As filed with the Securities and Exchange Commission on November 3, 2000
Registration No. 333-47384
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM N-14
- -
|X|Pre-Effective Amendment No._1_ |_| Post-Effective Amendment No.__
-
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
LIBERTY FUNDS TRUST III*
(Exact Name of Registrant as Specified in Charter)
617-426-3750
(Area Code and Telephone Number)
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
(Address of Principal Executive Offices)
-------------------------
WILLIAM J. BALLOU
Liberty Funds Group LLC
One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agents for Service)
-------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
-------------------------
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. Pursuant to Rule 429 under the Securities Act of 1933, this
Registration Statement relates to shares previously registered on the aforesaid
Registration Statement.
*On behalf of its Liberty Select Value Fund, The Liberty Fund, Liberty Special
Fund and Liberty Contrarian Equity Fund
series.
<PAGE>
This Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-14 of Liberty Trust III (the "Trust") hereby incorporates by reference
the following documents that are contained in the Trust's Registration Statement
on Form N-14 (File No. 333-47384) which was filed with the Securities and
Exchange Commission on October 5, 2000:
(a) with respect to the acquisition of Stein Roe Disciplined Stock
Fund and Liberty Small-Cap Value Fund by Liberty Select Value Fund,
Part A (Prospectus/Proxy Statement) and Part B (Statement of
Additional Information) of the Registration Statement;
(b) with respect to the acquisition of Liberty Contrarian Small-Cap
Fund by Liberty Special Fund, Part A (Prospectus/Proxy Statement) and
Part B (Statement of Additional Information) of the Registration
Statement;
(c) with respect to the acquisition of Liberty Contrarian Balanced
Fund by Liberty Contrarian Equity Fund, Part A (Prospectus/Proxy
Statement) and Part B (Statement of Additional Information) of the
Registration Statement;
(d) with respect to the acquisition of Liberty Strategic Balanced Fund
by The Liberty Fund, Part B (Statement of Additional Information) of
the Registration Statement.
<PAGE>
LIBERTY MUTUAL FUNDS
STEIN ROE MUTUAL FUNDS
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
Dear Shareholder:
Your Fund will hold a special meeting on December 19, 2000 at 10:00 a.m. Eastern
Time, at the offices of Colonial Management Associates, Inc. You will be asked
to vote on the acquisition of your Fund and on the election of eleven Trustees.
A formal Notice of Special Meeting of Shareholders appears on the next few
pages, followed by the combined prospectus/proxy statement which explains in
more detail the proposals to be considered. We hope that you can attend the
Meeting in person; however, we urge you in any event to vote your shares at your
earliest convenience.
Your Fund is part of one of several proposed acquisitions and liquidations of
funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial
Companies, Inc., the indirect parent of each of the investment advisors to the
Liberty and Stein Roe Funds. The overall purposes of these acquisitions and
liquidations include streamlining and rationalizing the product offerings of the
Liberty and Stein Roe Funds, reducing fund expense ratios by creating larger,
more efficient funds and permitting the Liberty organization to focus its
portfolio management resources on a more focused group of portfolios. Please
review the enclosed prospectus/proxy statement for a more detailed description
of the proposed acquisition of your Fund and the specific reasons it is being
proposed.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU CAN VOTE
EASILY AND QUICKLY AT OUR WEB SITE, BY MAIL, BY FAX (NOT AVAILABLE FOR ALL
SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT), BY PHONE OR IN PERSON. TO VOTE
THROUGH OUR WEB SITE, JUST FOLLOW THE SIMPLE INSTRUCTIONS THAT APPEAR ON THE
ENCLOSED PROXY INSERT. A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED
FOR YOUR CONVENIENCE. PLEASE HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW-UP
MAILING BY VOTING TODAY!
Your Fund is using Shareholder Communications Corporation ("SCC"), a
professional proxy solicitation firm, to assist shareholders in the voting
process. As the date of the special meeting approaches, if we have not yet
received your vote, you may receive a telephone call from SCC reminding you to
exercise your right to vote.
Please take a few moments to review the details of each proposal. If you have
any questions regarding the combined prospectus/proxy statement, please feel
free to call the contact number listed in the enclosed prospectus/proxy
statement.
We appreciate your participation and prompt response in these matters and thank
you for your continued support.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson, President
November 8, 2000
[Job Code]
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
DECEMBER 19, 2000
LIBERTY FUNDS TRUST III
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
LIBERTY STRATEGIC BALANCED FUND
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of
the Liberty Strategic Balanced Fund will be held at 10:00 a.m. on Tuesday,
December 19, 2000, at the offices of Colonial Management Associates, Inc., the
Liberty Strategic Balanced Fund's advisor, One Financial Center, Boston,
Massachusetts 02111 for these purposes:
1. To approve an Agreement and Plan of Reorganization providing
for the sale of all of the assets of the Liberty Strategic
Balanced Fund to, and the assumption of all of the liabilities
of the Liberty Strategic Balanced Fund by, The Liberty Fund in
exchange for shares of The Liberty Fund and the distribution
of such shares to the shareholders of the Liberty Strategic
Balanced Fund in complete liquidation of the Liberty Strategic
Balanced Fund.
2. To elect eleven Trustees.
3. To consider and act upon any other matters that properly come
before the meeting and any adjourned session of the meeting.
Shareholders of record at the close of business on September 29, 2000
are entitled to notice of and to vote at the meeting and any adjourned session.
By order of the Board of Trustees,
William J. Ballou, Assistant Secretary
November 8, 2000
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU
CAN VOTE EASILY AND QUICKLY AT OUR WEB SITE, BY PHONE, BY MAIL, BY FAX
(NOT AVAILABLE FOR ALL SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT) OR
IN PERSON. TO VOTE THROUGH OUR WEB SITE, JUST FOLLOW THE SIMPLE
INSTRUCTIONS THAT APPEAR ON THE ENCLOSED PROXY INSERT. PLEASE HELP THE
LIBERTY STRATEGIC BALANCED FUND AVOID THE EXPENSE OF A FOLLOW-UP
MAILING BY VOTING TODAY!
<PAGE>
COMBINED PROSPECTUS AND PROXY STATEMENT
NOVEMBER 8, 2000
ACQUISITION OF THE ASSETS AND LIABILITIES OF
LIBERTY STRATEGIC BALANCED FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111
1-800-426-3750
BY AND IN EXCHANGE FOR SHARES OF
THE LIBERTY FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111
1-800-426-3750
TABLE OF CONTENTS
Synopsis........................................................................
Proposal 1 - Acquisition of the Liberty Strategic Balanced Fund by
The Liberty Fund...................................................
Principal Investment Risks...................................................
Information about the Acquisition............................................
Proposal 2 - Election of Trustees...............................................
General.........................................................................
Voting Information...........................................................
Appendix A - Agreement and Plan of Reorganization...............................
Appendix B - Fund Information...................................................
Appendix C - Capitalization ....................................................
Appendix D - Management's Discussion of Fund Performance for The Liberty Fund...
This combined Prospectus/Proxy Statement contains information you
should know before voting on the proposed acquisition of the Liberty Strategic
Balanced Fund (the "Strategic Fund") by The Liberty Fund (the "Liberty Fund") or
voting on the other proposals to be considered at a Special Meeting of
Shareholders of the Strategic Fund (the "Meeting"), which will be held at 10:00
a.m. Eastern Time on December 19, 2000 at the offices of Colonial Management
Associates, Inc. ("Colonial"), One Financial Center, Boston, Massachusetts,
02111. Please read this Prospectus/Proxy Statement and keep it for future
reference.
Proposal 1 in this Prospectus/Proxy Statement relates to the proposed
acquisition of the Strategic Fund by the Liberty Fund (the "Acquisition"). If
the Acquisition occurs, you will become a shareholder of the Liberty Fund. The
Liberty Fund seeks
<PAGE>
primarily income and capital growth and, secondarily, capital preservation. If
the Agreement and Plan of Reorganization is approved by the shareholders of the
Strategic Fund and the Acquisition occurs, the Strategic Fund will transfer all
of the assets and liabilities attributable to each class of its shares to the
Liberty Fund in exchange for shares of the same class with the same aggregate
net asset value as the assets and liabilities transferred. After that exchange,
shares of each class received by the Strategic Fund will be distributed pro rata
to its shareholders of the same class.
Proposal 2 in this Prospectus/Proxy Statement relates to the election
of Trustees of Liberty Funds Trust III ("Trust III"), of which the Strategic
Fund is a series.
Please review the enclosed Prospectuses of the Liberty Fund. These
documents are incorporated in this Prospectus/Proxy Statement by reference. The
following documents have also been filed with the Securities and Exchange
Commission (the "SEC") and are incorporated in this Prospectus/Proxy Statement
by reference:
- The Prospectus of the Strategic Fund dated March 1, 2000, as
supplemented on June 23, 2000 and August 1, 2000.
- The Statement of Additional Information of the Strategic Fund
dated March 1, 2000, as supplemented on June 23, 2000 and
August 21, 2000.
- The Statement of Additional Information of the Liberty Fund
dated March 1, 2000, as supplemented on June 23, 2000 and
August 21, 2000.
- The Report of Independent Accountants and financial statements
included in the Annual Report to Shareholders of the Strategic
Fund dated October 31, 1999.
- The financial statements included in the Strategic Fund's
Semi-Annual Report to Shareholders dated April 30, 2000.
- The Statement of Additional Information of the Liberty Fund
dated November 8, 2000 relating to the Acquisition.
The Strategic Fund has previously sent its Annual and Semi-Annual
Reports to its shareholders. For a free copy of these Reports or any of the
documents listed above, please call 1-800-426-3750 or write to your Fund at the
address listed on the cover of this Prospectus/Proxy Statement. You may also
obtain many of these documents by accessing our web site at
www.libertyfunds.com. Our hearing impaired shareholders may call Liberty Funds
Services, Inc. at 1-800-528-6979 if you have special TTD equipment. Text-only
versions of all the Strategic Fund and Liberty Fund documents can be viewed
online or downloaded from the Edgar database on the SEC's internet site at
www.sec.gov. You can review and copy information about the Funds by visiting the
following location, and you can obtain copies, upon payment of a duplicating
fee, by writing the Public Reference Room, U.S. Securities and Exchange
Commission, Washington, DC 20549-0102. Information on the operation of the
Public Reference Room may be obtained by calling 202-942-8090.
-2-
<PAGE>
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF THE LIBERTY FUND
OR DETERMINED WHETHER THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-3-
<PAGE>
SYNOPSIS
THE FOLLOWING QUESTIONS AND RESPONSES PROVIDE AN OVERVIEW OF KEY
FEATURES OF THE ACQUISITION AND OF THE OTHER MATTERS TO BE CONSIDERED
AT THE MEETING AND OF THE INFORMATION CONTAINED IN THIS COMBINED
PROSPECTUS/PROXY STATEMENT. PLEASE REVIEW THE FULL PROSPECTUS/PROXY
STATEMENT PRIOR TO CASTING YOUR VOTE, AS THIS SECTION IS ONLY A
SYNOPSIS OF THE COMPLETE DOCUMENT.
1. WHAT IS BEING PROPOSED?
First, the Trustees of each of the Funds are recommending in Proposal 1
that the Liberty Fund acquire the Strategic Fund. This means that the
Liberty Fund would acquire all of the assets and liabilities of the
Strategic Fund in exchange for shares of the Liberty Fund representing
the aggregate net asset value of the Strategic Fund's assets and
liabilities. If Proposal 1 is approved, you will receive shares of the
Liberty Fund with an aggregate net asset value equal to the aggregate
net asset value of your Strategic Fund shares as of the day before the
closing of the Acquisition. The Acquisition is currently scheduled to
take place on or around January 29, 2001.
In addition, the Trustees of the Strategic Fund are recommending in
Proposal 2 that you vote in favor of eleven nominees for Trustees.
2. WHY IS THE ACQUISITION BEING PROPOSED?
The Trustees of the Strategic Fund recommend approval of the
Acquisition because it offers shareholders of the Fund an investment in
a fund with similar investment goals and the economies of scale of a
larger fund including a reduction in the fees and expenses of the
Strategic Fund. In reviewing the Acquisition, the Trustees also
considered:
o that it is unlikely the Strategic Fund will achieve scale
through sales growth;
o the ability of the Funds' investment advisor to create a more
focused value-style investment management team; and
o the tax-free nature of the Acquisition as opposed to other
alternatives for the Fund and for shareholders.
Please review "Reasons for the Acquisition" in Proposal 1 of this
Prospectus/Proxy Statement for a full description of the factors
considered by the Trustees.
3. WHAT CLASS OF SHARES WILL YOU RECEIVE IN THE LIBERTY FUND IF THE ACQUISITION
OCCURS?
You will receive the same class of shares that you currently own in the
Strategic Fund. The shares will have the same exchange rights and will
bear the same
-4-
<PAGE>
contingent deferred sales charges ("CDSCs"), if applicable, as your current
shares.
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE STRATEGIC
FUND AND THE LIBERTY FUND COMPARE?
This table shows the investment goals and primary investment strategies
of each Fund:
THE STRATEGIC FUND THE LIBERTY FUND
INVESTMENT GOALS: The Strategic INVESTMENT GOALS: The Liberty
Fund seeks both current income Fund seeks primarily income and
and long-term growth, consistent capital growth and, secondarily,
with prudent risk. capital preservation.
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Strategic Fund seeks to The Liberty Fund seeks to achieve
achieve its goals as follows: its goals as follows:
- The Fund invests at least 25% - The Fund invests in both stocks
of total assets in debt and bonds.
securities and at least 40% in - The Fund invests at least 25%
equity securities. The Fund of total assets in bonds or other
will invest in both U.S. and fixed income securities (which
foreign issuers. consist primarily of U.S.
- The Fund utilizes futures and government and investment-
options. grade bonds).
- The Fund uses a "value"
investment approach for its
stock holdings.
The investment policies of the Strategic Fund and the Liberty
Fund are substantially similar. After the Acquisition, the Liberty Fund
expects to change its investment strategies so that it may invest in
foreign securities and in futures and options.
5. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE AND WHAT
ARE THEY ESTIMATED TO BE FOLLOWING THE ACQUISITION?
The following tables allow you to compare the sales charges, if
applicable, and management fees and expenses of the Strategic Fund and
the Liberty Fund and to analyze the estimated expenses that Colonial
expects the combined fund to bear in the first year following the
Acquisition. Sales charges are paid directly by shareholders to Liberty
Funds Distributor, Inc., each Fund's distributor. Annual Fund Operating
Expenses are deducted from the Fund. They include management fees,
12b-1 fees (if applicable) and administrative costs, including pricing
and custody services. The Annual Fund Operating Expenses shown in the
table below represent expenses incurred by each Fund for its last
fiscal year ended October 31, 1999.
-5-
<PAGE>
SHAREHOLDER FEES(1)
(paid directly from your investment)
<TABLE>
<CAPTION>
STRATEGIC FUND LIBERTY FUND
-------------- ------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load) on
purchases (%) (as a percentage
of the offering price) 4.75 0.00 0.00 5.75 0.00 0.00 0.00
Maximum deferred sales charge
(load) on redemptions (%) (as a
percentage of the lesser of
purchase price or redemption
price) 1.00(2) 5.00 1.00 1.00(2) 5.00 1.00 0.00
Redemption fee (%) (as a
percentage of amount redeemed,
if applicable) (3) (3) (3) (3) (3) (3) (3)
</TABLE>
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial
sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES
(deducted directly from Fund assets)
<TABLE>
<CAPTION>
STRATEGIC FUND LIBERTY FUND
-------------- ------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B C A B C Z
<S> <C> <C> <C> <C> <C> <C> <C>
Management fee (%) 0.70 0.70 0.70 0.53 0.53 0.53 0.53
Distribution and service (12b-1)
fees(4) (%) 0.35(5) 1.00 1.00 0.25 1.00 1.00 0.00
Other expenses (%) 0.47 0.47 0.47 0.35 0.35 0.35 0.35
Total annual fund operating
expenses (%) 1.52(5) 2.17 2.17 1.13 1.88 1.88 0.88
</TABLE>
<TABLE>
<CAPTION>
LIBERTY FUND (PRO FORMA COMBINED)
CLASS CLASS CLASS CLASS
A B C Z
<S> <C> <C> <C> <C>
Management fee (%) 0.53 0.53 0.53 0.53
Distribution and service (12b-1)
fees (%)(4) 0.24 0.99 0.99 0.00
Other expenses (%) 0.29 0.29 0.29 0.29
Total annual fund operating
expenses (%) 1.06 1.81 1.81 0.82
</TABLE>
(4) For the Liberty Fund, the annual service fee portion of the 12b-1 fee may
equal up to 0.15% on net assets attributable to shares issued prior to
April 1, 1989 and 0.25% on net assets attributable to shares issued
thereafter. This arrangement results in a blend between the 0.15% and 0.25%
rates.
(5) The Strategic Fund's distributor has voluntarily agreed to waive a portion
of the 12b-1 fee for Class A shares. As a result, the actual 12b-1 fee for
Class A shares would be 0.30% and the total annual fund operating expenses
for Class A shares would be 1.47%. This arrangement may be modified or
terminated by the distributor at any time.
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in the Strategic Fund
and the Liberty Fund currently with the cost of investing in the combined fund
on a pro forma basis and also allows you to compare this with the cost of
investing in other mutual funds. The table does not take into account any
expense reduction arrangements
-6-
<PAGE>
discussed in the footnotes to the Annual Fund Operating Expenses table. It uses
the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Each Fund's operating expenses remain the same
- Assumes reinvestment of all dividends and distributions
- Assumes Class B shares convert to Class A shares after eight
years
EXAMPLE EXPENSES
(your actual costs may be higher or lower)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
STRATEGIC FUND
Class A $622 $932 $1,265 $2,201
Class B: did not sell your shares $220 $679 $1,164 $2,339
sold all your
shares at end of period $720 $979 $1,364 $2,339
Class C: did not sell your shares $220 $679 $1,164 $2,503
sold all your
shares at end of period $320 $679 $1,164 $2,503
LIBERTY FUND
Class A $683 $911 $1,156 $1,871
Class B: did not sell your shares $190 $588 $1,011 $2,005
sold all your
shares at end of period $690 $888 $1,211 $2,005
Class C: did not sell your shares $190 $588 $1,011 $2,201
sold all your
shares at end of period $290 $588 $1,011 $2,201
Class Z $ 90 $281 $ 488 $1,084
LIBERTY FUND
(pro forma combined)
Class A $677 $894 $1,128 $1,799
Class B: did not sell your shares $184 $571 $ 982 $1,934
sold all your
shares at end of period $684 $871 $1,182 $1,934
Class C: did not sell your shares $184 $571 $ 982 $2,131
sold all your
shares at end of period $284 $571 $ 982 $2,131
Class Z $ 84 $263 $ 457 $1,018
</TABLE>
-7-
<PAGE>
Significant assumptions underlying the pro forma Annual Fund Operating Expenses
and Example Expenses are as follows: (1) the current contractual agreements will
remain in place; (2) certain fixed costs involved in operating the Strategic
Fund are eliminated; and (3) expenses ratios are based on pro forma combined
average net assets for the period ended July 31, 2000.
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION?
The Acquisition is expected to be tax free to you for federal income
tax purposes. This means that no gain or loss will be recognized by the
Strategic Fund or its shareholders as a result of the Acquisition.
The cost basis and holding period of your Strategic Fund shares are
expected to carry over to your new shares in the Liberty Fund.
PROPOSAL 1 - ACQUISITION OF THE LIBERTY STRATEGIC BALANCED FUND BY THE LIBERTY
FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of Agreement and Plan of Reorganization is
attached as Appendix A to the Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Strategic Fund by the Liberty Fund under the Agreement and Plan of
Reorganization.
PRINCIPAL INVESTMENT RISKS
WHAT ARE THE PRINCIPAL INVESTMENT RISKS OF THE LIBERTY FUND, AND HOW DO THEY
COMPARE WITH THE STRATEGIC FUND?
Because the Funds have similar goals and strategies, the potential
risks associated with each Fund are similar. The actual risks of investing in
each Fund depend on the securities held in each Fund's portfolio and on market
conditions, both of which change over time. Please see the enclosed Prospectuses
of the Liberty Fund for a description of the principal investment risks of the
Fund.
INFORMATION ABOUT THE ACQUISITION
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
If approved by the shareholders of the Strategic Fund, the Acquisition
is expected to occur on or around January 29, 2001, under the Agreement and Plan
of Reorganization attached as Appendix A to this combined Prospectus/Proxy
Statement.
-8-
<PAGE>
Please review Appendix A. The following is a brief summary of the principal
terms of the Agreement and Plan of Reorganization:
- The Strategic Fund will transfer all of the assets and
liabilities attributable to each class of shares of the
Strategic Fund to the Liberty Fund in exchange for shares of
the same class of the Liberty Fund with an aggregate net asset
value equal to the net value of the transferred assets and
liabilities.
- The Acquisition will occur on the next business day after the
time (currently scheduled to be 4:00 p.m. Eastern Time on
January 26, 2001 or such other date and time as the parties
may determine) when the assets of each Fund are valued for
purposes of the Acquisition (the "Valuation Date").
- The shares of each class of the Liberty Fund received by the
Strategic Fund will be distributed to the shareholders of the
same class of the Strategic Fund pro rata in accordance with
their percentage ownership of each class of the Strategic Fund
in full liquidation of the Strategic Fund.
- After the Acquisition, the Strategic Fund will be terminated,
and its affairs will be wound up in an orderly fashion.
- The Acquisition requires approval by the Strategic Fund's
shareholders and satisfaction of a number of other conditions;
the Acquisition may be terminated at any time with the
approval of the Trustees of both Funds.
A shareholder who objects to the Acquisition will not be entitled under
Massachusetts law or the Declaration of Trust (the "Declaration") to demand
payment for, or an appraisal of, his or her shares. However, shareholders should
be aware that the Acquisition as proposed is not expected to result in
recognition of gain or loss to shareholders for federal income tax purposes and
that, if the Acquisition is consummated, shareholders will be free to redeem the
shares which they receive in the transaction at their then-current net asset
value. In addition, shares may be redeemed at any time prior to the consummation
of the Acquisition.
SHARES YOU WILL RECEIVE
If the Acquisition occurs, you will receive shares in the Liberty Fund
of the same class as the shares that you currently own in the Strategic Fund. In
comparison to the shares you currently own, the shares you receive will have the
following characteristics:
- They will have an aggregate net asset value equal to the
aggregate net asset value of your current shares as of the
business day before the closing of the Acquisition.
-9-
<PAGE>
- If applicable, your Liberty Fund shares will bear the same
sales charges, redemption fees and CDSCs as your current
shares, but for purposes of determining the CDSC applicable to
any redemption, the new shares will continue to age from the
date you purchased your Strategic Fund shares.
- The procedures for purchasing and redeeming your shares will
not change as a result of the Acquisition.
- You will have the same exchange options as you currently have.
- You will have the same voting rights as you currently have,
but as a shareholder of the Liberty Fund.
REASONS FOR THE ACQUISITION
The Trustees of Trust III, including all Trustees who are not
"interested persons" of the Trust, have determined that the Acquisition would be
in the best interests of each Fund's shareholders. The Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the Agreement and Plan of Reorganization attached as Appendix A to
this Prospectus/Proxy Statement.
The Acquisition is one of several proposed acquisitions and
liquidations of funds in the Liberty and Stein Roe Fund groups proposed by
Liberty Financial Companies, Inc. ("Liberty Financial"), the indirect parent of
each of the investment advisors to the Liberty and Stein Roe Funds. The overall
purposes of these acquisitions and liquidations include streamlining and
rationalizing the product offerings of the Liberty and Stein Roe Funds, reducing
fund expense ratios by creating larger, more efficient funds and permitting the
Liberty Financial organization to focus its portfolio management resources on a
more focused group of portfolios.
In proposing the Acquisition, Liberty Financial presented to the
Trustees the following reasons for the Strategic Fund to enter into the
Acquisition:
- The Acquisition is expected to create a larger fund with similar
investment goals and strategies to the Strategic Fund, but with lower
operating expenses as a percentage of fund assets. This expense ratio
reduction would benefit Strategic Fund shareholders, since operating
expenses are paid by the fund and reduce the investment return to fund
shareholders. Although, as explained below, it is not possible to
predict future expense ratios with certainty, information provided to
the Trustees by Liberty Financial indicated that, based on the assets
of the Strategic and Liberty Funds on July 31, 2000 and the Funds'
current expense structures, the Liberty Fund's annualized expense ratio
(excluding 12b-1 fees) immediately after the Acquisition would be about
0.33% lower than the Strategic Fund's current expense ratio (for
example, for Class A shares, a 0.82% expense ratio for the Liberty
Fund, as compared to 1.14% currently for
-10-
<PAGE>
the Strategic Fund). Note that the 12b-1 fees on Classes A, B and C of
the Strategic Fund are 0.35%, 1.00%, and 1.00%, respectively. The 12b-1
fee on Classes A, B and C of the Liberty Fund are 0.24%, 0.99%, and
0.99%, respectively.
- The Strategic Fund is not likely to achieve the scale necessary to
reduce Fund expenses through sales growth. In this connection,
Liberty Financial indicated to the Trustees that it was not willing to
continue subsidizing the Fund's operations (through fee waiver or
expense reimbursements) over the long term.
- The Acquisition will also permit a more focused value-style investment
management team to concentrate its efforts on a single value equity
approach rather than manage multiple portfolios with somewhat different
investment approaches.
- The Acquisition is intended to permit the Strategic Fund's shareholders
to exchange their investment for an investment in the Liberty Fund
without recognizing gain or loss for federal income tax purposes. By
contrast, if a Strategic Fund shareholder redeemed his or her shares to
invest in another fund, like the Liberty Fund, the transaction would
likely be a taxable event for such shareholder. Similarly, if the
Strategic Fund were liquidated or reorganized in a taxable transaction,
the transaction would likely be a taxable event for the Fund's
shareholders. After the Acquisition, shareholders may redeem any or all
of their Liberty Fund shares at net asset value (subject to any
applicable CDSC) at any time, at which point they would recognize a
taxable gain or loss.
The projected post-Acquisition expense reductions presented above are
based upon numerous material assumptions, including that: (1) the current
contractual agreements will remain in place; and (2) certain fixed costs
involved in operating the Strategic Fund are eliminated. Although these
projections represent good faith estimates, there can be no assurance that any
particular level of expenses or expense savings will be achieved, because
expenses depend on a variety of factors, including the future level of fund
assets, many of which factors are beyond the control of the Liberty Fund or
Liberty Financial.
In addition, the Trustees considered the relative Fund performance
results which are based on the factors and assumptions set forth below under
Performance Information. No assurance can be given that the Liberty Fund will
achieve any particular level of performance after the Acquisition.
-11-
<PAGE>
INFORMATION ABOUT PROPOSED NEW SUB-ADVISOR
Subject to the approval of the existing shareholders of the Liberty
Fund, which will be sought in a separate proxy statement, Colonial will enter
into a sub-advisory agreement with Unibank Securities, Inc., an SEC-registered
investment advisor that does business in the U.S. as Unibank Investment
Management ("Unibank"). The sub-advisory agreement will take effect on or about
the date of the Acquisition.
Under the sub-advisory agreement, Unibank will manage a portion of the
assets of the Liberty Fund, as determined by Colonial, purchase and sell
securities and other investments on behalf of the Liberty Fund, and report
results to the Board of Trustees of Trust III. It is expected that Unibank will
manage large capitalization, non-U.S. equity securities for the Liberty Fund.
For the services to be rendered by Unibank under the sub-advisory agreement,
Colonial will pay Unibank a monthly fee at an annual rate of 0.40% of the
average daily net asset value of the portion of the Liberty Fund's assets
managed by Unibank. Any liability of Unibank to Trust III, the Liberty Fund
and/or its shareholders is limited to situations involving Unibank's own willful
misfeasance, bad faith or gross negligence in the performance of its duties.
The sub-advisory agreement will continue in effect for an initial term
of two years from its date of execution and thereafter so long as it is approved
annually in accordance with the Investment Company Act of 1940, as amended
("1940 Act"). The sub-advisory agreement may be terminated at any time without
penalty on sixty days' written notice to Unibank by vote of the Board of
Trustees of Trust III, by vote of a majority of the outstanding voting
securities of the Liberty Fund, or by Colonial, and by Unibank on ninety days'
written notice to Colonial and Trust III. The sub-advisory agreement also will
terminate automatically in the event of its assignment or in the event that the
management agreement between Trust III, on behalf of the Liberty Fund, and
Colonial is terminated for any reason. The sub-advisory agreement may be amended
only in accordance with the 1940 Act.
-12-
<PAGE>
Unibank, which is located at 13-15 West 54th Street, New York, New
York, 10019, offers investment management services to institutional clients,
including private and public retirement funds, unions, endowments, foundations,
and insurance companies, as well as to mutual fund sponsors on a sub-advisory
basis. Unibank often structures portfolios to meet benchmarks established by the
client, or tailored to standard Morgan Stanley Capital International ("MSCI")
benchmarks such as the MSCI EAFE Index, which is an index that includes stocks
from Europe, Australia and the Far East and is commonly used as a measure of
international stock performance. Unibank is an indirect wholly owned subsidiary
of Unibank A/S, which in turn is a direct wholly owned subsidiary of Unidanmark
A/S, which in turn is a direct wholly owned subsidiary of Nordic Baltic Holding.
Unibank A/S is located at Torvegade 2 DK-1786 Copenhagen V., Denmark. Unidanmark
A/S is located at Strandgrade 3 DK-1786 Copenhagen V., Denmark. Nordic Baltic
Holding is located at Hamngatan 10, SE-105 71 Stockholm, Sweden.
PERFORMANCE INFORMATION
The charts below show the percentage gain or loss in each calendar year
for the 10-year period ending December 31, 1999 or, if shorter, since inception,
for the Class A shares of the Liberty Fund and the Class A shares of the
Strategic Fund. They should give you a general idea of how each Fund's return
has varied from year to year. The graphs include the effects of Fund expenses,
but not sales charges (if applicable to the Fund's shares). Returns would be
lower if any applicable sales charges were included. The calculations of total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment date. Past performance is not an indication of future
results. Performance results include the effect of expense reduction
arrangements, if any. If these arrangements were not in place, then the
performance results would have been lower. Any expense reduction arrangements
may be discontinued at any time.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, which are incorporated by reference in this Prospectus/Proxy
Statement.
STRATEGIC FUND
<TABLE>
<CAPTION>
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
1995 1996 1997 1998 1999
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
30%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
27.40%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
25%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
20%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
15.68% 15.51%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
15%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
14.64%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
10%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
5.13%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
5%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
0%
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>
-13-
<PAGE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 2.04%. Best quarter: Fourth quarter 1998, +12.01%
Worst quarter: Third quarter 1998, -6.99%
</TABLE>
LIBERTY FUND
<TABLE>
<CAPTION>
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
30%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
26.13% 28.60% 26.05%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
25%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
20%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
16.77% 13.13%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
15%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
12.96% 14.46%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
10%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
8.70%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
5%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
0%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-2.10%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-5%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-7.50%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
-10%
----------- --------- --------- --------- --------- -------- --------- --------- --------- --------- --------
</TABLE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 2.67%. Best quarter: Second quarter 1997, +15.60%
Worst quarter: Third quarter 1990, -11.99%
</TABLE>
The next table lists each Fund's average annual total return for each
class of its shares for the one-year, five-year and ten-year periods ending
December 31, 1999, or for the life of the Fund through December 31, 1999 if
shorter, as the case may be, including the applicable sales charges. This table
is intended to provide you with some indication of the risks of investing in the
Funds. At the bottom of each table, you can compare the Funds' performance with
one or more indices or averages.
STRATEGIC FUND*
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS LIFE OF FUND
<S> <C> <C> <C> <C> <C>
Class A (%) 9/19/94 0.14 14.34 N/A 12.82
----------------------------- --------------- -------------- ------------- --------------- ------------------
Class B (%) 9/19/94 (0.10) 14.67 N/A 13.19
----------------------------- --------------- -------------- ------------- --------------- ------------------
Class C (%) 9/19/94 3.52 14.89 N/A 13.31
----------------------------- --------------- -------------- ------------- --------------- ------------------
S&P 500 Index (%) N/A 21.03 28.54 N/A 27.01(1)
----------------------------- --------------- -------------- ------------- --------------- ------------------
Lehman Index (%) N/A (2.15) 7.61 N/A 7.31(1)
----------------------------- --------------- -------------- ------------- --------------- ------------------
Lipper Average (%) N/A 8.98 16.33 N/A 15.25(1)
</TABLE>
LIBERTY FUND+
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 2.45 17.01 12.47
----------------------------- -------------- -------------- --------------
Class B (%) 3.20 17.33 12.50(2)
----------------------------- -------------- -------------- --------------
Class C (%) 7.05 17.99(2) 12.94(2)
----------------------------- -------------- -------------- --------------
Class Z (%) 13.72 19.67(2) 13.74(2)
----------------------------- -------------- -------------- --------------
Russell Index (%) 20.91 28.04(2) 18.13(2)
</TABLE>
-14-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
----------------------------- ------------- -------------- -------------- -------------- -------------------
S&P Mid-Cap Index (%) N/A 14.72 23.05 17.32
----------------------------- ------------- -------------- -------------- -------------- -------------------
Lipper Average (%) N/A 8.98 16.33 12.26
</TABLE>
* The Strategic Fund's return is compared to the Standard & Poor's 500 Index
("S&P 500 Index"), an unmanaged index that tracks the performance of U.S.
stock market securities, and the Lehman Government/Corporate Bond Index
("Lehman Index"), an unmanaged index that tracks the performance of U.S.
government and U.S. corporate bonds. Unlike the Fund, indices are not
investments, do not incur fees or expenses and are not professionally
managed. It is not possible to invest directly in indices. The Strategic
Fund's return is also compared to the average return of the funds included
in the Lipper Balanced Funds category average ("Lipper Average"). This
Lipper Average, which is calculated by Lipper, Inc., is composed of funds
with similar investment objectives to the Fund. Sales charges are not
reflected in the Lipper Average.
+ The Liberty Fund's return is compared to the Russell 1000 Index ("Russell
Index"), an unmanaged index that tracks the performance of large
capitalization stocks traded on the New York Stock Exchange, the American
Stock Exchange and NASDAQ. The Liberty Fund's return was compared formerly
to the Standard & Poor's Midcap 400 Index ("S&P Mid-Cap Index"), an
unmanaged index that tracks the performance of middle-capitalization U.S.
stocks. In the past, the Fund had a medium market capitalization and used
the S&P Mid-Cap Index as an appropriate benchmark. However, the Liberty
Fund's current market capitalization more closely resembles a large
capitalization fund. Therefore, the Liberty Fund is changing its benchmark
to the Russell Index. Unlike the Liberty Fund, indices are not investments,
do not incur fees or expenses and are not professionally managed. It is not
possible to invest directly in indices. The Liberty Fund's return is also
compared to the average return of the funds included in the Lipper Balanced
Fund category average ("Lipper Average"). This Lipper Average, which is
calculated by Lipper, Inc., is composed of funds with similar investment
objectives to the Fund. Sales charges are not reflected in the Lipper
Average.
(1) Performance information is from September 30, 1994.
(2) Class B, Class C and Class Z are newer classes of shares. Their performance
information includes returns of the Liberty Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. The Class A share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class A
shares and the newer classes of shares. If differences in expenses were
reflected, the returns for periods prior to the inception of Class B and
Class C shares would be lower and Class Z shares would be higher. Class A
shares were initially offered on April 30, 1982, Class B shares were
initially offered on May 5, 1992, Class C shares were initially offered on
August 1, 1997 and Class Z shares were initially offered on July 28, 1995.
FEDERAL INCOME TAX CONSEQUENCES
The Acquisition is intended to be a tax-free reorganization. The
closing of the Acquisition will be conditioned on receipt of an opinion from
Ropes & Gray to the effect that, on the basis of existing law under specified
sections of the Internal Revenue Code of 1986, as amended (the "Code"), for
federal income tax purposes:
- under Section 361 or Section 354 of the Code, respectively, no
gain or loss will be recognized by the Strategic Fund or the
shareholders of the Strategic Fund as a result of the
Acquisition;
- under Section 358 of the Code, the tax basis of the Liberty
Fund shares you receive will be the same, in the aggregate, as
the aggregate tax basis of your Strategic Fund shares;
-15-
<PAGE>
- under Section 1223(1) of the Code, your holding period for the
Liberty Fund shares you receive will include the holding
period for your Strategic Fund shares if you hold Strategic
Fund shares as a capital asset;
- under Section 1032 of the Code, no gain or loss will be
recognized by the Liberty Fund as a result of the Acquisition;
- under Section 362(b) of the Code, the Liberty Fund's tax basis
in the assets that the Liberty Fund receives from the
Strategic Fund will be the same as the Strategic Fund's basis
in such assets; and
- under Section 1223(2) of the Code, the Liberty Fund's holding
period in such assets will include the Strategic Fund's
holding period in such assets.
The opinion will be based on certain factual certifications made by
officers of Trust III. The opinion is not a guarantee that the tax consequences
of the Acquisition will be as described above. Prior to the closing of the
Acquisition, the Strategic Fund and the Liberty Fund will each distribute to
their shareholders all of their respective investment company taxable income and
net realized capital gains which have not previously been distributed to
shareholders. Such distributions will be taxable to the Strategic Fund's
shareholders.
This description of the federal income tax consequences of the
Acquisition does not take into account your particular facts and circumstances.
Consult your own tax advisor about the effect of state, local, foreign, and
other tax laws.
THE TRUSTEES OF THE STRATEGIC FUND UNANIMOUSLY RECOMMEND APPROVAL OF THE
AGREEMENT AND PLAN OF REORGANIZATION.
The Declaration establishing Trust III provides that any series of
Trust III (such as the Strategic Fund) may be terminated by a two-thirds vote of
the series' shares or by notice from the Trustees to the shareholders. The Trust
believes that, under this provision, no shareholder vote is required to approve
the Acquisition, although the provision could also be interpreted to require a
two-thirds vote, if the Acquisition is submitted for shareholder approval. The
Declaration also provides that it may be amended by the Trustees, upon majority
vote of the shareholders of the affected series. To eliminate any uncertainty
about whether any shareholder vote is required to approve the Acquisition, the
Trustees will consider any vote in favor of the Acquisition to be a vote in
favor of amending the Declaration to provide that the Strategic Fund may be
terminated by majority vote of the Strategic Fund's shares entitled to vote (or
by Trustee notice to shareholders), and will so amend the Declaration if a
majority of the Strategic Fund's shareholders entitled to vote on the proposal
vote in favor of such proposal.
REQUIRED VOTE FOR PROPOSAL 1
-16-
<PAGE>
Approval of the Agreement and Plan of Reorganization dated October 26,
2000 between Trust III on behalf of the Strategic Fund and Trust III on behalf
of the Liberty Fund will require the affirmative vote of a majority of the
shares of the Strategic Fund outstanding at the record date for the Meeting.
PROPOSAL 2 - ELECTION OF TRUSTEES
THE PROPOSAL
You are being asked to approve the election of four new members as well
as seven of the currently serving members of the Board of Trustees of Trust III,
of which the Strategic Fund is a series. All of the nominees listed below,
except for the proposed four new members (Ms. Kelly and Messrs. Hacker, Nelson
and Theobald), are currently members of the Board of Trustees of Trust III, as
well as nine Liberty closed-end funds and seven (or, in the case of Messrs.
Lowry, Mayer and Neuhauser, eight) other Liberty open-end trusts (collectively,
the "Liberty Mutual Funds"), and have served in that capacity continuously since
originally elected or appointed. All of the currently serving members, other
than Mr. Palombo, have been previously elected by the shareholders of Trust III.
The proposed four new members currently serve on the Board of Trustees of two
Stein Roe closed-end funds and seven Stein Roe open-end trusts, and were
recommended for election as Trustees of the Liberty Mutual Funds by the Board of
Trustees at a meeting held on October 25, 2000. Each of the nominees elected
will serve as a Trustee of Trust III until the next meeting of shareholders of
Trust III called for the purpose of electing a Board of Trustees, and until a
successor is elected and qualified or until death, retirement, resignation or
removal.
Currently, two different boards of trustees are responsible for
overseeing substantially all of the Liberty and Stein Roe Funds. Liberty
Financial and Trust III's Trustees have agreed that shareholder interests can
more effectively be represented by a single board with responsibility for
overseeing substantially all of the Liberty and Stein Roe Funds. Creation of a
single, consolidated board should also provide certain administrative
efficiencies and potential future cost savings for both the Liberty and Stein
Roe Funds and Liberty Financial. The nominees listed below will be the members
of the single, consolidated Board of Trustees. The persons named in the enclosed
proxy card intend to vote at the Meeting in favor of the election of the
nominees named below as Trustees of Trust III (if so instructed). If any nominee
listed below becomes unavailable for election, the enclosed proxy card may be
voted for a substitute nominee in the discretion of the proxy holder(s).
-17-
<PAGE>
INFORMATION ABOUT THE NOMINEES
Set forth below is information concerning each of the nominees.
<TABLE>
<CAPTION>
NOMINEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
Douglas A. Hacker Executive Vice President and Chief New nominee
(43) Financial Officer of UAL, Inc. (airline)
since July 1999; Senior Vice President and
Chief Financial Officer of UAL, Inc. prior
thereto.
Janet Langford Kelly Executive Vice President--Corporate New nominee
(41) Development, General Counsel, and
Secretary of Kellogg Company since
September 1999; Senior Vice President,
Secretary and General Counsel of Sara
Lee Corporation (branded, packaged,
consumer-products manufacturer) from
1995 to August 1999; partner at Sidley &
Austin (law firm) prior thereto.
Richard W. Lowry Private Investor since August 1987. 1995
(64) (Formerly Chairman and Chief Executive
Officer of U.S. Plywood Corporation
from August 1985 to August 1987.)
Salvatore Macera Private Investor. (Formerly Executive Vice 1998
(69) President and Director of Itek Corporation
(electronics) from 1975 to 1981.)
William E. Mayer(2) Partner, Park Avenue Equity Partners 1994
(60) (venture capital); Director, Johns
Manville; Director, Lee Enterprises;
Director, WR Hambrecht & Co. (Formerly
Dean, College of Business and Management,
University of Maryland, from October 1992
to November 1996.)
John J. Neuhauser Academic Vice President and Dean of 1985
(57) Faculties, Boston College, since August
1999. (Formerly Dean, Boston College
School of Management, from September
1977 to September 1999.)
Charles Nelson Van Voorhis Professor of Political Economy New nominee
(57) of the University of Washington.
</TABLE>
-18-
<PAGE>
<TABLE>
<S> <C> <C>
Joseph R. Palombo(3) Vice President of the Stein Roe Mutual 2000
(47) Funds since April 1999; Executive Vice
President and Director of Colonial
Management Associates, Inc. and Stein Roe
& Farnham Incorporated since April 1999;
Executive Vice President and Chief
Administrative Officer of Liberty Funds
Group LLC since April 1999. (Formerly
Chief Operating Officer, Putnam Mutual
Funds, from 1994 to 1998.)
Thomas E. Stitzel Business Consultant; Chartered Financial 1998
(64) Analyst. (Formerly Professor of Finance,
from 1975 to 1999, and Dean, from 1977 to
1991, College of Business, Boise State
University.)
Thomas C. Theobald Managing Director, William Blair Capital New nominee
(62) Partners (private equity investing) since
1994; Chief Executive Officer and
Chairman of the Board of Directors of
Continental Bank Corporation from 1987
to 1994.
Anne-Lee Verville Consultant. (Formerly General Manager, 1998
(54) Global Education Industry, from 1994 to
1997, and President, Applications
Solutions Division, IBM Corporation
(global education and global applications),
from 1991 to 1994.)
</TABLE>
----------
(1) Except as otherwise noted, each individual has held the office indicated
or other offices in the same company for the last five years.
(2) Mr. Mayer is not affiliated with Liberty Financial, but is an
"interested person," as defined in the 1940 Act, because of his
affiliation with WR Hambrecht & Co. (a registered broker-dealer).
(3) Mr. Palombo is an "interested person," as defined in the 1940 Act,
because of his affiliation with Liberty Financial.
TRUSTEES' COMPENSATION
The members of the Board of Trustees will serve as Trustees of the
Liberty and Stein Roe Funds, for which service each Trustee, except for Mr.
Palombo, will receive an annual retainer of $45,000, and attendance fees of
$8,000 for each regular joint meeting and $1,000 for each special joint meeting.
The Board of Trustees is expected to hold six regular joint meetings each year.
Committee chairs will receive an additional annual retainer of $5,000, and
receive $1,000 for each special meeting attended on a day other than a regular
joint meeting day. Committee members will receive an additional annual retainer
of $1,000, and receive $1,000 for each special meeting attended on a day other
than a regular joint meeting day. Two-thirds of the Trustees' fees are allocated
among the Liberty and Stein Roe Funds based on each Fund's relative net assets,
and one-third of the fees is divided equally among the Liberty and Stein Roe
Funds.
-19-
<PAGE>
The Liberty Mutual Funds do not currently provide pension or retirement
plan benefits to the Trustees. However, certain Trustees currently serving on
the Board of Trustees of the Liberty Trusts who are not continuing on the
combined Board of Trustees of the Liberty and Stein Roe Funds will receive
payments at an annual rate equal to their 1999 Trustee compensation for the
lesser of two years or until the date they would otherwise have retired at age
72. These payments will be made quarterly, beginning in 2001. Liberty Financial
and the Liberty Mutual Funds will each bear one-half of the cost of the
payments; the Liberty Mutual Funds' portion of the payments will be allocated
among the Liberty Mutual Funds based on each fund's share of the Trustee fees
for 2000.
Further information concerning the Trustees' compensation is included
in Appendix B.
MEETINGS AND CERTAIN COMMITTEES
Composition. The current Board of Trustees of the Liberty Mutual Funds
consists of two interested and nine non-interested Trustees. Mr. Mayer is not
affiliated with Liberty Financial or any of its affiliates, but is considered
interested as a result of his affiliation with a broker-dealer.
Audit Committee. The Audit Committee of the Liberty Mutual Funds,
consisting of Ms. Verville (Chairperson) and Messrs. Bleasdale, Grinnell, Lowry,
Macera and Moody, all of whom are non-interested Trustees, recommends to the
Board of Trustees the independent accountants to serve as auditors, reviews with
the independent accountants the results of the auditing engagement and internal
accounting procedures, and considers the independence of the independent
accountants, the range of their audit services and their fees.
Compensation Committee. The Compensation Committee of the Liberty
Mutual Funds, consisting of Messrs. Neuhauser (Chairman), Grinnell and Stitzel
and Ms. Collins, all of whom are non-interested Trustees, reviews compensation
of the Board of Trustees.
Governance Committee. The Governance Committee of the Liberty Mutual
Funds, consisting of Messrs. Bleasdale (Chairman), Lowry, Mayer and Moody and
Ms. Verville, all of whom are non-interested Trustees, except for Mr. Mayer
(Mr. Mayer is interested as a result of his affiliation with a broker-dealer,
but is not affiliated with Liberty Financial or any of its affiliates),
recommends to the Board of Trustees, among other things, nominees for trustee
and for appointments to various committees. The Committee will consider
candidates for trustee recommended by shareholders. Written recommendations with
supporting information should be directed to the Committee in care of the
Strategic Fund.
Record of Board and Committee Meetings. During the fiscal year ended
October 31, 2000, the Board of Trustees of Trust III (excluding Liberty Federal
Securities Fund which has a different fiscal year end) held six meetings, the
Audit Committee held four meetings, the Compensation Committee held one meeting,
and the Governance Committee held five meetings.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF TRUST III VOTE FOR
PROPOSAL 2.
-20-
<PAGE>
REQUIRED VOTE FOR PROPOSAL 2
A plurality of the votes cast at the Meeting, if a quorum is
represented, is required for the election of each Trustee to the Board of
Trustees of Trust III. Since the number of Trustees has been fixed at
eleven, this means that the eleven persons receiving the highest number of votes
will be elected.
GENERAL
VOTING INFORMATION
The Trustees of Trust III are soliciting proxies from the shareholders
of the Strategic Fund in connection with the Meeting, which has been called to
be held at 10:00 a.m. Eastern Time on December 19, 2000 at Colonial's offices,
One Financial Center, Boston, Massachusetts. The meeting notice, this combined
Prospectus/Proxy Statement and proxy cards are being mailed to shareholders
beginning on or about November 8, 2000.
INFORMATION ABOUT PROXIES AND THE CONDUCT OF THE MEETING
Solicitation of Proxies. Proxies will be solicited primarily by mailing
this combined Prospectus/Proxy Statement and its enclosures, but proxies may
also be solicited through further mailings, telephone calls, personal interviews
or e-mail by officers of the Strategic Fund or by employees or agents of
Colonial and its affiliated companies. In addition, SCC has been engaged to
assist in the solicitation of proxies, at an estimated cost of $700,000 total
for all of the proposed acquisitions of funds in the Liberty and Stein Roe Fund
groups scheduled to take place in January 2001.
VOTING PROCESS
You can vote in any one of the following five ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, by calling 1-800-732-3683 and following the
instructions;
c. By internet, by visiting our Web site at www.libertyfunds.com
and clicking on "Proxy Voting;"
d. By fax (not available for all shareholders; refer to enclosed
proxy insert); or
e. In person at the Meeting.
Shareholders who owned shares on the record date, September 29, 2000,
are entitled to vote at the Meeting. Shareholders are entitled to cast one vote
for each share owned on the record date. We encourage you to vote by internet,
using the 12-digit or 14-digit "control" number that appears on the enclosed
proxy card. Voting by internet will reduce expenses by saving postage costs. If
you choose to vote by mail or by fax, and you are an individual account owner,
please sign exactly as your name appears on the proxy card. Either owner of a
joint account may sign the proxy card, but the signer's name must exactly match
the name that appears on the card.
-21-
<PAGE>
Costs of Solicitation. The costs of the Meeting, including the costs of
soliciting proxies, and the costs of the Acquisition will be borne by the
following parties in the following percentages: the Liberty Fund __%, the
Strategic Fund __%, Liberty Financial __%.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy. If no instructions are given,
the proxy will be voted in favor of each Proposal. You can revoke your proxy by
sending a signed, written letter of revocation to the Assistant Secretary of the
Strategic Fund, by properly executing and submitting a later-dated proxy or by
attending the Meeting and voting in person.
Votes cast in person or by proxy at the Meeting will be counted by
persons appointed by the Strategic Fund as tellers for the Meeting (the
"Tellers"). Thirty percent (30%) of the shares of the Strategic Fund outstanding
on the record date, present in person or represented by proxy, constitutes a
quorum for the transaction of business by the shareholders of the Strategic Fund
at the Meeting. Shareholders of the Strategic Fund vote together with the
shareholders of the other series of Trust III for the election of Trustees;
thirty percent (30%) of the outstanding shares of Trust III constitutes a quorum
for voting on the election of Trustees. In determining whether a quorum is
present, the Tellers will count shares represented by proxies that reflect
abstentions and "broker non-votes" as shares that are present and entitled to
vote. Since these shares will be counted as present, but not as voting in favor
of any proposal, these shares will have the same effect as if they cast votes
against Proposal 1 and will have no effect on the outcome of Proposal 2. "Broker
non-votes" are shares held by brokers or nominees as to which (i) the broker or
nominee does not have discretionary voting power and (ii) the broker or nominee
has not received instructions from the beneficial owner or other person who is
entitled to instruct how the shares will be voted.
Advisor's and Distributor's Addresses. The address of each Fund's
investment advisor, Colonial Management Associates, Inc., is One Financial
Center, Boston, Massachusetts 02111. The address of each Fund's principal
underwriter, Liberty Funds Distributor, Inc., is One Financial Center, Boston,
Massachusetts 02111.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists for the Strategic Fund and Trust III the total
number of shares outstanding as of September 29, 2000 for each class of the
shares of the Fund and Trust III entitled to vote at the Meeting. It also lists
for the Liberty Fund the total number of shares outstanding as of September 29,
2000 for each class of the Fund's shares. It also identifies holders of more
than 5% or 25% of any class of shares of each Fund, and contains information
about the executive officers and Trustees of the Funds and their shareholdings
in the Funds.
Adjournments; Other Business. If the Strategic Fund has not received
enough votes by the time of the Meeting to approve any Proposal the persons
named as proxies may propose that the Meeting be adjourned one or more times to
permit further solicitation of proxies. Any adjournment requires the affirmative
vote of a majority of
-22-
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the total number of shares of the Strategic Fund that are present in person or
by proxy on the question when the adjournment is being voted on. The persons
named as proxies will vote in favor of any such adjournment all proxies that
they are entitled to vote in favor of the relevant Proposal (or in favor of any
nominee, in the case of Proposal 2). They will vote against any such adjournment
any proxy that directs them to vote against the Proposal (or against all
nominees, in the case of Proposal 2). They will not vote any proxy that directs
them to abstain from voting on the Proposal in question.
The Meeting has been called to transact any business that properly
comes before it. The only business that management of the Strategic Fund intends
to present or knows that others will present is Proposal 1 and Proposal 2. If
any other matters properly come before the Meeting, and on all matters
incidental to the conduct of the Meeting, the persons named as proxies intend to
vote the proxies in accordance with their judgment, unless the Assistant
Secretary of the Strategic Fund has previously received written contrary
instructions from the shareholder entitled to vote the shares.
Shareholder Proposals at Future Meetings. Trust III, of which the
Strategic Fund is a series, does not hold annual or other regular meetings of
shareholders. Shareholder proposals to be presented at any future meeting of
shareholders of the Fund or Trust III must be received by the Strategic Fund or
Trust III in writing a reasonable amount of time before the Trust solicits
proxies for that meeting, in order to be considered for inclusion in the proxy
materials for that meeting.
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Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 26, 2000
by and among Liberty Funds Trust III (the "Trust"), a Massachusetts business
trust established under a Declaration of Trust dated May 30, 1986, as amended,
on behalf of Liberty Strategic Balanced Fund (the "Acquired Fund"), a series of
the Trust, Liberty Funds Trust III (the "Acquiring Trust"), a Massachusetts
business trust established under a Declaration of Trust dated May 30, 1986, as
amended, on behalf of The Liberty Fund (the "Acquiring Fund"), a series of the
Acquiring Trust, and Liberty Financial Companies, Inc.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), and any
successor provision. The reorganization will consist of the transfer of all of
the assets of the Acquired Fund in exchange solely for Class A, B and C shares
of beneficial interest of the Acquiring Fund ("Acquiring Shares") and the
assumption by Acquiring Fund of the liabilities of the Acquired Fund (other than
certain expenses of the reorganization contemplated hereby) and the distribution
of such Acquiring Shares to the shareholders of the Acquired Fund in liquidation
of the Acquired Fund, all upon the terms and conditions set forth in this
Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION
OF LIABILITIES AND ACQUIRING SHARES AND LIQUIDATION OF
ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained
herein,
(a) The Trust, on behalf of the Acquired Fund, will
transfer and deliver to the Acquiring Fund, and the
Acquiring Fund will acquire, all the assets of the
Acquired Fund as set forth in paragraph 1.2.
(b) The Acquiring Fund will assume all of the Acquired
Fund's liabilities and obligations of any kind
whatsoever, whether absolute, accrued, contingent or
otherwise in existence on the Closing Date (as defined
in paragraph 1.2 hereof) (the "Obligations"), except
that expenses of reorganization contemplated hereby to
be paid by the Acquired Fund pursuant to paragraphs 1.5
and 9.2 shall not be assumed or paid by the Acquiring
Fund, and
(c) The Acquiring Fund will issue and deliver to the
Acquired Fund in exchange for such assets the number of
Acquiring Shares (including fractional shares, if any)
determined by dividing the net asset value of the
Acquired Fund, computed in the manner and as of the
time and date set forth in paragraph 2.1, by the net
asset value of one Acquiring Share, computed in the
manner and as of the time and date set forth in
paragraph 2.2. Such transactions shall take place at
the closing provided for in paragraph 3.1 (the
"Closing").
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1.2 The assets of the Acquired Fund to be acquired by the
Acquiring Fund shall consist of all cash, securities,
dividends and interest receivable, receivables for shares sold
and all other assets which are owned by the Acquired Fund on
the closing date provided in paragraph 3.1 (the "Closing
Date") and any deferred expenses, other than unamortized
organizational expenses, shown as an asset on the books of the
Acquired Fund on the Closing Date.
1.3 As provided in paragraph 3.4, as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), the
Acquired Fund will liquidate and distribute pro rata to its
shareholders of record ("Acquired Fund Shareholders"),
determined as of the close of business on the Valuation Date
(as defined in paragraph 2.1), the Acquiring Shares received
by the Acquired Fund pursuant to paragraph 1.1. Such
liquidation and distribution will be accomplished by the
transfer of the Acquiring Shares then credited to the account
of the Acquired Fund on the books of the Acquiring Fund to
open accounts on the share records of Acquiring Fund in the
names of the Acquired Fund Shareholders and representing the
respective pro rata number of Acquiring Shares due such
shareholders. The Acquiring Fund shall not be obligated to
issue certificates representing Acquiring Shares in connection
with such exchange.
1.4 With respect to Acquiring Shares distributable pursuant to
paragraph 1.3 to an Acquired Fund Shareholder holding a
certificate or certificates for shares of the Acquired Fund,
if any, on the Valuation Date, the Acquiring Trust will not
permit such shareholder to receive Acquiring Share
certificates therefor, exchange such Acquiring Shares for
shares of other investment companies, effect an account
transfer of such Acquiring Shares, or pledge or redeem such
Acquiring Shares until the Acquiring Trust has been notified
by the Acquired Fund or its agent that such Shareholder has
surrendered all his or her outstanding certificates for
Acquired Fund shares or, in the event of lost certificates,
posted adequate bond.
1.5 [RESERVED]
1.6 As promptly as possible after the Closing Date, the Acquired
Fund shall be terminated pursuant to the provisions of the
laws of the Commonwealth of Massachusetts, and, after the
Closing Date, the Acquired Fund shall not conduct any business
except in connection with its liquidation.
2. VALUATION.
2.1 For the purpose of paragraph 1, the value of the Acquired
Fund's assets to be acquired by the Acquiring Fund hereunder
shall be the net asset value computed as of the close of
regular trading on the New York Stock Exchange on the business
day next preceding the Closing (such time and date being
herein called the "Valuation Date") using the valuation
procedures set forth in the Declaration of Trust of the
Acquiring Trust and the then current prospectus or statement
of additional information of the Acquiring Fund, after
deduction for the expenses of the reorganization contemplated
hereby to be paid by the Acquired Fund pursuant to paragraphs
1.5, and shall be certified by the Acquired Fund.
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2.2 For the purpose of paragraph 2.1, the net asset value of an
Acquiring Share shall be the net asset value per share
computed as of the close of regular trading on the New York
Stock Exchange on the Valuation Date, using the valuation
procedures set forth in the Declaration of Trust of the
Acquiring Trust and the then current prospectus or
prospectuses and the statement of additional information or
statements of additional information of the Acquiring Fund
(collectively, as from time to time amended and supplemented,
the "Acquiring Fund Prospectus").
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be on January 29, 2001, or on such
other date as the parties may agree in writing. The Closing
shall be held at 9:00 a.m. at the offices of Colonial
Management Associates, Inc., One Financial Center, Boston,
Massachusetts 02111, or at such other time and/or place as the
parties may agree.
3.2 The portfolio securities of the Acquired Fund shall be made
available by the Acquired Fund to The Chase Manhattan Bank, as
custodian for the Acquiring Fund (the "Custodian"), for
examination no later than five business days preceding the
Valuation Date. On the Closing Date, such portfolio securities
and all the Acquired Fund's cash shall be delivered by the
Acquired Fund to the Custodian for the account of the
Acquiring Fund, such portfolio securities to be duly endorsed
in proper form for transfer in such manner and condition as to
constitute good delivery thereof in accordance with the custom
of brokers or, in the case of portfolio securities held in the
U.S. Treasury Department's book-entry system or by the
Depository Trust Company, Participants Trust Company or other
third party depositories, by transfer to the account of the
Custodian in accordance with Rule 17f-4 or Rule 17f-5, as the
case may be, under the Investment Company Act of 1940 (the
"1940 Act") and accompanied by all necessary federal and state
stock transfer stamps or a check for the appropriate purchase
price thereof. The cash delivered shall be in the form of
currency or certified or official bank checks, payable to the
order of "The Chase Manhattan Bank, custodian for The Liberty
Fund."
3.3 In the event that on the Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall
be restricted, or (b) trading or the reporting of trading on
said Exchange or elsewhere shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquired Fund
or the Acquiring Fund is impracticable, the Closing Date shall
be postponed until the first business day after the day when
trading shall have been fully resumed and reporting shall have
been restored; provided that if trading shall not be fully
resumed and reporting restored within three business days of
the Valuation Date, this Agreement may be terminated by either
of the Trust or the Acquiring Trust upon the giving of written
notice to the other party.
3.4 At the Closing, the Acquired Fund or its transfer agent shall
deliver to the Acquiring Fund or its designated agent a list
of the names and addresses of the Acquired Fund Shareholders
and the number of outstanding shares of beneficial interest of
the Acquired Fund owned by each Acquired Fund Shareholder, all
as of the close of business on the Valuation Date, certified
by the Secretary or Assistant Secretary of the Trust. The
Acquiring Trust will provide to the Acquired Fund evidence
satisfactory to the Acquired Fund that the Acquiring Shares
issuable pursuant to paragraph 1.1 have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. On
the Liquidation Date, the Acquiring Trust will provide to the
Acquired Fund evidence satisfactory to the
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Acquired Fund that such Acquiring Shares have been credited
pro rata to open accounts in the names of the Acquired Fund
shareholders as provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other such
bills of sale, instruments of assumption of liabilities,
checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably
request in connection with the transfer of assets, assumption
of liabilities and liquidation contemplated by paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Trust, on behalf of the Acquired Fund, represents and
warrants the following to the Acquiring Trust and to the
Acquiring Fund as of the date hereof and agrees to confirm the
continuing accuracy and completeness in all material respects
of the following on the Closing Date:
(a) The Trust is a business trust duly organized, validly
existing and in good standing under the laws of the
Commonwealth of Massachusetts;
(b) The Trust is a duly registered investment company
classified as a management company of the open-end type
and its registration with the Securities and Exchange
Commission as an investment company under the 1940 Act
is in full force and effect, and the Acquired Fund is a
separate series thereof duly designated in accordance
with the applicable provisions of the Declaration of
Trust of the Trust and the 1940 Act;
(c) The Trust is not in violation in any material respect
of any provision of its Declaration of Trust or By-laws
or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the Trust is a
party or by which the Acquired Fund is bound, and the
execution, delivery and performance of this Agreement
will not result in any such violation;
(d) The Trust has no material contracts or other
commitments (other than this Agreement and such other
contracts as may be entered into in the ordinary course
of its business) which if terminated may result in
material liability to the Acquired Fund or under which
(whether or not terminated) any material payments for
periods subsequent to the Closing Date will be due from
the Acquired Fund;
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental
body is presently pending or threatened against the
Acquired Fund, any of its properties or assets, or any
person whom the Acquired Fund may be obligated to
indemnify in connection with such litigation,
proceeding or investigation. The Acquired Fund knows of
no facts which might form the basis for the institution
of such proceedings, and is not a party to or subject
to the provisions of any order, decree or judgment of
any court or governmental body which materially and
adversely affects its business or its ability to
consummate the transactions contemplated hereby;
(f) The statement of assets and liabilities, the statement
of operations, the statement of changes in net assets,
and the schedule of investments as at and for the two
years
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ended October 31, 1999 of the Acquired Fund, audited by
PricewaterhouseCoopers LLP and the statement of assets,
the statement of changes in net assets and the schedule
of investments for the six months ended April 30, 2000,
copies of which have been furnished to the Acquiring
Fund, fairly reflect the financial condition and
results of operations of the Acquired Fund as of such
dates and for the periods then ended in accordance with
generally accepted accounting principles consistently
applied, and the Acquired Fund has no known liabilities
of a material amount, contingent or otherwise, other
than those shown on the statements of assets referred
to above or those incurred in the ordinary course of
its business since April 30, 2000;
(g) Since April 30, 2000, there has not been any material
adverse change in the Acquired Fund's financial
condition, assets, liabilities or business (other than
changes occurring in the ordinary course of business),
or any incurrence by the Acquired Fund of indebtedness,
except as disclosed in writing to the Acquiring Fund.
For the purposes of this subparagraph (g),
distributions of net investment income and net realized
capital gains, changes in portfolio securities, changes
in the market value of portfolio securities or net
redemptions shall be deemed to be in the ordinary
course of business;
(h) By the Closing Date, all federal and other tax returns
and reports of the Acquired Fund required by law to
have been filed by such date (giving effect to
extensions) shall have been filed, and all federal and
other taxes shown to be due on said returns and reports
shall have been paid so far as due, or provision shall
have been made for the payment thereof, and to the best
of the Acquired Fund's knowledge no such return is
currently under audit and no assessment has been
asserted with respect to such returns;
(i) For all taxable years and all applicable quarters of
such years from the date of its inception, the Acquired
Fund has met the requirements of subchapter M of the
Code, for treatment as a "regulated investment company"
within the meaning of Section 851 of the Code. Neither
the Trust nor the Acquired Fund has at any time since
its inception been liable for nor is now liable for any
material excise tax pursuant to Section 852 or 4982 of
the Code. The Acquired Fund has duly filed all federal,
state, local and foreign tax returns which are required
to have been filed, and all taxes of the Acquired Fund
which are due and payable have been paid except for
amounts that alone or in the aggregate would not
reasonably be expected to have a material adverse
effect. The Acquired Fund is in compliance in all
material respects with applicable regulations of the
Internal Revenue Service pertaining to the reporting of
dividends and other distributions on and redemptions of
its capital stock and to withholding in respect of
dividends and other distributions to shareholders, and
is not liable for any material penalties which could be
imposed thereunder;
(j) The authorized capital of the Trust consists of an
unlimited number of shares of beneficial interest with
no par value, of multiple series and classes. All
issued and outstanding shares of the Acquired Fund are,
and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and (except as set
forth in the Acquired Fund's then current prospectus or
prospectuses and statement of
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additional information or statements of additional
information (collectively, as amended or supplemented
from time to time, the "Acquired Fund
Prospectus")), non-assessable by the Acquired Fund and
will have been issued in compliance with all applicable
registration or qualification requirements of federal
and state securities laws. No options, warrants or
other rights to subscribe for or purchase, or
securities convertible into, any shares of beneficial
interest of the Acquired Fund are outstanding and none
will be outstanding on the Closing Date (except that
Class B shares of the Acquired Fund convert
automatically into Class A shares, as set forth in the
Acquired Fund Prospectus);
(k) The Acquired Fund's investment operations from
inception to the date hereof have been in compliance in
all material respects with the investment policies and
investment restrictions set forth in its prospectus and
statement of additional information as in effect from
time to time, except as previously disclosed in writing
to the Acquiring Fund;
(l) The execution, delivery and performance of this
Agreement has been duly authorized by the Trustees of
the Trust, and, upon approval thereof by the required
majority of the shareholders of the Acquired Fund, this
Agreement will constitute the valid and binding
obligation of the Acquired Fund enforceable in
accordance with its terms except as the same may be
limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of
creditors' rights generally and other equitable
principles;
(m) The Acquiring Shares to be issued to the Acquired Fund
pursuant to paragraph 1 will not be acquired for the
purpose of making any distribution thereof other than
to the Acquired Fund Shareholders as provided in
paragraph 1.3; and
(n) The information provided by the Acquired Fund for use
in the Registration Statement and Proxy Statement
referred to in paragraph 5.3 shall be accurate and
complete in all material respects and shall comply with
federal securities and other laws and regulations
applicable thereto.
(o) No consent, approval, authorization or order of any
court or governmental authority is required for the
consummation by the Acquired Fund of the transactions
contemplated by this Agreement, except such as may be
required under the Securities Act of 1933, as amended
(the "1933 Act"), the Securities Exchange Act of 1934,
as amended (the "1934 Act"), the 1940 Act and state
insurance, securities or blue sky laws (which term as
used herein shall include the laws of the District of
Columbia and of Puerto Rico).
(p) At the Closing Date, the Trust, on behalf of the
Acquired Fund will have good and marketable title to
its assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.1 and will have full right,
power and authority to sell, assign, transfer and
deliver the Investments (as defined below) and any
other assets and liabilities of the Acquired Fund to be
transferred to the Acquiring Fund pursuant to this
Agreement. At the Closing Date, subject only to the
delivery of the Investments and any such other assets
and liabilities and payment therefor as contemplated by
this Agreement, the Acquiring Fund will acquire good
and marketable title thereto and will acquire the
Investments and any such other assets and liabilities
subject to
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no encumbrances, liens or security interests whatsoever
and without any restrictions upon the transfer thereof,
except as previously disclosed to the Acquiring Fund.
As used in this Agreement, the term "Investments" shall
mean the Acquired Fund's investments shown on the
schedule of its investments as of April 30, 2000
referred to in Section 4.1(f) hereof, as supplemented
with such changes in the portfolio as the Acquired Fund
shall make, and changes resulting from stock dividends,
stock split-ups, mergers and similar corporate actions
through the Closing Date.
(q) At the Closing Date, the Acquired Fund will have sold
such of its assets, if any, as are necessary to assure
that, after giving effect to the acquisition of the
assets of the Acquired Fund pursuant to this Agreement,
the Acquiring Fund will remain a "diversified company"
within the meaning of Section 5(b)(1) of the 1940 Act
and in compliance with such other mandatory investment
restrictions as are set forth in the Acquiring Fund
Prospectus, as amended through the Closing Date.
(r) No registration of any of the Investments would be
required if they were, as of the time of such transfer,
the subject of a public distribution by either of the
Acquiring Fund or the Acquired Fund, except as
previously disclosed by the Acquired Fund to the
Acquiring Fund.
4.2 The Acquiring Trust, on behalf of the Acquiring Fund,
represents and warrants the following to the Trust and to the
Acquired Fund as of the date hereof and agrees to confirm the
continuing accuracy and completeness in all material respects
of the following on the Closing Date:
(a) The Acquiring Trust is a business trust duly organized,
validly existing and in good standing under the laws of
The Commonwealth of Massachusetts;
(b) The Acquiring Trust is a duly registered investment
company classified as a management company of the
open-end type and its registration with the Securities
and Exchange Commission as an investment company under
the 1940 Act is in full force and effect, and the
Acquiring Fund is a separate series thereof duly
designated in accordance with the applicable provisions
of the Declaration of Trust of the Acquiring Trust and
the 1940 Act;
(c) The Acquiring Fund Prospectus conforms in all material
respects to the applicable requirements of the 1933 Act
and the rules and regulations of the Securities and
Exchange Commission thereunder and does not include any
untrue statement of a material fact or omit to state
any material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading, and there are no material contracts to
which the Acquiring Fund is a party that are not
referred to in such Prospectus or in the registration
statement of which it is a part;
(d) At the Closing Date, the Acquiring Fund will have good
and marketable title to its assets;
(e) The Acquiring Trust is not in violation in any material
respect of any provisions of its Declaration of Trust
or By-laws or of any agreement, indenture, instrument,
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contract, lease or other undertaking to which the
Acquiring Trust is a party or by which the Acquiring
Fund is bound, and the execution, delivery and
performance of this Agreement will not result in any
such violation;
(f) No litigation or administrative proceeding or
investigation of or before any court or governmental
body is presently pending or threatened against the
Acquiring Fund or any of its properties or assets. The
Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings, and is
not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental
body which materially and adversely affects its
business or its ability to consummate the transactions
contemplated hereby;
(g) The statement of assets, the statement of operations,
the statement of changes in assets and the schedule of
investments as at and for the two years ended October
31, 1999 of the Acquiring Fund, audited by Ernst &
Young LLP, and the statement of assets, the statement
of changes in net assets and the schedule of
investments for the six months ended April 30, 2000,
copies of which have been furnished to the Acquired
Fund, fairly reflect the financial condition and
results of operations of the Acquiring Fund as of such
dates and the results of its operations for the periods
then ended in accordance with generally accepted
accounting principles consistently applied, and the
Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown
on the statements of assets referred to above or those
incurred in the ordinary course of its business since
April 30, 2000;
(h) Since April 30, 2000, there has not been any material
adverse change in the Acquiring Fund's financial
condition, assets, liabilities or business (other than
changes occurring in the ordinary course of business),
or any incurrence by the Acquiring Fund of
indebtedness. For the purposes of this subparagraph
(h), changes in portfolio securities, changes in the
market value of portfolio securities or net redemptions
shall be deemed to be in the ordinary course of
business;
(i) By the Closing Date, all federal and other tax returns
and reports of the Acquiring Fund required by law to
have been filed by such date (giving effect to
extensions) shall have been filed, and all federal and
other taxes shown to be due on said returns and reports
shall have been paid so far as due, or provision shall
have been made for the payment thereof, and to the best
of the Acquiring Fund's knowledge no such return is
currently under audit and no assessment has been
asserted with respect to such returns;
(j) For each fiscal year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the
Code for qualification as a regulated investment
company;
(k) The authorized capital of the Acquiring Trust consists
of an unlimited number of shares of beneficial
interest, no par value, of such number of different
series as the Board of Trustees may authorize from time
to time. The outstanding shares of beneficial interest
in the Acquiring Fund are, and at the Closing Date will
be, divided into Class A shares, Class B shares, Class
C shares and Class Z shares each having the
characteristics described in the Acquiring Fund
Prospectus. All
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issued and outstanding shares of the Acquiring Fund
are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable
(except as set forth in the Acquiring Fund Prospectus)
by the Acquiring Trust, and will have been issued in
compliance with all applicable registration or
qualification requirements of federal and state
securities laws. Except for Class B shares which
convert to Class A shares after the expiration of a
period of time, no options, warrants or other rights to
subscribe for or purchase, or securities convertible
into, any shares of beneficial interest in the
Acquiring Fund of any class are outstanding and none
will be outstanding on the Closing Date;
(l) The Acquiring Fund's investment operations from
inception to the date hereof have been in compliance in
all material respects with the investment policies and
investment restrictions set forth in its prospectus and
statement of additional information as in effect from
time to time;
(m) The execution, delivery and performance of this
Agreement have been duly authorized by all necessary
action on the part of the Acquiring Trust, and this
Agreement constitutes the valid and binding obligation
of the Acquiring Trust and the Acquiring Fund
enforceable in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other
equitable principles;
(n) The Acquiring Shares to be issued and delivered to the
Acquired Fund pursuant to the terms of this Agreement
will at the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly
issued Class A shares, Class B shares and Class C
shares of beneficial interest in the Acquiring Fund,
and will be fully paid and non-assessable (except as
set forth in the Acquiring Fund Prospectus) by the
Acquiring Trust, and no shareholder of the Acquiring
Trust will have any preemptive right of subscription or
purchase in respect thereof; and
(o) The information to be furnished by the Acquiring Fund
for use in the Registration Statement and Proxy
Statement referred to in paragraph 5.3 shall be
accurate and complete in all material respects and
shall comply with federal securities and other laws and
regulations applicable thereto.
(p) No consent, approval, authorization or order of any
court or governmental authority is required for the
consummation by the Acquiring Fund of the transactions
contemplated by this Agreement, except such as may be
required under 1933 Act, the 1934 Act, the 1940 Act and
state insurance, securities or blue sky laws (which
term as used herein shall include the laws of the
District of Columbia and of Puerto Rico).
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5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND.
The Acquiring Trust, on behalf of the Acquiring Fund, and the Trust, on
behalf of the Acquired Fund, each hereby covenants and agrees with the other as
follows:
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and
the Closing Date, it being understood that such ordinary
course of business will include regular and customary periodic
dividends and distributions.
5.2 The Acquired Fund will call a meeting of its shareholders to
be held prior to the Closing Date to consider and act upon
this Agreement and take all other reasonable action necessary
to obtain the required shareholder approval of the
transactions contemplated hereby.
5.3 In connection with the Acquired Fund shareholders' meeting
referred to in paragraph 5.2, the Acquired Fund will prepare a
Proxy Statement for such meeting, to be included in a
Registration Statement on Form N-14 (the "Registration
Statement") which the Acquiring Trust will prepare and file
for the registration under the 1933 Act of the Acquiring
Shares to be distributed to the Acquired Fund shareholders
pursuant hereto, all in compliance with the applicable
requirements of the 1933 Act, the 1934 Act, and the 1940 Act.
5.4 The information to be furnished by the Acquired Fund for use
in the Registration Statement and the information to be
furnished by the Acquiring Fund for use in the Proxy
Statement, each as referred to in paragraph 5.3, shall be
accurate and complete in all material respects and shall
comply with federal securities and other laws and regulations
thereunder applicable thereto.
5.5 The Acquiring Fund will advise the Acquired Fund promptly if
at any time prior to the Closing Date the assets of the
Acquired Fund include any securities which the Acquiring Fund
is not permitted to acquire.
5.6 Subject to the provisions of this Agreement, the Acquired Fund
and the Acquiring Fund will each take, or cause to be taken,
all action, and do or cause to be done, all things reasonably
necessary, proper or advisable to cause the conditions to the
other party's obligations to consummate the transactions
contemplated hereby to be met or fulfilled and otherwise to
consummate and make effective such transactions.
5.7 The Acquiring Fund will use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the
1940 Act and such of the state securities or "Blue Sky" laws
as it may deem appropriate in order to continue its operations
after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the
transactions provided for herein shall be subject, at its
election, to the performance by the Acquiring Trust and the
A-10
<PAGE>
Acquiring Fund of all the obligations to be performed by them
hereunder on or before the Closing Date and, in addition
thereto, to the following further conditions:
6.1 The Acquiring Trust, on behalf of the Acquiring Fund, shall
have delivered to the Trust a certificate executed in its name
by its President or Vice President and its Treasurer or
Assistant Treasurer, in form satisfactory to the Trust and
dated as of the Closing Date, to the effect that the
representations and warranties of the Acquiring Trust on
behalf of the Acquiring Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this
Agreement, and that the Acquiring Trust and the Acquiring Fund
have complied with all the covenants and agreements and
satisfied all of the conditions on their parts to be performed
or satisfied under this Agreement at or prior to the Closing
Date.
6.2 The Trust shall have received a favorable opinion from Ropes &
Gray, counsel to the Acquiring Trust for the transactions
contemplated hereby, dated the Closing Date and, in a form
satisfactory to the Acquired Trust, to the following effect:
(a) The Acquiring Trust is a business trust duly organized
and validly existing under the laws of The Commonwealth
of Massachusetts and has power to own all of its
properties and assets and to carry on its business as
presently conducted, and the Acquiring Fund is a
separate series thereof duly constituted in accordance
with the applicable provisions of the 1940 Act and the
Declaration of Trust and By-laws of the Acquiring
Trust; (b) this Agreement has been duly authorized,
executed and delivered on behalf of the Acquiring Fund
and, assuming the Prospectus and Registration Statement
referred to in paragraph 5.3 complies with applicable
federal securities laws and assuming the due
authorization, execution and delivery of this Agreement
by the Trust on behalf of the Acquired Fund, is the
valid and binding obligation of the Acquiring Fund
enforceable against the Acquiring Fund in accordance
with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights
generally and other equitable principles; (c) the
Acquiring Fund has the power to assume the liabilities
to be assumed by it hereunder and upon consummation of
the transactions contemplated hereby the Acquiring Fund
will have duly assumed such liabilities; (d) the
Acquiring Shares to be issued for transfer to the
shareholders of the Acquired Fund as provided by this
Agreement are duly authorized and upon such transfer
and delivery will be validly issued and outstanding and
fully paid and nonassessable Class A shares, Class B
shares and Class C shares of beneficial interest in the
Acquiring Fund, and no shareholder of the Acquiring
Fund has any preemptive right of subscription or
purchase in respect thereof; (e) the execution and
delivery of this Agreement did not, and the performance
by the Acquiring Trust and the Acquiring Fund of their
respective obligations hereunder will not, violate the
Acquiring Trust's Declaration of Trust or By-laws, or
any provision of any agreement known to such counsel to
which the Acquiring Trust or the Acquiring Fund is a
party or by which either of them is bound or, to the
knowledge of such counsel, result in the acceleration
of any obligation or the imposition of any penalty
under any agreement, judgment, or decree to which the
Acquiring Trust or the Acquiring Fund is a party or by
which either of them is bound; (f) to the knowledge of
such counsel, no consent, approval, authorization or
order of any court or governmental authority is
required
A-11
<PAGE>
for the consummation by the Acquiring Trust or the
Acquiring Fund of the transactions contemplated by this
Agreement except such as may be required under state
securities or "Blue Sky" laws or such as have been
obtained; (g) except as previously disclosed, pursuant
to section 4.2(f) above, such counsel does not know of
any legal or governmental proceedings relating to the
Acquiring Trust or the Acquiring Fund existing on or
before the date of mailing of the Prospectus referred
to in paragraph 5.3 or the Closing Date required to be
described in the Registration Statement referred to in
paragraph 5.3 which are not described as required; (h)
the Acquiring Trust is registered with the Securities
and Exchange Commission as an investment company under
the 1940 Act; and (i) to the best knowledge of such
counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental
body is presently pending or threatened as to the
Acquiring Trust or the Acquiring Fund or any of their
properties or assets and neither the Acquiring Trust
nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any
court or governmental body, which materially and
adversely affects its business.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the
transactions provided for herein shall be subject, at its
election, to the performance by the Acquired Fund of all the
obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, to the following
further conditions:
7.1 The Trust, on behalf of the Acquired Fund, shall have
delivered to the Acquiring Trust a certificate executed in its
name by its President or Vice President and its Treasurer or
Assistant Treasurer, in form and substance satisfactory to the
Acquiring Trust and dated the Closing Date, to the effect that
the representations and warranties of the Acquired Fund made
in this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and that the
Trust and the Acquired Fund have complied with all the
covenants and agreements and satisfied all of the conditions
on its part to be performed or satisfied under this Agreement
at or prior to the Closing Date;
7.2 The Acquiring Trust shall have received a favorable opinion
from Ropes & Gray, counsel to the Trust, dated the Closing
Date and in a form satisfactory to the Acquiring Trust, to the
following effect:
(a) The Trust is a business trust duly organized and
validly existing under the laws of the Commonwealth of
Massachusetts and has corporate power to own all of its
properties and assets and to carry on its business as
presently conducted, and the Acquired Fund is a
separate series thereof duly constituted in accordance
with the applicable provisions of the 1940 Act and the
Declaration of Trust of the Trust; (b) this Agreement
has been duly authorized, executed and delivered on
behalf of the Acquired Fund and, assuming the Proxy
Statement referred to in paragraph 5.3 complies with
applicable federal securities laws and assuming the due
authorization, execution and delivery of this Agreement
by the Acquiring Trust on behalf of the Acquiring Fund,
is the valid and binding obligation of the Acquired
Fund enforceable against the Acquired Fund in
accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or
other
A-12
<PAGE>
similar laws affecting the enforcement of creditors'
rights generally and other equitable principles; (c)
the Acquired Fund has the power to sell, assign,
transfer and deliver the assets to be transferred by it
hereunder, and, upon consummation of the transactions
contemplated hereby, the Acquired Fund will have duly
transferred such assets to the Acquiring Fund; (d) the
execution and delivery of this Agreement did not, and
the performance by the Trust and the Acquired Fund of
their respective obligations hereunder will not,
violate the Trust's Declaration of Trust or By-laws, or
any provision of any agreement known to such counsel to
which the Trust or the Acquired Fund is a party or by
which either of them is bound or, to the knowledge of
such counsel, result in the acceleration of any
obligation or the imposition of any penalty under any
agreement, judgment, or decree to which the Trust or
the Acquired Fund is a party or by which either of them
is bound; (e) to the knowledge of such counsel, no
consent, approval, authorization or order of any court
or governmental authority is required for the
consummation by the Trust or the Acquired Fund of the
transactions contemplated by this Agreement, except
such as may be required under state securities or "Blue
Sky" laws or such as have been obtained; (f) such
counsel does not know of any legal or governmental
proceedings relating to the Trust or the Acquired Fund
existing on or before the date of mailing of the
Prospectus referred to in paragraph 5.3 or the Closing
Date required to be described in the Registration
Statement referred to in paragraph 5.3 which are not
described as required; (g) the Trust is registered with
the Securities and Exchange Commission as an investment
company under the 1940 Act; and (h) to the best
knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before
any court or governmental body is presently pending or
threatened as to the Trust or the Acquired Fund or any
of its properties or assets and neither the Trust nor
the Acquired Fund is a party to or subject to the
provisions of any order, decree or judgment of any
court or governmental body, which materially and
adversely affects its business.
7.3 The Acquired Fund shall have furnished to the Acquiring Fund
tax returns, signed by a partner of PricewaterhouseCoopers LLP
for the fiscal year ended October 31, 1999 and signed pro
forma tax returns for the period from November 1, 1999 to the
Closing Date (which pro forma tax returns shall be furnished
promptly after the Closing Date).
7.4 Prior to the Closing Date, the Acquired Fund shall have
declared a dividend or dividends which, together with all
previous dividends, shall have the effect of distributing all
of the Acquired Fund's investment company taxable income for
its taxable years ending on or after October 31, 2000 and on
or prior to the Closing Date (computed without regard to any
deduction for dividends paid), and all of its net capital
gains realized in each of its taxable years ending on or after
October 31, 2000 and on or prior to the Closing Date.
7.5 The Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President)
and the Treasurer of the Trust, as to the adjusted tax basis
in the hands of the Acquired Fund of the securities delivered
to the Acquiring Fund pursuant to this Agreement.
A-13
<PAGE>
7.6 The custodian of the Acquired Fund shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of
the Acquired Fund held by such custodian as of the Valuation
Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE
ACQUIRING FUND AND THE ACQUIRED FUND.
The respective obligations of the Trust and the Acquiring Trust
hereunder are each subject to the further conditions that on or before the
Closing Date:
8.1 This Agreement and the transactions contemplated herein shall
have been approved by the vote of the required majority of the
holders of the outstanding shares of the Acquired Fund of
record on the record date for the meeting of its shareholders
referred to in paragraph 5.2;
8.2 On the Closing Date no action, suit or other preceding shall
be pending before any court or governmental agency in which it
is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions
contemplated hereby;
8.3 All consents of other parties and all other consents, orders
and permits of federal, state and local regulatory authorities
(including those of the Securities and Exchange Commission and
of state Blue Sky and securities authorities) deemed necessary
by the Trust or the Acquiring Trust to permit consummation, in
all material respects, of the transactions contemplated hereby
shall have been obtained, except where failure to obtain any
such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement referred to in paragraph 5.3 shall
have become effective under the 1933 Act and no stop order
suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the
1933 Act;
8.5 The Trust shall have received a favorable opinion of Ropes &
Gray, satisfactory to the Trust and the Acquiring Trust shall
have received a favorable opinion of Ropes & Gray satisfactory
to the Acquiring Trust, each substantially to the effect that,
for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of the assets of
the Acquired Fund in exchange for the Acquiring Fund's
assumption of the Obligations of the Acquired Fund and
issuance of the Acquiring Shares, followed by the
distribution by the Acquired Fund of such the Acquiring
Shares to the shareholders of the Acquired Fund in
exchange for their shares of the Acquired Fund, all as
provided in paragraph 1 hereof, will constitute a
reorganization within the meaning of Section 368(a) of
the Code, and the Acquired Fund and the Acquiring Fund
will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized to the Acquired Fund
(i) upon the transfer of its assets to the Acquiring
Fund in exchange for the Acquiring Shares or (ii) upon
the
A-14
<PAGE>
distribution of the Acquiring Shares to the
shareholders of the Acquired Fund as contemplated in
paragraph 1 hereof;
(c) No gain or loss will be recognized to the Acquiring
Fund upon the receipt of the assets of the Acquired
Fund in exchange for the assumption of the Obligations
and issuance of the Acquiring Shares as contemplated in
paragraph 1 hereof;
(d) The tax basis of the assets of the Acquired Fund
acquired by the Acquiring Fund will be the same as the
basis of those assets in the hands of the Acquired Fund
immediately prior to the transfer, and the holding
period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund;
(e) The shareholders of the Acquired Fund will recognize no
gain or loss upon the exchange of their shares of the
Acquired Fund for the Acquiring Shares;
(f) The tax basis of the Acquiring Shares to be received by
each shareholder of the Acquired Fund will be the same
in the aggregate as the aggregate tax basis of the
shares of the Acquired Fund surrendered in exchange
therefor;
(g) The holding period of the Acquiring Shares to be
received by each shareholder of the Acquired Fund will
include the period during which the shares of the
Acquired Fund surrendered in exchange therefor were
held by such shareholder, provided such shares of the
Acquired Fund were held as a capital asset on the date
of the exchange.
(h) Acquiring Fund will succeed to and take into account
the items of Acquired Fund described in Section 381(c)
of the Code, subject to the conditions and limitations
specified in Sections 381, 382, 383 and 384 of the Code
and the regulations thereunder.
8.6 At any time prior to the Closing, any of the foregoing
conditions of this Agreement may be waived jointly by the
Board of Trustees of the Trust and the Board of Trustees of
the Acquiring Trust if, in their judgment, such waiver will
not have a material adverse effect on the interests of the
shareholders of the Acquired Fund and the Acquiring Fund.
9. BROKERAGE FEES AND EXPENSES.
9.1 The Trust, on behalf of the Acquired Fund, and the Acquiring
Trust, on behalf of the Acquiring Fund, each represents and
warrants to the other that there are no brokers or finders
entitled to receive any payments in connection with the
transactions provided for herein.
9.2 The Acquiring Trust, on behalf of the Acquiring Fund, shall
pay all fees paid to governmental authorities for the
registration or qualification of the Acquiring Shares. The
other expenses of the transactions contemplated by this
Agreement shall be borne by the following parties in the
percentages indicated: (a) the Trust, on behalf of the
Acquired Fund, __%, (b) the Acquiring Trust, on behalf of the
Acquiring Fund, __%, and (c) Liberty Financial Companies, Inc.
__%.
A-15
<PAGE>
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 The Trust on behalf of the Acquired Fund and the Acquiring
Trust on behalf of the Acquiring Fund agree that neither party
has made any representation, warranty or covenant not set
forth herein and that this Agreement constitutes the entire
agreement between the parties.
10.2 The representations, warranties and covenants contained in
this Agreement or in any document delivered pursuant hereto or
in connection herewith shall not survive the consummation of
the transactions contemplated hereunder except paragraphs 1.1,
1.3, 1.5, 1.6, 5.4, 9, 10, 13 and 14.
11. TERMINATION.
11.1 This Agreement may be terminated by the mutual agreement of
the Acquiring Trust and the Trust. In addition, either the
Acquiring Trust or the Trust may at its option terminate this
Agreement at or prior to the Closing Date because:
(a) Of a material breach by the other of any
representation, warranty, covenant or agreement
contained herein to be performed by the other party at
or prior to the Closing Date; or
(b) A condition herein expressed to be precedent to the
obligations of the terminating party has not been met
and it reasonably appears that it will not or cannot be
met.
(c) If the transactions contemplated by this Agreement have
not been substantially completed by May 31, 2001 this
Agreement shall automatically terminate on that date
unless a later date is agreed to by both the Trust and
the Acquiring Trust.
11.2 If for any reason the transactions contemplated by this
Agreement are not consummated, no party shall be liable to any
other party for any damages resulting therefrom, including
without limitation consequential damages.
12. AMENDMENTS.
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Trust on behalf of the Acquired Fund and the Acquiring Trust on behalf of the
Acquiring Fund; provided, however, that following the shareholders' meeting
called by the Acquired Fund pursuant to paragraph 5.2 no such amendment may have
the effect of changing the provisions for determining the number of the
Acquiring Shares to be issued to shareholders of the Acquired Fund under this
Agreement to the detriment of such shareholders without their further approval.
13. NOTICES.
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to: Liberty Funds Trust III, One
Financial Center, Boston, MA 02111 attention Secretary.
A-16
<PAGE>
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
NON-RECOURSE.
14.1 The article and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of The
Commonwealth of Massachusetts, without giving effect to any
choice or conflicts of law rule or provision that would result
in the application of the domestic substantive laws of any
other jurisdiction.
14.4 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns,
but no assignment or transfer hereof or of any rights or
obligations hereunder shall be made by any party without the
written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
14.5 A copy of the Declaration of Trust of the Trust and Acquiring
Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts, and notice is hereby given that
no trustee, officer, agent or employee of either the Trust or
the Acquiring Trust shall have any personal liability under
this Agreement, and that this Agreement is binding only upon
the assets and properties of the Acquired Fund and the
Acquiring Fund.
A-17
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as a sealed instrument by its President or Vice
President and its corporate seal to be affixed thereto and attested by its
Secretary or Assistant Secretary.
LIBERTY FUNDS TRUST III,
on behalf of Liberty Strategic
Balanced Fund
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ATTEST:
Name:
---------------------------------
Title:
--------------------------------
LIBERTY FUNDS TRUST III,
on behalf of The Liberty Fund
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ATTEST:
Name:
---------------------------------
Title:
--------------------------------
Solely for purposes of Section 9.2
of the Agreement:
LIBERTY FINANCIAL COMPANIES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ATTEST:
Name:
-----------------------------
Title:
----------------------------
A-18
<PAGE>
APPENDIX B
FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE STRATEGIC FUND AND TRUST III AND
SHARES OUTSTANDING OF THE LIBERTY FUND
For each class of the Strategic Fund's shares and Trust III's shares
entitled to vote at the Meeting, and for each class of the Liberty Fund's
shares, the number of shares outstanding as of September 29, 2000 was as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
FUND OR TRUST CLASS NUMBER OF SHARES OUTSTANDING AND
ENTITLED TO VOTE
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Strategic Fund A 3,394,951
------------------------------------------------------------------------------------------------------------
B 6,578,437
------------------------------------------------------------------------------------------------------------
C 509,540
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Trust III 297,008,531
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Liberty Fund A 85,501,506
------------------------------------------------------------------------------------------------------------
B 60,443,271
------------------------------------------------------------------------------------------------------------
C 640,428
------------------------------------------------------------------------------------------------------------
Z 314
------------------------------------------------------------------------------------------------------------
</TABLE>
OWNERSHIP OF SHARES
As of September 29, 2000, Trust III believes that the Trustees and officers
of the Trust, as a group, owned less than one percent of each class of shares of
each Fund and of the Trust as a whole. As of September 29, 2000, the following
shareholders of record owned 5% or more of the outstanding shares of the noted
class of shares of the noted Fund:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF NUMBER OF OUTSTANDING PERCENTAGE OF OUTSTANDING
FUND AND CLASS SHAREHOLDER SHARES OF CLASS OWNED SHARES OF CLASS OWNED
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STRATEGIC FUND
CLASS A
Sales Marketing Services LLC 276,328.719 8.14%
P.O. Box 516
Metairie, LA 70004-0516
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
CLASS Z
Louis A. Volante Jr. 313.574 100.00%
Rosemarie A. Volante
32 Sheparo Avenue
North Providence, RI 02904
</TABLE>
OWNERSHIP OF SHARES UPON CONSUMMATION OF ACQUISITION
As of September 29, 2000, the shareholders of record that owned 5% or more of
the outstanding shares of the above noted class of shares of the above noted
Fund would own the following percentage of the Acquiring Fund upon consummation
of the Acquisition:
PERCENTAGE OF OUTSTANDING
SHARES OF CLASS OWNED
NAME AND ADDRESS OF UPON CONSUMMATION OF
FUND AND CLASS SHAREHOLDER ACQUISITION
---------------------------------------------------------------------------
STRATEGIC FUND
CLASS A
-------
Sales Marketing Services LLC 0.41%
P.O. Box 516
Metairie, LA 70004-0516
LIBERTY FUND
CLASS Z
-------
Louis A. Volante Jr. 100.00%
Rosemarie A. Volante
32 Sheparo Avenue
North Providence, RI 02904
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth certain information about the executive officers
of each Fund:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER YEAR OF ELECTION AS
NAME & AGE OFFICE PRINCIPAL OCCUPATION (1) EXECUTIVE OFFICER
----------------- ------------------------------- -------------------
<S> <C> <C>
Stephen E. Gibson President of the Liberty Funds since June, 1998; Chairman of 1998
(46) the Board since July, 1998, Chief Executive Officer and
President since December, 1996 and Director, since July,
1996 of CMA (formerly Executive Vice President from July,
1996 to December, 1996); Chairman of the Board, Director,
Chief Executive Officer and President of Liberty Funds
Group LLC (LFG) since December, 1998 (formerly Director,
Chief Executive Officer and President of The Colonial
Group, Inc. (TCG) from December, 1996 to December, 1998);
Director of Stein Roe & Farnham Incorporated (SR&F) since
September, 2000, President since January, 2000 and Vice
Chairman since August, 1998 (formerly Assistant Chairman
and Executive Vice President from August, 1998 to January,
2000) (formerly Managing Director of Marketing of Putnam
Investments, June, 1992 to July, 1996.)
Pamela A. McGrath Treasurer and Chief Financial Officer of the Liberty Funds and 1999
(46) Liberty All-Star Funds since April, 2000; Treasurer, Chief
Financial Officer and Vice President of LFG since
December, 1999; Chief Financial Officer, Treasurer and
Senior Vice President of CMA since December, 1999;
Director of Offshore Accounting for Putnam Investments
from May, 1998 to October, 1999; Managing Director of
Scudder Kemper Investments from October, 1984 to December,
1997.
</TABLE>
(1) Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
B-2
<PAGE>
ADDITIONAL INFORMATION CONCERNING TRUSTEE COMPENSATION
The current Board of Trustees received the following compensation from each Fund
as of each Fund's fiscal year end and for the calendar year ended December 31,
1999(1):
<TABLE>
<CAPTION>
-------------------------------------------------------
STRATEGIC FUND LIBERTY FUND
-------------------------------------------------------
10/31/99 10/31/99
-------------------------------------------------------
<S> <C> <C>
Mr. Bleasdale $1,361(2) $7,468(3)
-------------------------------------------------------
Ms. Collins 1,157 6,387
-------------------------------------------------------
Mr. Grinnell 1,205 6,657
-------------------------------------------------------
Mr. Lowry 1,169 6,453
-------------------------------------------------------
Mr. Macera 1,280 6,971
-------------------------------------------------------
Mr. Mayer 1,168 6,460
-------------------------------------------------------
Mr. Moody 1,087(4) 6,007(5)
-------------------------------------------------------
Mr. Neuhauser 1,221 6,728
-------------------------------------------------------
Mr. Stitzel 1,280 6,971
-------------------------------------------------------
Ms. Verville 1,301(6) 7,088(7)
-------------------------------------------------------
</TABLE>
The following table sets forth the total compensation paid to each Trustee by
the Liberty Mutual Funds for the calendar year ended December 31, 1999.
<TABLE>
<CAPTION>
----------------------------------------------------------
TRUSTEE TOTAL COMPENSATION
----------------------------------------------------------
<S> <C>
Mr. Bleasdale $103,000(8)
----------------------------------------------------------
Ms. Collins 96,000
----------------------------------------------------------
Mr. Grinnell 100,000
----------------------------------------------------------
Mr. Lowry 97,000
----------------------------------------------------------
Mr. Macera 95,000
----------------------------------------------------------
Mr. Mayer 101,000
----------------------------------------------------------
Mr. Moody 91,000(9)
----------------------------------------------------------
Mr. Neuhauser 101,252
----------------------------------------------------------
Mr. Stitzel 95,000
----------------------------------------------------------
Ms. Verville 96,000(10)
----------------------------------------------------------
</TABLE>
For the calendar year ended December 31, 1999, certain of the Trustees received
the following compensation in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund, the Liberty All-Star Growth Fund, Inc. and Liberty
Funds Trust IX (together, the "Liberty All-Star Funds"):
<TABLE>
<CAPTION>
Total Compensation From Liberty
All-Star Funds For The Calendar
Trustee Year Ended December 31, 1999 (11)
------- ---------------------------------
<S> <C>
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
William E. Mayer 25,000
John J. Neuhauser 25,000
</TABLE>
-------------------------------
(1) The Funds do not currently provide pension or retirement plan benefits to
the Trustees.
(2) Includes $632 payable in later years as deferred compensation.
(3) Includes $3,508 payable in later years as deferred compensation.
(4) Total compensation of $1,087 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
(5) Total compensation of $6,007 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
(6) Total compensation of $1,301 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
(7) Total compensation of $7,088 for the fiscal year ended October 31, 1999,
will be payable in later years as deferred compensation.
(8) Includes $52,000 payable in later years as deferred compensation.
(9) Total compensation of $91,000 for the calendar year ended December 31,
1999, will be payable in later years as deferred compensation.
(10) Total compensation of $96,000 for the calendar year ended December 31,
1999, will be payable in later years as deferred compensation.
(11) The Liberty All-Star Funds are advised by Liberty Asset Management
Company ("LAMCO"). LAMCO is an indirect wholly-owned subsidiary of Liberty
Financial Companies, Inc. (an intermediate parent of the Advisor of each
Fund).
B-3
<PAGE>
APPENDIX C
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of the
Strategic Fund and the Liberty Fund as of October 31, 2000, and on a pro forma
combined basis, giving effect to the acquisition of the assets and liabilities
of the Strategic Fund by the Liberty Fund at net asset value as of that date
(all amounts shown in thousands except per share information):
<TABLE>
<CAPTION>
Liberty
Liberty Fund
Strategic Fund Pro Forma Pro Forma
Fund (Acquiring Fund) Adjustments Combined (1)
<S> <C> <C> <C> <C>
Class A
Net asset value $ 47,346 $ 874,378 $ (175)(2) $ 921,549
Shares outstanding 3,376 85,402 1,231 90,009
Net asset value per share $ 14.02 $ 10.24 $ 10.24
Class B
Net asset value $ 91,276 $ 605,043 $ (154)(2) $ 696,165
Shares outstanding 6,525 59,215 2,393 68,134
Net asset value per share $ 13.99 $ 10.22 $ 10.22
Class C
Net asset value $ 7,370 $ 6,495 $ (4)(2) $ 13,861
Shares outstanding 526 636 196 1,358
Net asset value per share $ 14.01 $ 10.21 $ 10.21
Class Z
Net asset value $ 3 - (2) $ 3
Shares outstanding (a) - (a)
Net asset value per share $ 10.74 $ 10.74
</TABLE>
(1) Assumes the Reorganization had been consummated on October 31, 2000, and is
for information purposes only. No assurance can be given as to how many shares
of the Liberty Fund will be received by the shareholders of the Strategic Fund
on the date the Acquisition takes place, and the foregoing should not be relied
upon to reflect the number of shares of the Liberty Fund that actually will be
received on or after such date.
(2) Adjustments reflect one time proxy, accounting, legal and other costs of the
reorganization of $60,464 and $272,615 to be borne by the Strategic Fund and the
Liberty Fund, respectively.
(a) Rounds to less than one.
C-1
<PAGE>
APPENDIX D
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AS OF OCTOBER 31, 1999
THE LIBERTY FUND
HIGHLIGHTS
- MIXED RESULTS FOR STOCK MARKET INVESTORS
Although many of the major equity
indexes delivered another year of 20% plus performance; the average stock
on the New York Stock Exchange fell 20%.
- BONDS HURT BY INTEREST-RATE INCREASES
The Federal Reserve Board lowered rates at the beginning of the period, but
then came back and raised rates twice in the middle of the year, wiping out
any positive gains for bonds.
- FUND WAS A COMPETITIVE PERFORMER IN ITS CATEGORY
A greater emphasis on stocks and good sector selection helped the Fund's
Class A shares, without a sales charge, perform similarly to its Lipper
category.
PORTFOLIO MANAGEMENT REPORT
POSITIVE RETURNS FOR THE YEAR
An emphasis on stocks and careful selection among industries helped the
Liberty Fund achieve performance that tracked its Lipper category during the
12-month period ended October 31, 1999. The Fund's Class A shares, without a
sales charge, rose 10.94%. That compares similarly to the Lipper Balanced Fund
Average, which was up 11.30% for the period.
A TALE OF TWO MARKETS
During the first half of the year, investors began to focus their attention
on areas of the stock market beyond large-company growth stocks. Value-oriented
sectors such as energy, basic materials and consumer cyclicals did well.
However, the shift was short-lived. Two successive interest rate increases and
an economy that looked like it was heating up made investors nervous.
Unfortunately, value stocks gave back their gains. A narrow band of large
technology companies continued to climb, but most of the stock market had a poor
showing in the second half of the year.
FUND'S TECHNOLOGY EXPOSURE INCREASED
During the period, we raised the Fund's exposure to the technology sector
to 24.2%, which made a positive contribution to the Fund's performance. Applied
D-1
<PAGE>
Materials, Apple Computer, Texas Instruments and Sun Microsystems (1.1%, 1.0%,
1.4% and 1.0% of net assets, respectively) were among the best technology
performers in the portfolio. The group benefited from a strong economy, which
allowed companies to continue to direct capital spending toward technology, and
increased semiconductor demand, for use in computers and communications
products.
We also experienced disappointments in the technology area. We invested in
Hewlett-Packard, which we sold during the period, and Unisys (0.5% of net
assets) on expectations of rising earnings. However, earnings failed to live up
to our expectations.
MIXED RESULTS FROM FINANCIAL AND HEALTH CARE STOCKS
Financial Services and health care are two of the largest sectors in the
Fund. Although financial stocks did well over the 12-month period, rising
interest rates negatively impacted the sector during the second half of the
year. In the health care sector, concern about a reduction in Medicare benefits
hurt drug company stocks. A move to endorse a patient's bill of rights also
unsettled the HMO and hospital segment. As a result, we eliminated our
investments in Universal Health Services, Tenet Health Care and Healthsouth.
And, we cut back on our investment in Merck (1.0% of net assets).
A CHALLENGING ENVIRONMENT FOR BONDS
The year began on a positive note for bonds as the Fed cut short-term
interest rates and the world began to lower its expectations for growth as a
result of turmoil in the foreign markets. However, the U.S. economy continued
its strong growth. That led the Fed to reverse its course and raise interest
rates twice during the summer. As a result, bond prices declined over fears of
rekindled inflation and continued monetary tightening. Corporate and mortgage
bonds were hurt as investors seemed reluctant to take on any amount of risk. The
portfolio's relatively low weighting to the bond sector help shield investors in
this challenging environment.
LOOKING AHEAD
What's the next move for interest rates? Signs that inflation could have
the potential to pick up are evident in the commodities market as well as the
tight labor market. That suggests that the Fed could raise interest rates again.
However, inflation has remained relatively low, and there are some signs that
the domestic economy is starting to slow-both positive factors. We continue to
think that growth stocks have potential, but we believe that value stocks also
offer attractive opportunities. As a result, we will keep a mix of both in the
portfolio.
/s/ John Lennon
/s/ Peter Wiley
D-2
<PAGE>
/s/ Leslie Finnemore
/s/ Ann Peterson
October 31, 1999
Investing in stocks and bonds involves certain risks, including price
fluctuations caused by economic and business developments and changes in
interest rates.
PERFORMANCE INFORMATION
THE LIBERTY FUND'S INVESTMENT PERFORMANCE VS. STANDARD & POOR'S MIDCAP 400
INDEX, RUSSELL 1000 INDEX AND SALOMON BROTHERS BROAD INVESTMENT GRADE INDEX
[LINE CHART: Initial and subsequent account values at end of each of the most
recently completed ten fiscal years]
Performance of a $10,000 Investment in Class A Shares 10/31/89 - 10/31/99
<TABLE>
<CAPTION>
Russell 1000 Salomon Brothers
With Sales Broad Investment S&P MidCap Without Sales With Sales
Index Charge Grade Index 400 Index Charge Charge
<S> <C> <C> <C> <C> <C>
10/89 10,000 10,000 10,000 10,000 9,425
10/90 8,741 10,638 8,660 8,878 8,367
10/91 11,551 12,315 14,155 11,653 10,983
10/92 12,427 13,557 15,460 12,771 12,037
10/93 14,007 15,182 18,788 15,352 14,469
10/94 14,044 14,636 19,236 15,465 14,576
10/95 17,378 16,932 23,315 18,825 17,742
10/96 20,895 17,929 27,361 21,858 20,601
10/97 27,006 19,514 36,299 27,723 26,129
10/98 31,849 21,346 38,735 30,240 28,502
10/99 39,470 21,451 46,897 33,574 31,643
</TABLE>
The Standard & Poor's MidCap 400 Index is an unmanaged index that tracks the
performance of mid-capitalization U.S. stocks. The Russell 1000 Index is an
unmanaged index that tracks the performance of small-capitalization stocks
traded on the New York Stock Exchange, the American Stock Exchange and the
NASDAQ. The Salomon Brothers Broad Investment Grade Index is an unmanaged index
that tracks the performance of corporate, mortgage, agency and treasury bonds.
Unlike mutual funds, indexes are not investments and do not incur fees or
charges. It is not possible to invest in an index.
AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/99
<TABLE>
<CAPTION>
Share Class A B C Z
Inception Date 1904 5/5/92 8/1/97 7/31/95
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
D-3
<PAGE>
<TABLE>
<CAPTION>
Without With Without With Without With Without
sales sales sales sales sales sales sales
charge charge charge charge charge charge charge
<S> <C> <C> <C> <C> <C> <C> <C>
1 year 10.94% 4.56% 10.11% 5.11% 10.15% 9.15% 15.92%
5 years 16.75% 15.38% 15.88% 15.65% 16.36% 16.36% 18.03%
10 years 12.88% 12.21% 12.24% 12.24% 12.69% 12.69% 13.49%
</TABLE>
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
the maximum 5.75% charge for Class A shares and the contingent deferred sales
charge (CDSC) maximum charge of 5% for one year and 2% for five years for Class
B shares and 1% for one year for Class C shares. Performance for different share
classes will vary based on differences in sales charges and fees associated with
each class.
Class B, C and Z share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A share
returns were not restated to reflect any expense differential (e.g., Rule 12b-1
fees) between Class A shares and the newer class shares. Had the expense
differential been reflected, the returns for the periods prior to the inception
of Class B and Class C shares would have been lower.
PERFORMANCE OF A $10,000 INVESTMENT IN ALL SHARE CLASSES 10/31/89 - 10/31/99
<TABLE>
<CAPTION>
WITHOUT WITH SALES
SALES CHARGE CHARGE
<S> <C> <C>
Class A $33,574 $31,643
Class B 31,739 31,739
Class C 33,021 33,021
Class Z 35,453 N/A
</TABLE>
NET ASSET VALUE AS OF 10/31/99
<TABLE>
<S> <C>
Class A $10.81
Class B $10.79
Class C $10.78
Class Z $11.28
</TABLE>
DISTRIBUTIONS DECLARED PER SHARE FROM 11/1/98 - 10/31/99
<TABLE>
<S> <C>
Class A $0.668
Class B $0.587
Class C $0.589
Class Z $0.693
</TABLE>
HOLDINGS
TOP 10 EQUITY HOLDINGS AS OF 10/31/99
D-4
<PAGE>
<TABLE>
<S> <C>
1. General Electric Co. 1.9%
2. Bristol Myers Squibb 1.8%
3. Cisco Systems 1.7%
4. Chase Manhattan Corp. 1.5%
5. Texas Instruments Inc. 1.4%
6. Microsoft Corp. 1.4%
7. International Business Machines Corp. 1.4%
8. Corning Inc. 1.3%
9. MCI WorldCom Inc. 1.3%
10. Omnicom Group 1.2%
</TABLE>
Holdings are calculated as a percentage of net assets. Because the Fund is
actively managed, there can be no guarantee the Fund will continue to maintain
these holdings in the future.
TOP 10 SECTOR BREAKDOWN AS OF 10/31/99
<TABLE>
<S> <C>
1. Technology 24.2%
2. Financials 18.6%
3. Health Care 9.5%
4. Consumer Cyclicals 9.4%
5. Consumer Staples 9.1%
6. Capital Goods 9.0%
7. Communication Services 6.9%
8. Utilities 5.1%
9. Energy 4.8%
10. Transportation 1.9%
</TABLE>
Sector breakdown is calculated as a percentage of total equity investments.
Because the Fund is actively managed, there can be no guarantee the Fund will
maintain this breakdown in the future.
D-5
<PAGE>
Part C. OTHER INFORMATION
Item 15.
Indemnification Article VIII of the Registrant's Agreement and Declaration of
Trust, as amended, provides for indemnification of the Registrant's Trustees and
officers. The effect of the relevant section of Article VIII of the Registrant's
Agreement and Declaration of Trust, as amended, is to provide indemnification
for each of the Registrant's Trustees and officers against liabilities and
counsel fees reasonably incurred in connection with the defense of any legal
proceeding in which such Trustee or officer may be involved by reason of being
or having been a Trustee or officer, except with respect to any matter as to
which such Trustee or officer shall have been adjudicated not to have acted in
good faith in the reasonable belief that such Trustee's or officer's action was
in the best interest of the Registrant, and except that no Trustee or officer
shall be indemnified against any liability to the Registrant or its shareholders
to which such Trustee or officer shall otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Trustee's or officer's office.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to Trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 16. Exhibits
(1)(a) Amendment No. 3 to the Agreement and Declaration of Trust (1)
(b) Amendment No. 4 to the Agreement and Declaration of Trust (2)
(c) Amendment No. 5 to the Agreement and Declaration of Trust (3)
(2)(c) By-Laws, as amended (3)
(3) Not Applicable
(4)(a) Form of Agreement and Plan of Reorganization between Stein Roe
Disciplined Stock Fund and Liberty Select Value Fund (9)
(b) Form of Agreement and Plan of Reorganization between Liberty
Small-Cap Value Fund and Liberty Select Value Fund (9)
(c) Form of Agreement and Plan of Reorganization between Liberty
Strategic Balanced Fund and The Liberty Fund (9)
(d) Form of Agreement and Plan of Reorganization between Liberty
Contrarian Small Cap Fund and Liberty Special Fund (9)
(e) Form of Agreement and Plan of Reorganization between Liberty
Contrarian Balanced Fund and Liberty Contrarian Balanced Fund
(9)
(5) Article III, Section 4, Article V, Section 1, Article VIII
Section 4 and Article IX Sections 1 and 7 of the Agreement
and Declaration of Trust, as amended, and Sections 2.1, 2.3
and 2.5 of the By-Laws, as amended, each define the rights
of shareholders
(6)(a) Form of Management Agreement (The Liberty Fund) (4)
(b) Form of Management Agreement (Liberty Select Value Fund) (5)
(c) Form of Management Agreement (Liberty Special Fund)(6)
(d) Form of Management Agreement (Liberty Contrarian Equity
Fund)(6)
<PAGE>
(7)(a) Distribution Agreement (incorporated herein by reference to
Exhibit (e)(1) to Post-Effective Amendment No. 17 to the
Registration Statement of Liberty Funds Trust VI (formerly
Colonial Trust VI), Registration Nos. 33-45117 and 811-6529
filed with the Commission on May 24, 1999)
(b) Appendix I to the Distribution Agreement between the Registrant
and Liberty Funds Distributor, Inc. - filed as Exhibit (e)(2)
in Part C, Item 23 of Post-Effective Amendment No. 63 to the
Registration Statement on Form N-1A of Liberty Funds Trust I
(File Nos. 2-41251 & 811-2214), filed with the Commission on or
about July 19, 2000, and is hereby incorporated by reference
and made a part of this Registration Statement
(e) Form of Selling Agreement with Liberty Funds Distributor, Inc.
(incorporated herein by reference to Exhibit 6.(b) to Post-
Effective Amendment No. 49 to the Registration Statement
of Liberty Funds Trust VI (formerly Colonial Trust VI),
Registration Nos. 33-45117 and 811-6529 filed with the
Commission on November 10, 1998)
(f) Form of Asset Retention Agreement (incorporated herein by
reference to Exhibit 6(d) to Post-Effective Amendment No. 10
to the Registration Statement of Liberty Funds Trust VI
(formerly Colonial Trust VI), Registration Nos. 33-45117 and
811-6529, filed with the Commission on September 27, 1996)
(8) Discussion of trustee compensation is incorporated by reference
from the second paragraph under the sub-caption "Trustee
Compensation" in the Proxy/Prospectus filed herewith.
(9)(a) Global Custody Agreement with The Chase Manhattan Bank
(incorporated herein by reference to Exhibit 8. to Post-
Effective Amendment No. 13 to the Registration Statement of
Liberty Funds Trust VI (formerly Colonial Trust VI),
Registration Nos. 33-45117 and 811-6529, filed with the
Commission on or about October 24, 1997)
(b) Amendment No. 13 to Appendix A of Global Custody Agreement with
The Chase Manhattan Bank - filed as Exhibit (g)(2) in Part C,
Item 23 of Post-Effective Amendment No. 63 to the Registration
Statement on Form N-1A of Liberty Funds Trust I (File Nos.
2-41251 & 811-2214), filed with the Commission on or about July
19, 2000, and is hereby incorporated by reference and made a
part of this Registration Statement
(c) Form of Custody Agreement with State Street Bank and Trust
Company(6)
(10)(a) Rule 12b-1 Distribution Plan - filed as Exhibit (m) in Part C,
Item 23 of Post-Effective Amendment No. 63 to the Registration
Statement on Form N-1A of Liberty Funds Trust I (File Nos.
2-41251 & 811-2214), filed with the Commission on or about July
19, 2000, and is hereby incorporated by reference and made a part
of this Registration Statement
(b) 12b-1 Plan Implementing Agreement between the Registrant and
Liberty Funds Distributor, Inc. - filed as Exhibit 6.(b) in Part
C, Item 24(b) of Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A of Liberty Funds Trust VI
(File Nos. 33-45117 and 811-6529), filed with the Commission on
or about May 24, 1999, and is hereby incorporated by reference
and made a part of this Registration Statement
(c) Appendix I to the 12b-1 Plan Implementing Agreement between
the Registrant and Liberty Funds Distributor, Inc. - filed as
Exhibit (e)(4) in Part C, Item 23 of Post-Effective Amendment No.
63 to the Registration Statement on Form N-1A of Liberty Funds
Trust I (File Nos. 2-41251 & 811-2214), filed with the Commission
on or about July 19, 2000, and is hereby incorporated by
reference and made a part of this Registration Statement
(d) Plan pursuant to Rule 18f-3(d) under the Investment Company Act
of 1940 - filed as Exhibit (o) in Part C, Item 23 of
Post-Effective Amendment No. 63 to the Registration Statement on
Form N-1A of Liberty Funds Trust I (File Nos. 2-41251 &
811-2214), filed with the Commission on or about July 19, 2000,
and is hereby incorporated by reference and made a part of this
Registration Statement
(11)(a) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Stein Roe Disciplined Stock Fund (9)
(b) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Small Cap Value Fund (9)
(c) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Strategic Balanced Fund (9)
(d) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Contrarian Small Cap Fund (9)
(e) Opinion and Consent of Counsel of Ropes & Gray with respect to
the Acquisition of Liberty Contrarian Balanced Fund (9)
(12)(a) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Bell, Boyd & Lloyd with respect
to the Acquisition of Stein Roe Disciplined Stock Fund (9)
(b) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Stein Roe Disciplined Stock Fund (9)
(c) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Small Cap Value Fund (9)
(d) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Strategic Balanced Fund (9)
(e) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Contrarian Small Cap Fund (9)
(f) Opinion and Consent of Counsel on Tax Matters and
Consequences to Shareholders of Ropes & Gray with respect to the
Acquisition of Liberty Contrarian Balanced Fund (9)
(13) Not Applicable
(14)(a) Consent of Independent Accountants (Arthur Andersen)
(b) Consent of Independent Accountants (PWC)
(c) Consent of Independent Auditors (E&Y)
(d) Consent of Independent Accountants (KPMG)
(15) Not Applicable
(16)(a) Power of Attorney for: Tom Bleasdale, Lora S. Collins, James E.
Grinnell, Richard W. Lowry, Salvatore Macera, William E. Mayer,
James L. Moody, Jr., John J. Neuhauser, Thomas E. Stitzel and
Anne-Lee Verville - filed with Part C, Item 23 of Post-Effective
Amendment No. 62 to the Registration Statement on Form N-1A of
Liberty Funds Trust I (File Nos. 2-41251 and 811-2214), filed
with the Commission on or about May 17, 2000 and is hereby
incorporated by reference and made a part of this Registration
Statement
(b) Power of Attorney for Joseph R. Palombo - filed with Part C,
Item 23 of Post-Effective Amendment No. 27 to the Registration
Statement on Form N-1A of Liberty Funds Trust V (File Nos.
33-12109 and 811-5030), filed with the Commission on or about
August 31, 2000 and is hereby incorporated by reference and made
a part of this Registration Statement
(17)(a) Amended and Restated Shareholders' Servicing and Transfer Agent
Agreement as amended - filed as Exhibit 9(b) to Part C, Item
24(b) of Post-Effective Amendment No. 10 to the Registration
Statement on Form N-1A of Liberty Funds Trust VI (File Nos.
33-45117 and 811-6529), filed with the Commission on or about
September 27, 1996, and is hereby incorporated by reference and
made a part of this Registration Statement
(b) Amendment No. 18 to Schedule A of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as amended
- filed as Exhibit (h)(2) in Part C, Item 23 of Post-Effective
Amendment No. 62 to the Registration Statement on Form N-1A of
Liberty Funds Trust I (File Nos. 2-41251 and 811-2214), filed
with the Commission on or about May 17, 2000, and is hereby
incorporated by reference and made a part of this Registration
Statement
(c) Amendment No. 23 to Appendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as amended
- filed as Exhibit (h)(3) in Part C, Item 23 of Post-Effective
Amendment No. 63 to the Registration Statement on Form N-1A of
Liberty Funds Trust I (File Nos. 2-41251 & 811-2214), filed with
the Commission on or about July 19, 2000, and is hereby
incorporated by reference and made a part of this Registration
Statement
(d) Pricing and Bookkeeping Agreement - filed as Exhibit 9(b) in
Part C, Item 24(b) of Post-Effective Amendment No. 10 to the
Registration Statement of Form N-1A of Liberty Funds Trust VI
(File Nos. 33-45117 and 811-6529) Filed with the Commission on or
about September 27, 1996, and is hereby incorporated by reference
and made a part of this Registration Statement
(e) Amendment to Appendix I of Pricing and Bookkeeping Agreement -
filed as Exhibit (h)(5) in Part C, Item 23 of Post-Effective
Amendment No. 63 to the Registration Statement on Form N-1A of
Liberty Funds Trust I (File Nos. 2-41251 & 811-2214), filed with
the Commission on or about July 19, 2000, and is hereby
incorporated by reference and made a part of this Registration
Statement
(f) Amended and Restated Credit Agreement with Bank of America -
filed as Exhibit (h)(8) in Part C, Item 23 of Post-Effective
Amendment No. 110 to the Registration Statement on Form N-1A of
Liberty Funds Trust III (File Nos. 2-15184 and 811-881), filed
with the Commission on or about August 12, 1999, and is hereby
incorporated by reference and made part of this Registration
Statement
(g) Amendment dated June 30, 2000 to the Amended and Restated Credit
Agreement with Bank of America filed as Exhibit (h)(8) in Part C,
Item 23 of Post-Effective Amendment No. 115 to the Registration
Statement on Form N-1A of Liberty Funds Trust III (File Nos.
2-15184 and 811-881), filed with the Commission on or about
October 4, 2000, and is hereby incorporated by reference and
made a part of this Registration Statement
(h) Code of Ethics of The Liberty Funds, Colonial Management
Associates, Inc., Stein Roe & Farnham Incorporated, Newport Fund
Management, Inc., Liberty Funds Distributor, Inc. - filed in
Part C, Item 23 of Post-Effective Amendment No. 27 to the
Registration Statement of Liberty Funds Trust V, (File Nos.
33-12109 and 811-5030), filed with the Commission on or about
August 31, 2000, and is hereby incorporated and made a part of
this Registration Statement
(i) Form of Proxy Card and Proxy Insert
(Stein Roe Disciplined Stock Fund)(9)
(j) Form of Proxy Card and Proxy Insert
(Liberty Small Cap Value Fund)(9)
(k) Form of Proxy Card and Proxy Insert
(Liberty Strategic Balanced Fund)(9)
(l) Form of Proxy Card and Proxy Insert
(Liberty Contrarian Small Cap Fund)(9)
(m) Form of Proxy Card and Proxy Insert
(Liberty Contrarian Balanced Fund)(9)
(n) The following documents, each filed via EDGAR and listed with
their filing accession number, are incorporated by reference
into the Proxy/Prospectus and the Statement of Additional
Information for the funds referenced below:
o The Prospectus of the Disciplined Stock Fund dated February 1, 2000 -
0000773757-00-000004
o As supplemented on February 11, 2000 - 0000773757-00-000016
o As supplemented on April 20, 2000 - 0000773757-00-000023
o As supplemented on June 5, 2000 - 0000021832-00-000100
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on July 14, 2000 - 0000021832-00-000123
o As supplemented on August 2, 2000 - 0000021832-00-000175
o As supplemented on August 11, 2000 - 0000021832-00-000179
o As supplemented on August 28, 2000 - 0000021832-00-000209
o As supplemented on September 1, 2000- 0000021832-00-000219
o The Prospectuses of the Small Cap Fund dated November 1, 2000 -
0000021832-00-000293
o The Statement of Additional Information of the Disciplined Stock Fund dated
February 1, 2000 - 0000773757-00-000004
o As supplemented on June 23, 2000 - 0000021832-00-000114
o The Statement of Additional Information of the Small Cap Fund dated
November 1, 2000 - 0000021832-00-000293
o The Statement of Additional Information of the Select Value Fund dated
March 1, 2000 - 0000021832-00-000046
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000021832-00-000188
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Disciplined Stock Fund dated
September 30, 1999 - 0000891804-99-002507
o The financial statements included in the Disciplined Stock Fund's
Semi-Annual Report to Shareholders dated March 31, 2000 -
0000891804-00-001050
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Small Cap Fund dated June 30, 2000
- 0000950156-00-000463
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Select Value Fund dated
October 31, 1999 - 0000950156-99-000765
o The financial statements included in the Select Value Fund's
Semi-Annual Report to Shareholders dated April 30, 2000 -
0000950135-00-003563
o The Statement of Additional Information of the Select Value Fund dated
November 8, 2000 relating to the Acquisitions.
o The Prospectus of the Strategic Fund dated March 1, 2000 -
0000883163-00-000016
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on and August 1, 2000 - 0000883163-00-000069
o The Statement of Additional Information of the Strategic Fund dated March
1, 2000 - 0000883163-00-000016
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000021832-00-000188
o The Statement of Additional Information of the Liberty Fund dated March 1,
2000 - 0000276716-00-000013
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000021832-00-000188
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Strategic Fund dated October 31,
1999 - 0000950146-00-000026
o The financial statements included in the Strategic Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0001005477-00-005056
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Liberty Fund dated October 31,
1999 - 0000950146-00-000030
o The financial statements included in the Liberty Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0001005477-00-005057
o The Statement of Additional Information of the Liberty Fund dated November
8, 2000 relating to the Acquisition.
o The Prospectuses of the Small Cap Fund dated March 1, 2000 -
0000276716-00-000014
o As supplemented on May 5, 2000 - 0000021832-00-000075
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 1, 2000 - 0000883163-00-000069
o The Statement of Additional Information of the Small Cap Fund dated March
1, 2000 - 0000276716-00-000014
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000883163-00-000084
o The Statement of Additional Information of the Special Fund dated March 1,
2000 - 0000276716-00-000014
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000883163-00-000084
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Small Cap Fund dated October 31,
1999 - 0000950146-00-000038
o The financial statements included in the Small Cap Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0000950135-00-003559
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Special Fund dated October 31,
1999 - 0000950146-00-000038
o The financial statements included in the Special Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0000950135-00-003559
o The Statement of Additional Information of the Special Fund dated November
8, 2000 relating to the Acquisition.
o The Prospectuses of the Balanced Fund dated March 1, 2000 -
0000276716-00-000014
o As supplemented on May 5, 2000 - 0000021832-00-000075
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 1, 2000 - 0000883163-00-000069
o The Statement of Additional Information of the Balanced Fund dated March 1,
2000 - 0000276716-00-000014
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000883163-00-000084
o The Statement of Additional Information of the Equity Fund dated March 1,
2000 - 0000276716-00-000014
o As supplemented on June 23, 2000 - 0000021832-00-000114
o As supplemented on August 21, 2000 - 0000883163-00-000084
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Balanced Fund dated October 31,
1999 - 0000950146-00-000038
o The financial statements included in the Balanced Fund's Semi-Annual Report
to Shareholders dated April 30, 2000 - 0000950135-00-003559
o The Report of Independent Accountants and financial statements included in
the Annual Report to Shareholders of the Equity Fund dated October 31,
1999 - 0000950146-00-000038
o The financial statements included in the Equity Fund's Semi-Annual
Report to Shareholders dated April 30, 2000 - 0000950135-00-003559
o The Statement of Additional Information of the Equity Fund dated November
8, 2000 relating to the Acquisition.
o Post-Effective Amendment No. 116 to the Registration Statement of Liberty
Funds Trust III relating to the Prospectus and Statement of Additional
Information of Liberty Select Value Fund, Class S and Liberty Special
Fund, Class I - 0000021832-00-000295
-----------------
(1) Incorporated by reference to Post-Effective Amendment No. 97 to Form N-1A
filed on or about February 13, 1997.
(2) Incorporated by reference to Post-Effective Amendment No. 104 to Form N-1A
filed on or about October 30, 1998.
(3) Incorporated by reference to Post-Effective Amendment No. 110 to Form N-1A
filed on or about August 12, 1999.
(4) Incorporated by reference to Post-Effective Amendment No. 94 to Form N-1A
filed on or about July 28, 1995.
(5) Incorporated by reference to Post-Effective Amendment No. 107 to Form N-1A
filed on or about December 31, 1998.
(6) Incorporated by reference to Post-Effective Amendment No. 101 to Form N-1A
filed on or about July 24, 1998.
(7) Incorporated by reference to Post-Effective Amendment No. 113 to Form N-1A
filed on or about February 17, 2000.
(8) Incorporated by reference to Post-Effective Amendment No. 109 to Form N-1A
filed on or about March 1, 1999.
(9) Incorporated by referenced to the Registrant's Registration Statement on
Form N-14 filed with the Securities and Exchange Commission on or about
October 5, 2000.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering
prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to this Registration Statement and will not be used until
the amendment is effective, and that, in determining any liability
under the 1933 Act, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust of Liberty Funds Trust III
(Trust), as amended, is on file with the Secretary of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by officers of the Trust as officers and by
its Trustees as trustees and not individually, and the obligations of or arising
out of this Registration Statement are not binding upon any of the Trustees,
officers or shareholders of the Trust individually but are binding only upon the
assets and property of Liberty Funds Trust III.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant, in the City of Boston and Commonwealth of
Massachusetts, on the 3rd day of November, 2000.
LIBERTY FUNDS TRUST III
By:/s/STEPHEN E. GIBSON
---------------------------------
Stephen E. Gibson
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/STEPHEN E. GIBSON President (chief November 3, 2000
-------------------- executive officer)
Stephen E. Gibson
/s/ GLENN M. WOLFSET Controller(principal accounting November 3, 2000
-------------------- officer)
Glenn M. Wolfset
/s/PAMELA A. MCGRATH Treasurer and Chief Financial Officer November 3, 2000
-------------------- (principal financial officer)
Pamela A. McGrath
<PAGE>
/s/TOM BLEASDALE* Trustee
-------------------
Tom Bleasdale
/s/LORA S. COLLINS* Trustee
-------------------
Lora S. Collins
/s/JAMES E. GRINNELL* Trustee
---------------------
James E. Grinnell
/s/RICHARD W. LOWRY* Trustee
--------------------
Richard W. Lowry
/s/SALVATORE MACERA* Trustee
--------------------
Salvatore Macera
*/s/ WILLIAM J. BALLOU
----------------------
William J. Ballou
/s/WILLIAM E. MAYER* Trustee Attorney-in-fact
-------------------- For each Trustee
William E. Mayer November 3, 2000
/s/JAMES L. MOODY, JR. * Trustee
------------------------
James L. Moody, Jr.
/s/JOHN J. NEUHAUSER* Trustee
---------------------
John J. Neuhauser
/s/JOSEPH R. PALOMBO* Trustee
---------------------
Joseph R. Palombo
/s/THOMAS E. STITZEL* Trustee
---------------------
Thomas E. Stitzel
/s/ANNE-LEE VERVILLE* Trustee
---------------------
Anne-Lee Verville
EXHIBIT INDEX
Exhibit Item
(14)(a) Consent of Independent Accountants (Arthur Andersen)
(b) Consent of Independent Accountants (PWC)
(c) Consent of Independent Auditors (E&Y)
(d) Consent of Independent Accountants (KPMG)
