement, except such as may be required under state securities or
"Blue Sky" laws or such as have been obtained; (f) such counsel does
not know of any legal or governmental proceedings relating to the
Trust or the Acquired Fund existing on or before the date of mailing
of the Prospectus referred to in paragraph 5.3 or the Closing Date
required to be described in the Registration Statement referred to
in paragraph 5.3 which are not described as required; (g) the Trust
is registered with the Securities and Exchange Commission as an
investment company under the 1940 Act; and (h) to the best knowledge
of such counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or threatened as to the Trust or the Acquired Fund
or any of its properties or assets and neither the Trust nor the
Acquired Fund is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body, which
materially and adversely affects its business.
A-10
<PAGE> 32
7.3 [RESERVED]
7.4 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous dividends,
shall have the effect of distributing all of the Acquired Fund's
investment company taxable income for its taxable years ending on or
after October 31, 2000 and on or prior to the Closing Date (computed
without regard to any deduction for dividends paid), and all of its net
capital gains realized in each of its taxable years ending on or after
October 31, 2000 and on or prior to the Closing Date.
7.5 The Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer of the Trust, as to the adjusted tax basis in the hands of
the Acquired Fund of the securities delivered to the Acquiring Fund
pursuant to this Agreement.
7.6 The custodian of the Acquired Fund shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the
Acquired Fund held by such custodian as of the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND AND
THE ACQUIRED FUND.
The respective obligations of the Trust and the Acquiring Trust hereunder
are each subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the vote of the required majority of the holders of the
outstanding shares of the Acquired Fund of record on the record date
for the meeting of its shareholders referred to in paragraph 5.2.
8.2 On the Closing Date no action, suit or other preceding shall be pending
before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated hereby.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including
those of the Securities and Exchange Commission and of state Blue Sky
and securities authorities) deemed necessary by the Trust or the
Acquiring Trust to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except
where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties
of the Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement referred to in paragraph 5.3 shall have
become effective under the 1933 Act and no stop order suspending the
effectiveness thereof shall have been issued and, to the best knowledge
of the parties hereto, no investigation or proceeding for that purpose
shall have been instituted or be pending, threatened or contemplated
under the 1933 Act.
8.5 The Trust shall have received a favorable opinion of Ropes & Gray
satisfactory to the Trust and the Acquiring Trust shall have received a
favorable opinion of Ropes & Gray satisfactory to the Acquiring Trust,
each substantially to the effect that, for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of the assets of the Acquired
Fund in exchange for the Acquiring Fund's assumption of the
Obligations of the Acquired Fund and issuance of the Acquiring
Shares, followed by the distribution by the Acquired Fund of such
the Acquiring Shares to the shareholders of the Acquired Fund in
exchange for their shares of the Acquired Fund, all as provided in
paragraph 1 hereof, will constitute a reorganization within the
meaning of Section 368(a) of the Code, and the Acquired Fund and the
Acquiring Fund will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund (i) upon the
transfer of its assets to the Acquiring Fund in exchange for the
Acquiring Shares or (ii) upon the distribution of the Acquiring
Shares to the shareholders of the Acquired Fund as contemplated in
paragraph 1 hereof;
A-11
<PAGE> 33
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the
assumption of the Obligations and issuance of the Acquiring Shares
as contemplated in paragraph 1 hereof;
(d) The tax basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be the same as the basis of those assets in the
hands of the Acquired Fund immediately prior to the transfer, and
the holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will include the period during which those
assets were held by the Acquired Fund;
(e) The shareholders of the Acquired Fund will recognize no gain or loss
upon the exchange of their shares of the Acquired Fund for the
Acquiring Shares;
(f) The tax basis of the Acquiring Shares to be received by each
shareholder of the Acquired Fund will be the same in the aggregate
as the aggregate tax basis of the shares of the Acquired Fund
surrendered in exchange therefor;
(g) The holding period of the Acquiring Shares to be received by each
shareholder of the Acquired Fund will include the period during
which the shares of the Acquired Fund surrendered in exchange
therefor were held by such shareholder, provided such shares of the
Acquired Fund were held as a capital asset on the date of the
exchange; and
(h) The Acquiring Fund will succeed to and take into account the items
of Acquired Fund described in Section 381(c) of the Code, subject to
the conditions and limitations specified in Sections 381, 382, 383
and 384 of the Code and the regulations thereunder.
8.6 At any time prior to the Closing, any of the foregoing conditions of
this Agreement may be waived jointly by the Board of Trustees of the
Trust and the Board of Trustees of the Acquiring Trust if, in their
judgment, such waiver will not have a material adverse effect on the
interests of the shareholders of the Acquired Fund and the Acquiring
Fund.
9. BROKERAGE FEES AND EXPENSES.
9.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Trust, on
behalf of the Acquiring Fund, each represents and warrants to the other
that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 The Acquiring Trust, on behalf of the Acquiring Fund, shall pay all
fees paid to governmental authorities for the registration or
qualification of the Acquiring Shares. All of the other out-of-pocket
expenses (other than tabulation costs which will be borne in their
entirety by Liberty Financial) of the transactions contemplated by this
Agreement shall be borne as follows: (a) as to expenses allocable to
the Trust, on behalf of the Acquired Fund, seventy-five percent (75%)
of such expenses shall be borne by the Trust, on behalf of the Acquired
Fund, and twenty-five percent (25%) of such expenses shall be borne by
Liberty Financial; and (b) as to expenses allocable to the Acquiring
Trust, on behalf of the Acquiring Fund, all such expenses shall be
borne by Liberty Financial. The foregoing sentence shall be subject,
however, to any undertaking by Liberty Financial to Liberty Funds Trust
I, II, III, IV, V, VI, VII and IX (or any of their series)
(collectively, the "Liberty Trusts") to limit the aggregate expenses
(other than fees paid to governmental authorities for the registration
or qualification of shares of the Liberty Trusts) of the transactions
contemplated by this Agreement and other transactions involving the
Liberty Trusts.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 The Trust on behalf of the Acquired Fund and the Acquiring Trust on
behalf of the Acquiring Fund agree that neither party has made any
representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
A-12
<PAGE> 34
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in
connection herewith shall not survive the consummation of the
transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5,
1.6, 5.4, 9, 10, 13 and 14.
11. TERMINATION.
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and the Trust. In addition, either the Acquiring Trust
or the Trust may at its option terminate this Agreement at or prior to
the Closing Date because:
(a) Of a material breach by the other of any representation, warranty,
covenant or agreement contained herein to be performed by the other
party at or prior to the Closing Date;
(b) A condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears
that it will not or cannot be met; or
(c) If the transactions contemplated by this Agreement have not been
substantially completed by May 31, 2001 this Agreement shall
automatically terminate on that date unless a later date is agreed
to by both the Trust and the Acquiring Trust.
11.2 If for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to any other party for any
damages resulting therefrom, including without limitation
consequential damages.
12. AMENDMENTS.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the Trust
on behalf of the Acquired Fund and the Acquiring Trust on behalf of the
Acquiring Fund; provided, however, that following the shareholders' meeting
called by the Acquired Fund pursuant to paragraph 5.2 no such amendment may have
the effect of changing the provisions for determining the number of the
Acquiring Shares to be issued to shareholders of the Acquired Fund under this
Agreement to the detriment of such shareholders without their further approval.
13. NOTICES.
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to: Liberty Funds Trust III, One
Financial Center, Boston, Massachusetts 02111, Attention: Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT NON-RECOURSE.
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of The Commonwealth of Massachusetts,
without giving effect to any choice or conflicts of law rule or
provision that would result in the application of the domestic
substantive laws of any other jurisdiction.
A-13
<PAGE> 35
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 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-14
<PAGE> 36
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 Newport Global
Equity Fund
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
LIBERTY FUNDS TRUST III,
on behalf of Liberty Newport Global
Utilities Fund
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
A-15
<PAGE> 37
Solely for purposes of Section 9.2
of the Agreement:
LIBERTY FINANCIAL COMPANIES, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
A-16
<PAGE> 38
APPENDIX B
FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE GLOBAL EQUITY FUND AND TRUST III
AND SHARES OUTSTANDING OF THE GLOBAL UTILITIES FUND
For each class of the Global Equity Fund's shares and Trust III's shares
entitled to vote at the Meeting, and for each class of the Global Utilities
Fund's shares, the number of shares outstanding as of September 29, 2000 was as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OUTSTANDING AND
FUND OR TRUST CLASS ENTITLED TO VOTE
------------- ----- ----------------
<S> <C> <C>
GLOBAL EQUITY FUND........................... A 3,272,019
B 4,574,701
C 142,980
TRUST III.................................... 297,008,531
GLOBAL UTILITIES FUND........................ A 10,348,066
B 930,888
C 62,595
</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
SHARES OF SHARES OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER CLASS OWNED CLASS OWNED
-------------- ------------------------------- ----------- -------------
<S> <C> <C> <C>
GLOBAL EQUITY FUND
CLASS B............ Merrill Lynch Pierce Fenner & 579,003.766 12.66%
Smith
For the Sole Benefit of its
Customers
Attn: Fund Administration #973D2
4800 Deer Lake Drive E. 3rd Floor
Jacksonville, FL 32246-6484
CLASS C............ Raymond James & Assoc., Inc. 10,370.748 7.27%
Custodian
8248 Sumner Rd.
Chardon, OH 44024
GLOBAL UTILITIES
FUND
CLASS C............ Merrill Lynch Pierce Fenner & 62,594.830 17.83%
Smith
For the Sole Benefit of its
Customers
Attn: Fund Administration #97F85
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
B-1
<PAGE> 39
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 Global Utilities Fund upon
consummation of the Acquisition:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES OF
CLASS OWNED UPON
CONSUMMATION OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER ACQUISITION
-------------- ------------------------------- ---------------------
<S> <C> <C>
GLOBAL EQUITY FUND
CLASS B............ Merrill Lynch Pierce Fenner & Smith 10.25%
For the Sole Benefit of its Customers
Attn: Fund Administration #973D2
4800 Deer Lake Drive E. 3rd Floor
Jacksonville, FL 32246-6484
CLASS C............ Raymond James & Assoc., Inc. Custodian 4.76%
8248 Sumner Rd.
Chardon, OH 44024
GLOBAL UTILITIES
FUND
CLASS C............ Merrill Lynch Pierce Fenner & Smith 5.83%
For the Sole Benefit of its Customers
Attn: Fund Administration #97F85
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth certain information about the executive
officers of each Fund:
<TABLE>
<CAPTION>
YEAR OF
ELECTION
AS
EXECUTIVE OFFICER EXECUTIVE
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION* OFFICER
----------------- -------------------------------- ------------
<S> <C> <C>
Stephen E. Gibson...................... President of the Stein Roe Mutual Funds 1998
(46) since November 1999; President of the
Liberty Mutual Funds since June 1998;
Chairman of the Board since July 1998,
Chief Executive Officer and President
since December 1996, and Director since
July 1996 of Colonial (formerly
Executive Vice President of Colonial
from July 1996 to December 1996);
Chairman of the Board, Director, Chief
Executive Officer and President of
Liberty Funds Group LLC ("LFG") since
December 1998 (formerly Director, Chief
Executive Officer and President of The
Colonial Group, Inc. from December 1996
to December 1998); Director since
September 2000, President since January
2000, and Vice Chairman since August
1998 of Stein Roe (formerly Assistant
Chairman and Executive Vice President
of Stein Roe from August 1998 to
January 2000). (Formerly Managing
Director of Marketing of Putnam
Investments (investment advisor) from
June 1992 to July 1996.)
</TABLE>
B-2
<PAGE> 40
<TABLE>
<CAPTION>
YEAR OF
ELECTION
AS
EXECUTIVE OFFICER EXECUTIVE
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION* OFFICER
----------------- -------------------------------- ------------
<S> <C> <C>
William J. Ballou...................... Assistant Secretary of the Stein Roe 2000
(35) Mutual Funds since May 2000; Secretary
of the Liberty Mutual Funds since
October 2000 (formerly Assistant
Secretary of the Liberty Mutual Funds
from October 1997 to October 2000);
Vice President, Assistant Secretary and
Counsel of Colonial since October 1997;
Vice President and Counsel since April
2000, and Assistant Secretary since
December 1998 of LFG; Associate
Counsel, Massachusetts Financial
Services Company (financial services
provider) prior thereto.
Kevin M. Carome........................ Executive Vice President of the Liberty 1999
(44) Mutual Funds since October 2000;
Executive Vice President of the Stein
Roe Mutual Funds since May 1999
(formerly Vice President from April
1998 to May 1999, Secretary from
February 2000 to May 2000 and Assistant
Secretary from April 1998 to February
2000 of the Stein Roe Mutual Funds);
Chief Legal Officer of Liberty
Financial since August 2000; Senior
Vice President, Legal, of LFG since
January 1999; General Counsel and
Secretary of Stein Roe since January
1998; Associate General Counsel and
Vice President of Liberty Financial
prior thereto.
</TABLE>
---------------
* Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
ADDITIONAL INFORMATION CONCERNING TRUSTEE COMPENSATION
The current Board of Trustees received the following compensation from each
Fund as of each Fund's fiscal year end(1):
<TABLE>
<CAPTION>
GLOBAL EQUITY FUND GLOBAL UTILITIES FUND
TRUSTEE 10/31/99 10/31/99
------- ------------------ ---------------------
<S> <C> <C>
Mr. Bleasdale.................................... $1,188(2) $1,387(3)
Ms. Collins...................................... 1,001 1,164
Mr. Grinnell..................................... 1,043 1,213
Mr. Lowry........................................ 1,011 1,176
Mr. Macera....................................... 1,115 1,294
Mr. Mayer........................................ 1,010 1,176
Mr. Moody........................................ 940(4) 1,094(5)
Mr. Neuhauser.................................... 1,057 1,230
Mr. Stitzel...................................... 1,115 1,294
Ms. Verville..................................... 1,134(6) 1,316(7)
</TABLE>
B-3
<PAGE> 41
The following table sets forth the total compensation paid to each Trustee
by the Liberty Mutual Funds for the calendar year ended December 31, 1999.
<TABLE>
<CAPTION>
TRUSTEE TOTAL COMPENSATION
------- ------------------
<S> <C>
Mr. Bleasdale............................................ $103,000(8)
Ms. Collins.............................................. 96,000
Mr. Grinnell............................................. 100,000
Mr. Lowry................................................ 97,000
Mr. Macera............................................... 95,000
Mr. Mayer................................................ 101,000
Mr. Moody................................................ 91,000(9)
Mr. Neuhauser............................................ 101,252
Mr. Stitzel.............................................. 95,000
Ms. Verville............................................. 96,000(10)
</TABLE>
For the calendar year ended December 31, 1999, certain of the Trustees
received the following compensation in their capacities as Trustees or Directors
of the Liberty All-Star Equity Fund, the Liberty All-Star Growth Fund, Inc. and
Liberty Funds Trust IX (together, the "Liberty All-Star Funds"):
<TABLE>
<CAPTION>
TRUSTEE TOTAL COMPENSATION(11)
------- ----------------------
<S> <C>
Mr. Grinnell.............................................. $25,000
Mr. Lowry................................................. 25,000
Mr. Mayer................................................. 25,000
Mr. Neuhauser............................................. 25,000
</TABLE>
---------------
(1) The Liberty Mutual Funds do not currently provide pension or retirement
plan benefits to the Trustees.
(2) Includes $546 payable in later years as deferred compensation.
(3) Includes $636 payable in later years as deferred compensation.
(4) Total compensation of $940 for the fiscal year ended October 31, 1999 will
be payable in later years as deferred compensation.
(5) Total compensation of $1,094 for the fiscal year ended October 31, 1999
will be payable in later years as deferred compensation.
(6) Total compensation of $1,134 for the fiscal year ended October 31, 1999
will be payable in later years as deferred compensation.
(7) Total compensation of $1,316 for the fiscal year ended October 31, 1999
will be payable in later years as deferred compensation.
(8) Includes $52,000 payable in later years as deferred compensation.
(9) Total compensation of $91,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(10) Total compensation of $96,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(11) The Liberty All-Star Funds are advised by Liberty Asset Management Company
("LAMCO"). LAMCO is an indirect wholly-owned subsidiary of Liberty
Financial.
B-4
<PAGE> 42
CAPITALIZATION
APPENDIX C
The following table shows on an unaudited basis the capitalization of the
Global Equity Fund and the Global Utilities 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 Global Equity Fund by the Global Utilities Fund at net asset
value as of that date:
<TABLE>
<CAPTION>
GLOBAL UTILITIES
GLOBAL UTILITIES FUND
GLOBAL EQUITY FUND PRO FORMA PRO FORMA
FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Class A
Net asset value..................... $56,569,280 $189,922,088 $ (48,991) $246,442,377
Shares outstanding.................. 3,655,620 10,800,794 (438,076) 14,018,338
Net asset value per share........... $ 15.47 $ 17.58 $ 17.58
Class B
Net asset value..................... $76,304,439 $ 13,860,623 $ (66,082) $ 90,098,980
Shares outstanding.................. 5,007,133 790,986 (655,483) 5,142,636
Net asset value per share........... $ 15.24 $ 17.52 $ 17.52
Class C
Net asset value..................... $ 2,284,816 $ 923,119 $ (1,979) $ 3,205,956
Shares outstanding.................. 149,054 52,643 (18,917) 182,780
Net asset value per share........... $ 15.33 $ 17.54 $ 17.54
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $117,052 and $0 to be borne by the Global
Equity Fund and the Global Utilities Fund, respectively.
(2) Assumes the Acquisition was consummated on April 30, 2000 and is for
information purposes only. No assurance can be given as to how many shares
of the Global Utilities Fund will be received by the shareholders of the
Global Equity Fund on the date the Acquisition takes place, and the
foregoing should not be relied upon to reflect the number of shares of the
Global Utilities Fund that actually will be received on or after such date.
C-1
<PAGE> 43
APPENDIX D
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AS OF OCTOBER 31, 1999
LIBERTY NEWPORT GLOBAL UTILITIES FUND
HIGHLIGHTS
- RISE IN OIL PRICES BENEFITED GAS STOCKS.
In the spring of 1999, economically-sensitive cyclical stocks began to
rebound in response to stronger-than-expected economic growth in the U.S.
and signs of improving global economic conditions. This shift helped
natural gas stocks, whose prices rose along with oil prices, but hurt
electric stocks, as investors moved away from defensive sectors.
- GAINS IN TELECOMMUNICATIONS CONTRIBUTED TO THE FUND'S PERFORMANCE.
Telecommunication stocks benefited from improving economies worldwide and
continued domestic growth. Telephone stocks also offered attractive
opportunities due to increased merger and acquisition activity.
- THE FUND REMAINED COMPETITIVE WITH ITS LIPPER PEERS FOR THE PERIOD.
Despite challenges in some utility sectors due to pending merger approval
and deregulation, the Fund's overweighting in areas such as
telecommunications helped the Fund's Class A shares return 18.31% without
sales charge, performing in line with its Lipper peer group average.(1)
LIBERTY NEWPORT GLOBAL UTILITIES FUND -- CLASS A SHARES VS.
LIPPER UTILITY FUND CATEGORY 11/1/98-10/31/99
[BAR CHART]
<TABLE>
<CAPTION>
LIBERTY NEWPORT GLOBAL UTILITIES FUND LIPPER UTILITY FUND
------------------------------------- -------------------
<S> <C>
18.31% 18.62%
</TABLE>
---------------
1 Lipper, Inc., a widely respected data provider in the industry, calculates an
average total return for mutual funds with similar investment objectives as
the Fund. The total return calculated for the Lipper Utility Fund Category was
18.62% for the 12 months ended October 31, 1999. The Fund's Class A shares
were ranked in the second quartile for the one year (43 out of 100 funds) and
in the third quartile for the five years (47 out of 64 funds). Performance for
different share classes will vary with fees associated with each class.
Past performance cannot predict future results. Returns and values of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions.
Because economic and market conditions change frequently, there can be no
assurance that the trends described in this report will continue or come to
pass.
D-1
<PAGE> 44
PORTFOLIO MANAGERS' REPORT
Strong 12-month performance driven by telecommunications
The Fund's Class A shares returned 18.31% for the 12-month period, based on
net asset value. This performance placed the Fund in the top half of the Lipper
Utility Funds Average. The Fund significantly outperformed the Standard & Poor's
Utilities Index which returned 2.1%, but underperformed the Morgan Stanley
Capital International World Index's return of 24.9% since this index includes
some non-utility stocks.(2)
We emphasized investments in the telecommunications sector, which continued
to outperform other sectors of the utility industry. Attractive performance came
from both domestic and European telecommunications companies. Our holdings
included telephone services and cellular companies as well as telephone
equipment companies such as Ericsson, Nokia and Tellabs (3.3%, 4.0% and 3.1% of
net assets, respectively).
Changing environment for electric utilities
In the United States, the electric industry has made progress toward a
competitive marketplace, but issues of deregulation and consolidation also
created a mixed investment environment in this sector. Although many companies
have restructured to meet the challenges presented by a deregulated environment,
performance of this sector was hampered because the regulatory approval process,
which can take more than one year, delays the beneficial effects to the
companies.
We own high-quality companies with attractive growth prospects and strong
management. However, the sector sold at a 25-year low. Although electric stocks
generally underperformed other utility market sectors during the period, there
is still dividend income being paid, with possible capital appreciation, and the
Fund is sharing in these returns. Power generation companies are also becoming
an emerging business. These companies own the existing fossil fuel and the newer
combined gas-cycle turbine generating plants, as well as some nuclear power
plants. This business is commodity-like, and pricing is dependent on the
competitive market for energy.
While electric utility stocks faced challenges, the portfolio benefited
from diversified holdings such as Edison International (3.4% of net assets),
which increased its growth potential through its domestic and international
independent power business.
Gas stocks improved due to price increases in oil
We increased our holdings in the gas sector, which has improved over the
period due to rising oil prices. In the spring, oil prices rose after the
Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers
agreed to cut oil production. Oil prices surged again after OPEC reinforced the
cutback on output at the beginning of October. Some of the rebound in prices can
also be attributed to expectations of tighter oil supplies over the winter.
Like other sectors of the utilities market, deregulation has also been
increasing competition among gas utilities, forcing companies to streamline
their operations. Over the period, we have seen gas companies consolidate and
enter other areas of the utilities market in order to diversify and become more
dynamic. Williams Companies (2.3% of net assets) entered into a
telecommunications venture, and Columbia Energy (2.6% of net assets) was
involved in a hostile takeover toward the end of the period. Although Columbia's
stock is trading under the last price offer, it is up year to date.
Long-term outlook remains positive
Rising long-term interest rates in the United States and Europe have
weighed heavily on utilities, and the cyclical upturn in Europe has hurt
defensive stocks like utilities. Even with the interest rate increases that have
occurred, the economy should remain strong and encouraging to our markets. The
Fund's holdings are solid companies with strong network partners and good
management, and we will continue to emphasize these types
---------------
2 The Standard & Poor's Utilities Index is an unmanaged index that tracks the
performance of domestic utility stocks. The Morgan Stanley Capital
International World Index ND is an unmanaged index that tracks the performance
of global stocks. Unlike mutual funds, indexes are not investments, do not
incur fees or expenses, and it is not possible to invest in an index.
D-2
<PAGE> 45
of globally diversified, high-quality utilities as we look for nice buying
opportunities in the remainder of 1999 and into 2000.
/s/Ophelia Barsketis
/s/Deborah Jansen
OPHELIA BARSKETIS and DEBORAH JANSEN are portfolio co-managers of the
Global Utilities Fund. Ms. Barsketis and Ms. Jansen are also senior vice
presidents of Stein Roe, the portfolio's advisor.
International investing offers long-term growth potential, but also certain
risks. The Fund may be affected by political, business and economic conditions
in the countries in which it invests. Additionally, because the Fund focuses
solely on utility securities, it may involve special risks due to limited
diversification.
PERFORMANCE INFORMATION
Global Utilities Fund Investment Performance vs. MSCI World Index and S&P
Utilities Index
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES 10/31/91 - 10/31/99
[LINE GRAPH]
<TABLE>
<CAPTION>
FUND WITH SALES FUND WITHOUT SALES
CHARGE CHARGE S&P UTILITIES INDEX MSCI WORLD INDEX
--------------- ------------------ ------------------- ----------------
<S> <C> <C> <C> <C>
1991 10000.00 10000.00 10000.00 10000.00
1992 10445.00 11083.00 11113.00 9477.00
1993 12873.00 13660.00 13927.00 12037.00
1994 11920.00 12648.00 12219.00 12960.00
1995 13150.00 13953.00 15797.00 14186.00
1996 14726.00 15626.00 17345.00 16498.00
1997 17289.00 18345.00 19063.00 19265.00
1998 20416.00 21663.00 24143.00 22205.00
1999 24169.00 25644.00 24646.00 27736.00
</TABLE>
The Morgan Stanley Capital International (MSCI)World Index ND is an unmanaged
index that tracks the performance of global stocks. The Standard & Poor's
Utilities Index is an unmanaged index that tracks the performance of domestic
utility stocks. Unlike mutual funds, indexes are not investments and do not
incur fees or expenses. It is not possible to invest in an index.
PERFORMANCE OF A $10,000 INVESTMENT IN ALL SHARE CLASSES FROM
10/31/91 - 10/31/99
<TABLE>
<CAPTION>
WITHOUT WITH SALES
SALES CHARGE CHARGE
------------ ----------
<S> <C> <C>
Class A...................................... $25,644 $24,169
Class B...................................... $24,764 $24,764
Class C...................................... $24,778 $24,778
</TABLE>
D-3
<PAGE> 46
AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/99
<TABLE>
<CAPTION>
SHARE CLASS A B C
INCEPTION DATE 10/15/91 3/27/95 3/27/95
-------------- ----------------- ----------------- -----------------
WITHOUT WITH WITHOUT WITH WITHOUT WITH
SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
1 year................................ 18.31% 11.50% 17.50% 12.50% 17.42% 16.42%
5 years............................... 15.17% 13.82% 14.38% 14.15% 14.38% 14.38%
Life.................................. 12.38% 11.56% 11.91% 11.91% 11.91% 11.91%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/99
<TABLE>
<CAPTION>
SHARE CLASS A B C
----------- ----------------- ----------------- -----------------
WITHOUT WITH WITHOUT WITH WITHOUT WITH
SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
1 year................................ 15.79% 9.14% 15.01% 10.01% 14.92% 13.92%
5 years............................... 13.91% 12.57% 13.15% 12.91% 13.15% 13.15%
Life.................................. 11.63% 10.80% 11.16% 11.16% 11.16% 11.16%
</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 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 for different share classes will vary based on differences in share
charges and fees associated with each class.
The Fund initially commenced operations as the Liberty Financial Utilities Fund
on 10/15/1991. Performance shown is based, in part, on the performance of the
Liberty Financial Utilities Fund, which had a different expense structure than
the Fund.
Class B and C 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 the newer class shares would have been lower.
NET ASSET VALUE PER SHARE AS OF 10/31/99
<TABLE>
<S> <C>
Class A........................................... $16.85
Class B........................................... $16.84
Class C........................................... $16.84
</TABLE>
DISTRIBUTIONS DECLARED PER SHARE FROM 11/1/98 - 10/31/99
<TABLE>
<S> <C>
Class A........................................... $0.735
Class B........................................... $0.624
Class C........................................... $0.624
</TABLE>
D-4
<PAGE> 47
HOLDINGS
TOP FIVE HOLDINGS AS OF 10/31/99
<TABLE>
<S> <C> <C>
1. Colt Telecom....................................... 4.5%
2. Nokia.............................................. 4.0%
3. Sprint Corp. ...................................... 3.9%
4. Edison International............................... 3.4%
5. Vodafone Airtouch.................................. 3.3%
</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 FIVE COUNTRIES AS OF 10/31/99
<TABLE>
<S> <C> <C>
1. United States..................................... 56.3%
2. Great Britain..................................... 13.2%
3. Finland........................................... 7.5%
4. Spain............................................. 5.9%
5. Sweden............................................ 3.4%
</TABLE>
TOP FIVE SECTOR BREAKDOWNS 10/31/99 VS. 10/31/98
<TABLE>
<CAPTION>
FUND AS OF FUND AS OF
10/31/99 10/31/98
---------- ----------
<S> <C> <C> <C>
1. Telecom/Telephone.................... 50% 38%
2. Electric............................. 22% 36%
3. Gas.................................. 12% 9%
4. Real Estate.......................... 4% 0%
5. Broadcasting......................... 3% 0%
</TABLE>
Sector and portfolio holding breakdowns are calculated as a percentage of net
assets. Country breakdowns are calculated as a percentage of total investments.
Because the Fund is actively managed, there can be no guarantee the Fund will
continue to hold these securities or invest in these sectors or countries in the
future.
D-5
<PAGE> 48
LIBERTY FUNDS TRUST III
LIBERTY NEWPORT GLOBAL UTILITIES FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 17, 2000
This Statement of Additional Information (the "SAI") relates to the
proposed Acquisition (the "Acquisition") of the Liberty Newport Global Equity
Fund (the "Acquired Fund"), a series of Liberty Funds Trust III, by the Liberty
Newport Global Utilities Fund (the "Acquiring Fund"), a series of Liberty Funds
Trust III.
This SAI contains information which may be of interest to shareholders
but which is not included in the Prospectus/Proxy Statement dated November 17,
2000 (the "Prospectus/Proxy Statement") of the Acquiring Fund which relates to
the Acquisition. As described in the Prospectus/Proxy Statement, the Acquisition
would involve the transfer of all the assets of the Acquired Fund in exchange
for shares of the Acquiring Fund and the assumption of all the liabilities of
the Acquired Fund. The Acquired Fund would distribute the Acquiring Fund shares
it receives to its shareholders in complete liquidation of the Acquired Fund.
This SAI is not a prospectus and should be read in conjunction with the
Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with
the Securities and Exchange Commission and is available upon request and without
charge by writing to your Fund at One Financial Center, Boston, Massachusetts
02111-2621, or by calling 1-800-426-3750.
Table of Contents
<TABLE>
<S> <C> <C>
I. Additional Information about the Acquiring Fund and the Acquired Fund.. 2
II. Financial Statements................................................... 2
</TABLE>
<PAGE> 49
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> 50
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Liberty
Newport Liberty Newport
Global Global Pro Forma
Liberty Newport Liberty Newport Pro Forma Equity Utilities Combined
Global Equity Global Utilities Combined Fund Market Fund Market Market
Fund Shares Fund Shares Shares Value Value Value
<S> <C> <C> <C> <C> <C> <C>
Common Stocks
Construction
DAIWA HOUSE INDUSTRY CO LTD. 101,000 101,000 $ 672,337 $ 672,337
--------- -----------
Finance, Insurance & Real Estate
AMER INTERNATIONAL GROUP INC 14,375 14,375 1,576,758 1,576,758
AMSOUTH BANCORPORATION 62,865 62,865 915,472 915,472
AXA 7,400 7,400 1,098,496 1,098,496
BANCO BILBAO VIZCAYA ARGENTA 45,333 45,333 618,897 618,897
BANK OF AMERICA CORP 20,000 20,000 980,000 980,000
BANQUE NATIONALE DE PARIS 8,845 8,845 715,670 715,670
BANQUE NATIONALE DE PARIS-CVG 3,965 3,965 22,555 22,555
CHASE MANHATTAN CORP (NEW) 16,800 16,800 1,210,650 1,210,650
CHEUNG KONG HLDG 64,000 64,000 764,169 764,169
CITIGROUP INC 70,100 70,100 4,166,569 4,166,569
DEUTSCHE BANK AG 17,500 17,500 1,177,051 1,177,051
GRUPO FINANCIERO BANAMEX-O 223,200 223,200 807,921 807,921
HENDERSON JAPANESE 1,331,000 1,331,000 1,261,546 1,261,546
HSBC HOLDINGS 59,400 59,400 656,223 656,223
ING GROEP N.V. 18,002 18,002 983,399 983,399
IRISH INVESTMENT FUND 46,400 46,400 675,700 675,700
LLOYDS TSB GROUP 46,000 46,000 457,393 457,393
PROMISE CO LTD 10,000 10,000 808,987 808,987
TAIWAN FUND INC 44,400 44,400 901,875 901,875
THAI FUND 65,900 65,900 387,163 387,163
THE BANK OF TOKYO MITSUBISHI 95,000 95,000 1,224,390 1,224,390
UBS AG-REGISTERED 2,000 2,000 490,965 490,965
---------- -----------
21,901,847 21,901,847
---------- -----------
Manufacturing
ACERINOX 31,600 31,600 1,259,720 1,259,720
ALCATEL 3,590 3,590 833,197 833,197
ALCATEL SA-ADR 82,700 82,700 $ 3,757,681 3,757,681
AVENTIS 14,300 14,300 787,416 787,416
BASF AG 8,050 8,050 348,385 348,385
BP AMOCO PLC-ADR 14,000 14,000 714,000 714,000
CANON INC 39,000 39,000 1,781,250 1,781,250
CEMEX S.A.-CPO 126,700 126,700 549,667 549,667
CISCO SYSTEMS INC 36,200 36,200 2,509,678 2,509,678
DAIMLERCHRYSLER AG 9,500 9,500 553,371 553,371
DIAGEO PLC 25,000 25,000 207,359 207,359
EI DUPONT DE NEMOURS & CO INC 12,898 12,898 611,849 611,849
EMC CORP 26,800 26,800 3,723,525 3,723,525
ENI SPA 94,500 94,500 468,578 468,578
EQUANT N.V. 13,400 13,400 1,038,490 1,038,490
ERICSSON (LM) TEL ADR 19,500 19,500 1,724,531 1,724,531
FORD MOTOR CO 27,900 27,900 1,525,781 1,525,781
FUJI PHOTO FILM CO LTD 17,000 17,000 680,566 680,566
GENERAL ELECTRIC CO 12,100 12,100 1,902,725 1,902,725
GLAXO HOLDINGS PLC DRIP 29,000 29,000 889,533 889,533
GRUPO CARSO 'A1' 491,700 491,700 1,675,120 1,675,120
HEWLETT-PACKARD CO 12,100 12,100 1,633,500 1,633,500
HITACHI LTD 83,000 83,000 989,922 989,922
HONDA MOTOR CO LTD 15,000 15,000 669,841 669,841
INTEL CORP 17,600 17,600 2,231,900 2,231,900
INTL BUSINESS MACHINES CORP 14,200 14,200 1,585,075 1,585,075
KAO CORP 60,000 60,000 1,825,074 1,825,074
KONINKLIJKE KPN NV 7,200 7,200 726,409 726,409
LUCENT TECHNOLOGIES INC 23,700 23,700 1,473,844 1,473,844
MERCK & CO INC 19,600 19,600 1,362,200 1,362,200
MURATA MANUFACTURING CO., LTD 10,000 10,000 1,941,568 1,941,568
NOKIA CORP ADR 134,000 134,000 7,621,250 7,621,250
NOVARTIS (REG) 401 401 561,274 561,274
PHARMACIA CORPORATION 31,535 31,535 1,574,779 1,574,779
PHILIPS ELECTRONIC NV 70,304 70,304 3,139,851 3,139,851
</TABLE>
<PAGE> 51
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Liberty
Newport Liberty Newport
Global Global Pro Forma
Liberty Newport Liberty Newport Pro Forma Equity Utilities Combined
Global Equity Global Utilities Combined Fund Market Fund Market Market
Fund Shares Fund Shares Shares Value Value Value
<S> <C> <C> <C> <C> <C> <C>
Common Stocks
POHANG IRON AND STEEL ADR 17,200 17,200 361,200 361,200
ROYAL DUTCH PETROLEUM 7,900 7,900 455,858 455,858
SONY CORP 10,000 10,000 1,147,374 1,147,374
SONY CORP (NEW) 10,000 10,000 1,155,695 1,155,695
TELLABS INC 83,400 83,400 4,571,363 4,571,363
TEXACO INC 16,400 16,400 811,800 811,800
TEXAS INSTRUMENTS INC 14,800 14,800 2,410,550 2,410,550
TOTAL B 4,620 4,620 701,797 701,797
TYCO INT'L LTD 87,400 87,400 4,014,938 4,014,938
WARNER-LAMBERT CO 19,000 19,000 2,162,438 2,162,438
---------- ---------- -----------
51,031,569 21,640,351 72,671,920
---------- ---------- -----------
Mining & Energy
CONOCO INC-CL B 27,145 27,145 675,232 675,232
ENRON CORP 127,800 127,800 8,906,063 8,906,063
PETROCHINA CO LTD 8,414,000 8,414,000 1,307,117 1,307,117
SCHLUMBERGER LTD 11,300 11,300 865,156 865,156
--------- ---------- -----------
2,847,505 8,906,063 11,753,568
--------- ---------- -----------
Retail Trade
HENNES & MAURITZ AB-B SHS 39,600 39,600 1,055,491 1,055,491
WAL-MART STORES INC 32,000 32,000 1,772,000 1,772,000
--------- -----------
2,827,491 2,827,491
--------- -----------
Services
CAP GEMINI 7,840 7,840 1,541,284 1,541,284
COMPUWARE CORP 40,200 40,200 505,013 505,013
MICROSOFT CORP 17,200 17,200 1,199,700 1,199,700
SUN MICROSYSTEMS INC 25,000 25,000 2,298,438 2,298,438
SUNGARD DATA SYSTEMS INC 40,600 40,600 1,403,238 1,403,238
--------- -----------
6,947,672 6,947,672
--------- -----------
Transportation, Communications,
Electric, Gas and Sanitary Service
A T & T CORP 89,450 89,450 4,176,197 4,176,197
AES CORP 75,800 75,800 6,817,263 6,817,263
AT & T WIRELESS CORP 119,900 180,100 300,000 3,761,863 5,650,638 9,412,500
BELL ATLANTIC CORP 23,400 23,400 1,386,450 1,386,450
BG GROUP PLC 0 0 1 1
BRITISH TELECOMMUNICATIONS PLC 39,000 39,000 697,485 697,485
BROADWING INC 129,300 129,300 3,660,806 3,660,806
CABLE AND WIRELESS HKT LIMITED 244,000 244,000 567,300 567,300
CALPINE CORPORATION 56,300 56,300 5,151,450 5,151,450
CHINA TELECOM HK LTD-SP ADR 13,600 13,600 1,994,950 1,994,950
COASTAL CORP 93,900 93,900 4,712,606 4,712,606
COLT TELECOM GROUP PLC 48,000 48,000 1,968,111 1,968,111
COLT TELECOM GROUP-SPONS ADR 28,900 28,900 4,934,675 4,934,675
CONSTELLATION ENERGY GROUP 120,400 120,400 3,980,725 3,980,725
COX COMMUNICATIONS INC-CL A 82,700 82,700 3,540,594 3,540,594
DYNEGY INC 36,700 36,700 2,401,556 2,401,556
EL PASO ENERGY CORP 93,500 93,500 3,973,750 3,973,750
EMBRATEL PARTICIPACOES ADR 86,200 86,200 1,939,500 1,939,500
FRANCE TELECOM 6,029 6,029 933,937 933,937
GRUPO TELEVISA SA-SPONS GDR 109,500 109,500 6,946,406 6,946,406
KINDER MORGAN ENERGY PRTNRS 157,300 157,300 6,134,700 6,134,700
KINDER MORGAN INC 64,600 64,600 1,958,188 1,958,188
KOREA ELECTRIC POWER ADR 35,600 35,600 582,950 582,950
KOREA TELECOM CORP-SP ADR 81,000 81,000 2,794,500 2,794,500
LEVEL 3 COMMUNICATIONS 38,100 38,100 3,390,900 3,390,900
MCI WORLDCOM INC 25,050 86,550 111,600 1,138,209 3,932,616 5,070,825
METROMEDIA FIBER NETWORK-A 162,400 162,400 5,014,100 5,014,100
MONTANA POWER CO 104,900 104,900 4,622,156 4,622,156
</TABLE>
<PAGE> 52
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINED PORTFOLIO OF INVESTMENTS
AS OF APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Liberty
Newport Liberty Newport
Global Global Pro Forma
Liberty Newport Liberty Newport Pro Forma Equity Utilities Combined
Global Equity Global Utilities Combined Fund Market Fund Market Market
Fund Shares Fund Shares Shares Value Value Value
<S> <C> <C> <C> <C> <C> <C>
Common Stocks
NATIONAL GRID GROUP PLC 553,900 553,900 4,487,680 4,487,680
NIPPON TELEGRAPH & TELE CORP 110 150 260 1,362,796 1,858,358 3,221,153
NOKIA OYJ 56,000 56,000 3,216,106 3,216,106
NTL INC 49,000 49,000 3,748,500 3,748,500
NTT DATA COMM SYSTEMS CORP 100 100 1,331,361 1,331,361
PECO ENERGY CO 105,500 105,500 4,398,031 4,398,031
PINNACLE WEST CAPITAL CORP 128,000 128,000 4,496,000 4,496,000
SBC COMMUNICATIONS INC 93,600 93,600 4,100,850 4,100,850
SCOTTISH POWER PLC 659,500 659,500 5,266,351 5,266,351
SONERA GROUP 121,800 121,800 6,706,804 6,706,804
SPRINT CORP (FON GROUP) 100,800 100,800 6,199,200 6,199,200
SPRINT CORP PCS 70,900 70,900 3,899,500 3,899,500
TELE DANMARK A/S-ADR 53,700 53,700 2,033,888 2,033,888
TELECEL-COMUNICACOES PESSOAI 28,000 28,000 443,425 443,425
TELECOM ITALIA 52,165 52,165 730,591 730,591
TELECOM NEW ZEALAND-SP ADR 131,300 131,300 4,455,994 4,455,994
TELECOMUN BRASILEIRAS SA-ADR 8,000 8,000 945,500 945,500
TELECOMUN BRASILEIRAS SA-PRF 6,000,000 6,000,000 166 166
TELEFONICA SA-SPON ADR 26,520 70,465 96,985 1,756,950 4,668,294 6,425,244
TELEFONOS DE MEXICO-CL L ADR 33,200 33,200 1,952,575 1,952,575
TELEFONOS DE MEXICO SA ADR 395,800 395,800 1,148,254 1,148,254
TELENORTE LESTE PATICIP-ADR 256,800 256,800 4,574,250 4,574,250
US WEST INC 58,500 58,500 4,164,469 4,164,469
VIACOM INC CL B 28,000 28,000 1,522,500 1,522,500
VODAFONE AIRTOUCH PLC 722,872 722,872 3,301,874 3,301,874
VODAFONE AIRTOUCH PLC-ADR 121,750 121,750 5,722,250 5,722,250
WILLIAMS COMPANIES INC 103,300 103,300 3,854,381 3,854,381
----------- ------------ -------------
31,155,573 159,955,906 191,111,479
----------- ----------- -------------
Total Common Stock 117,383,995 190,502,320 307,886,315
----------- ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Convertible Preferred Stock
Manufacturing
ERICSSON L M TEL - 4.25 PRF 352,900 352,900 8,601,938 8,601,938
------- ------- --------- ---------
Corporate Fixed Income Bonds
Mining & Energy Par Par
BG TRANSCO HOLDINGS PLC
4.1875% 12/14/22 $ 14,000 $ 14,000 21,212 21,212
BG TRANSCO HOLDINGS
PLC 7.00% 12/16/24 $ 14,000 $ 14,000 21,520 21,520
BG TRANSCO HOLDINGS PLC
7.0573% 12/14/09 $ 14,000 $ 14,000 21,897 21,897
------------ ------------
64,629 64,629
------------ ------------
Total Corporate Fixed
Income Bonds 64,629 64,629
------------ ------------
Warrants
Construction Shares Shares
CEMEX S.A. WARRANTS 7,000 7,000 3,726 3,726
------------ ------------
Short-Term Obligations Par Par Par
Repurchase agreement with
SBC Warburg
Ltd., dated 4/28/00,
due 5/1/00 at 5.71%,
collateralized by US
Treasury Notes $ 21,106,000 $ 10,611,000 $ 31,717,000 21,106,000 10,611,000 31,717,000
----------- ------------- ------------
Total Investments
(cost of $104,391,936,
$153,942,971 and $258,334,907,
respectively) $ 138,558,350 $ 209,715,257 $ 348,273,607
============= ============= =============
</TABLE>
No adjustments are shown to the unaudited pro forma combined portfolio of
investments due to the fact that upon consummation of the Acquisitions, no
securities would need to be sold in order for the Acquiring Fund to comply with
its Prospectus and SEC and IRS guidelines and restrictions. However, the
foregoing sentence shall not be deemed to restrict in any way the ability of the
investment advisor of any of the funds from buying or selling securities in the
normal course of such Fund's business and operations.
<PAGE> 53
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA COMBINING CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Liberty Newport Liberty Newport
Global Equity Global Utilities Pro Forma Pro Forma
Fund Fund Adjustments Combined
<S> <C> <C> <C>
Investments, at value $ 138,558,350 $ 209,715,257 -- $ 348,273,607
Cash 2,146,881 -- -- 2,146,881
Receivable for investments sold 21,843,442 10,738,000 -- 32,581,442
Payable for investments purchased (28,492,181) (16,037,088) -- (44,529,269)
Other assets less other liabilities 1,102,043 289,661 (117,052) 1,274,652
Net assets $ 135,158,535 $ 204,705,830 (117,052) (a) $ 339,747,313
Class A:
Net assets $ 56,569,280 $ 189,922,088 (48,991) $ 246,442,377
Shares outstanding 3,655,620 10,800,794 (438,076) 14,018,338
Net asset value $ 15.47 $ 17.58 $ 17.58
Class B:
Net assets $ 76,304,439 $ 13,860,623 (66,082) $ 90,098,980
Shares outstanding 5,007,133 790,986 (655,483) 5,142,636
Net asset value $ 15.24 $ 17.52 $ 17.52
Class C:
Net assets $ 2,284,816 $ 923,119 (1,979) $ 3,205,956
Shares outstanding 149,054 52,643 (18,917) 182,780
Net asset value $ 15.33 $ 17.54 $ 17.54
</TABLE>
(a) Adjustment reflects one time proxy, accounting, legal and other costs of the
reorganization of $117,052 and $0 to be borne by Liberty Newport Global Equity
Fund and Liberty Newport Global Utilities Fund, respectively. These costs
reflect each fund's share of the total costs of the reorganization that will be
shared between Liberty Financial and the Funds, subject to the terms of each
Agreement and Plan of Reorganization, as follows:
<TABLE>
<CAPTION>
Liberty Financial Fund
----------------- ----
<S> <C> <C>
Liberty Newport Global Equity Fund 25% 75%
Liberty Newport Global Utilities Fund 50% 50%
</TABLE>
The Funds will bear their full portion of the one time costs of the
reorganization only if the expense reduction experienced as a result of the
Acquisition in the first year after Acquisition Date exceeds the one time costs.
If the one time costs exceed the expense reduction, the Fund will only bear the
share of its portion up to the amount of the expense reduction. Liberty Newport
Global Utilities Fund is not expected to experience an expense reduction as a
result of the Acquisition.
<PAGE> 54
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE
MONTH PERIOD ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Liberty Liberty
Newport Newport
Global Global Pro Forma Pro Forma
Equity Fund Utilities Fund Adjustments Combined
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends 2,233,384 4,216,702 -- 6,450,087
Interest 328,139 389,112 -- 717,251
----------- ----------- ----------- -----------
Total investment income 2,561,524 4,605,814 -- 7,167,338
EXPENSES
Management fee 1,298,504 777,818 (751,765)(a) 1,324,557
Administration fee -- 486,137 341,711(a) 827,848
Service fee - Class A, B, C 341,711 486,137 -- (a) 827,848
Distribution fee - Class B 606,762 66,081 -- (a) 672,843
Distribution fee - Class C 17,232 8,598 -- (a) 25,830
Transfer agent fee 382,672 409,902 34,372(d) 826,946
Bookkeeping fee 57,340 77,559 (9,500)(a) 125,399
Trustees fee 11,781 17,907 (14,366)(b) 15,322
All other expenses 284,105 344,037 (219,642)(c) 408,500
----------- ----------- ----------- -----------
Total operating expenses 3,000,107 2,674,176 (619,190) 5,055,093
----------- ----------- ----------- -----------
Expense reimbursement (120,818) -- 120,818(a) --
----------- ----------- ----------- -----------
Net Expenses 2,879,289 2,674,176 (498,372) 5,055,093
NET INVESTMENT INCOME (LOSS) (317,765) 1,931,638 498,372 2,112,245
NET REALIZED & UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments 1,126,540 45,806,628 -- 46,933,168
Foreign currency transactions (49,798) (211,115) -- (260,913)
----------- ----------- ----------- -----------
Net Realized Gain 1,076,742 45,595,513 -- 46,672,254
Change in net unrealized appreciation
during the period on:
Investments 8,666,980 6,949,998 -- 15,616,977
Foreign currency transactions 62,603 4,004 -- 66,607
----------- ----------- ----------- -----------
Net Change in Unrealized Appreciation 8,729,583 6,954,001 -- 15,683,584
----------- ----------- ----------- -----------
Net Gain 9,806,325 52,549,514 -- 62,355,839
----------- ----------- ----------- -----------
Increase in Net Assets from Operations 9,488,559 54,481,152 498,372 64,468,084
</TABLE>
(a) Based on the contract in effect for the surviving fund.
(b) Based on trustee compensation plan for the surviving fund.
(c) Decrease due to the elimination of duplicative expenses achieved by
merging the funds.
(d) Based on the contract in effect for the surviving fund. Note that a new
transfer agent fee structure was implemented for Liberty Newport Global
Utilities 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.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 2000
1. These financial statements set forth the unaudited pro forma condensed
statement of assets and liabilities, including the portfolio of investments, as
of April 30, 2000, and the unaudited pro forma condensed statement of operations
for the twelve month period ended April 30, 2000 for Liberty Newport Global
Equity Fund and Liberty Newport Global Utilities Fund as adjusted giving effect
to the Acquisition as if it had occurred as of the beginning of the period.
These statements have been derived from the books and records utilized in
calculating daily net asset value for each fund.
<PAGE> 55
[Liberty Logo] LIBERTY
LIBERTY FUNDS SERVICES, INC.
LIBERTY NEWPORT GLOBAL EQUITY FUND
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN AND, ABSENT DIRECTION, WILL BE VOTED FOR EACH ITEM
BELOW. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST
JUDGEMENT AS TO ANY OTHER MATTER. THE BOARD OF TRUSTEES RECOMMENDS A
VOTE FOR THE FOLLOWING ITEMS:
1. To approve or disapprove the Agreement and Plan of Reorganization
with respect to the acquisition of Liberty Newport Global Equity Fund
by Liberty Newport Global Utilities Fund (Item 1 of the Notice).
For Against Abstain
[ ] [ ] [ ]
2. To elect eleven Trustees (Item 2 of the Notice).
(01) Douglas A. Hacker
(02) Janet Langford Kelly
(03) Richard W. Lowry
(04) Salvatore Macera
(05) William E. Mayer
(06) Charles R. Nelson
(07) John J. Neuhauser
(08) Joseph R. Palombo
(09) Thomas E. Stitzel
(10) Thomas C. Theobald
(11) Anne-Lee Verville
For
All For All
Nominees Withheld Except
[ ] [ ] [ ]
Instruction: To withhold authority to vote for any individual
nominee(s), mark the "For All Except" box and strike a line through the
name(s) of the nominee(s). Your shares will be voted for the remaining
nominee(s).
MARK BOX AT RIGHT FOR ADDRESS CHANGE
AND NOTE AT LEFT [ ]
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE. Please sign exactly as name or names appear hereon.
Joint owners should each sign personally. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Date__________________________
_______________________________ __________________________
Shareholder sign here Co-owner sign here
Detach Card
<PAGE> 56
PLEASE VOTE PROMPTLY
*********************************
Your vote is important, no matter how many shares you own. Please vote on the
reverse side of this proxy card and sign in the space(s) provided. Return your
completed proxy card in the enclosed envelope today.
You may receive additional proxies for other accounts. These are not duplicates;
you should sign and return each proxy card in order for your votes to be
counted.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The signers of this
proxy hereby appoint William J. Ballou, Suzan M. Barron, Stephen E. Gibson,
Russell L. Kane, Pamela A. McGrath, and Vincent P. Pietropaolo each of them
proxies of the signers, with power of substitution to vote at the Special
Meeting of Shareholders to be held at Boston, Massachusetts, on Wednesday,
December 27, 2000, and at any adjournments, as specified herein, and in
accordance with their best judgement, on any other business that may properly
come before this meeting.
AFTER CAREFUL REVIEW, THE BOARD OF TRUSTEES UNANIMOUSLY HAS RECOMMENDED A VOTE
"FOR" ALL MATTERS.
<PAGE> 57
Two Convenient Ways to Vote Your Proxy
The enclosed proxy statement provides details on important issues affecting
your Liberty Funds. The Board of Trustees recommends that you vote for all
proposals.
We are offering two additional ways to vote: by telephone or fax.
These methods may be faster and more convenient than the traditional method of
mailing back your proxy card.
If you are voting by telephone or fax, you SHOULD NOT mail your proxy card.
Vote by Telephone:
* Read the proxy statement and have your proxy card available.
* When you are ready to vote, call toll free 1-877-518-9416
between 9:00 a.m. and 11:00 p.m. EST.
* Follow the instructions provided to cast your vote. A
representative will be available to answer questions.
Vote by Fax:
* Read the proxy statement.
* Complete the enclosed proxy card.
* Fax your proxy card to 1-800-733-1885.
YOUR PROXY VOTE IS IMPORTANT!
SHM-43/623D-1000 (11/00) 00/2027
