<PAGE> 1
LIBERTY MUTUAL FUNDS
STEIN ROE MUTUAL FUNDS
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111-2621
Dear Shareholder:
Your Fund will hold a special meeting on December 27, 2000 at 10:00 a.m.
Eastern Time, at the offices of Colonial Management Associates, Inc. You will be
asked to vote on the acquisition of your Fund and on the election of eleven
Trustees. A formal Notice of Special Meeting of Shareholders appears on the next
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 the product offerings of the Liberty and Stein
Roe Funds, potentially reducing fund expense ratios by creating larger funds and
permitting the Liberty Financial organization to concentrate its portfolio
management resources on a more focused group of portfolios. Please review the
enclosed Prospectus/Proxy Statement for a more detailed description of the
proposed acquisition of your Fund and the specific reasons it is being proposed.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU CAN
VOTE EASILY AND QUICKLY BY MAIL, BY FAX (NOT AVAILABLE FOR ALL SHAREHOLDERS;
REFER TO ENCLOSED PROXY INSERT), BY PHONE OR IN PERSON. A SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE. PLEASE HELP YOUR
FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
Your Fund is using Shareholder Communications Corporation ("SCC"), a
professional proxy solicitation firm, to assist shareholders in the voting
process. As the date of the special meeting approaches, if we have not yet
received your vote, you may receive a telephone call from SCC reminding you to
exercise your right to vote.
Please take a few moments to review the details of each proposal. If you
have any questions regarding the combined Prospectus/Proxy Statement, please
feel free to call the contact number listed in the enclosed Prospectus/Proxy
Statement.
We appreciate your participation and prompt response in these matters and
thank you for your continued support.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson, President
November 17, 2000
G-60/601D-1000
<PAGE> 2
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD DECEMBER 27, 2000
LIBERTY FUNDS TRUST V
LIBERTY FLORIDA TAX-EXEMPT FUND
LIBERTY MICHIGAN TAX-EXEMPT FUND
LIBERTY MINNESOTA TAX-EXEMPT FUND
LIBERTY NORTH CAROLINA TAX-EXEMPT FUND
LIBERTY FUNDS TRUST III
LIBERTY OREGON TAX-FREE FUND
NOTICE IS HEREBY GIVEN that Special Meetings of the shareholders of the
above listed Funds (collectively the "Acquired Funds") will be held at 10:00
a.m. Eastern Time on Wednesday, December 27, 2000 at the offices of Colonial
Management Associates, Inc., One Financial Center, Boston, Massachusetts
02111-2621, for these purposes:
1. SHAREHOLDERS OF THE LIBERTY FLORIDA TAX-EXEMPT FUND VOTE: To approve an
Agreement and Plan of Reorganization providing for the sale of all of
the assets of the Liberty Florida Tax-Exempt Fund to, and the
assumption of all of the liabilities of the Liberty Florida Tax-Exempt
Fund by, the Liberty Tax-Exempt Fund in exchange for shares of the
Liberty Tax-Exempt Fund and the distribution of such shares to the
shareholders of the Liberty Florida Tax-Exempt Fund in complete
liquidation of the Liberty Florida Tax-Exempt Fund.
2. SHAREHOLDERS OF THE LIBERTY MICHIGAN TAX-EXEMPT FUND VOTE: To approve
an Agreement and Plan of Reorganization providing for the sale of all
of the assets of the Liberty Michigan Tax-Exempt Fund to, and the
assumption of all of the liabilities of the Liberty Michigan Tax-Exempt
Fund by, the Liberty Tax-Exempt Fund in exchange for shares of the
Liberty Tax-Exempt Fund and the distribution of such shares to the
shareholders of the Liberty Michigan Tax-Exempt Fund in complete
liquidation of the Liberty Michigan Tax-Exempt Fund.
3. SHAREHOLDERS OF THE LIBERTY MINNESOTA TAX-EXEMPT FUND VOTE: To approve
an Agreement and Plan of Reorganization providing for the sale of all
of the assets of the Liberty Minnesota Tax-Exempt Fund to, and the
assumption of all of the liabilities of the Liberty Minnesota
Tax-Exempt Fund by, the Liberty Tax-Exempt Fund in exchange for shares
of the Liberty Tax-Exempt Fund and the distribution of such shares to
the shareholders of the Liberty Minnesota Tax-Exempt Fund in complete
liquidation of the Liberty Minnesota Tax-Exempt Fund.
4. SHAREHOLDERS OF THE LIBERTY NORTH CAROLINA TAX-EXEMPT FUND VOTE: To
approve an Agreement and Plan of Reorganization providing for the sale
of all of the assets of the Liberty North Carolina Tax-Exempt Fund to,
and the assumption of all of the liabilities of the Liberty North
Carolina Tax-Exempt Fund by, the Liberty Tax-Exempt Fund in exchange
for shares of the Liberty Tax-Exempt Fund and the distribution of such
shares to the shareholders of the Liberty North Carolina Tax-Exempt
Fund in complete liquidation of the Liberty North Carolina Tax-Exempt
Fund.
5. SHAREHOLDERS OF THE OREGON TAX-FREE FUND VOTE: To approve an Agreement
and Plan of Reorganization providing for the sale of all of the assets
of the Oregon Tax-Free Fund to, and the assumption of all of the
liabilities of the Oregon Tax-Free Fund the Liberty Tax-Exempt Fund by,
the Liberty Tax-Exempt Fund in exchange for shares of the Liberty
Tax-Exempt Fund and the distribution of such shares to the shareholders
of the Oregon Tax-Free Fund in complete liquidation of the Oregon
Tax-Free Fund.
6. SHAREHOLDERS OF EACH ACQUIRED FUND VOTE: To elect eleven Trustees.
7. To consider and act upon any other matters that properly come before
the meeting and any adjourned session of the meeting.
<PAGE> 3
Shareholders of record at the close of business on September 29, 2000 are
entitled to notice of and to vote at the meeting and any adjourned session.
By order of the Board of Trustees,
William J. Ballou, Secretary
November 17, 2000
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU
CAN VOTE EASILY AND QUICKLY BY PHONE, BY MAIL, BY FAX (NOT AVAILABLE FOR
ALL SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT) OR IN PERSON. PLEASE
HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
<PAGE> 4
COMBINED PROSPECTUS AND PROXY STATEMENT
NOVEMBER 17, 2000
ACQUISITION OF THE ASSETS AND LIABILITIES OF EACH OF
LIBERTY FLORIDA TAX-EXEMPT FUND
LIBERTY MICHIGAN TAX-EXEMPT FUND
LIBERTY MINNESOTA TAX-EXEMPT FUND
LIBERTY NORTH CAROLINA TAX-EXEMPT FUND
c/o Liberty Funds Trust V
One Financial Center
Boston, Massachusetts 02111-2621
1-800-426-3750
AND
LIBERTY OREGON TAX-FREE FUND
c/o Liberty Funds Trust III
One Financial Center
Boston, Massachusetts 02111-2621
1-800-426-3750
BY AND IN EXCHANGE FOR SHARES OF
LIBERTY TAX-EXEMPT FUND
c/o Liberty Funds Trust IV
One Financial Center
Boston, Massachusetts 02111-2621
1-800-426-3750
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
QUESTIONS AND ANSWERS..................................................... 4
PROPOSAL 1 -- Acquisition of the Liberty Florida Tax-Exempt Fund by the
Liberty Tax-Exempt Fund..................................... 14
Principal Investment Risks........................................... 14
Information about the Acquisition.................................... 15
PROPOSAL 2 -- Acquisition of the Liberty Michigan Tax-Exempt Fund by the
Liberty Tax-Exempt Fund..................................... 20
Principal Investment Risks........................................... 20
Information about the Acquisition.................................... 21
PROPOSAL 3 -- Acquisition of the Liberty Minnesota Tax-Exempt Fund by the
Liberty Tax-Exempt Fund..................................... 25
Principal Investment Risks........................................... 26
Information about the Acquisition.................................... 26
PROPOSAL 4 -- Acquisition of the Liberty North Carolina Tax-Exempt Fund by
the Liberty Tax- Exempt Fund................................ 31
Principal Investment Risks........................................... 31
Information about the Acquisition.................................... 32
PROPOSAL 5 -- Acquisition of the Liberty Oregon Tax-Free Fund by the
Liberty Tax-Exempt Fund..................................... 37
Principal Investment Risks........................................... 37
Information about the Acquisition.................................... 38
INFORMATION APPLICABLE TO PROPOSALS 1 THROUGH 5........................... 43
PROPOSAL 6 -- Election of Trustees........................................ 44
GENERAL................................................................... 48
Voting Information........................................................ 48
Appendix A -- Form of Agreement and Plan of Reorganization................ A-1
Appendix B -- Fund Information............................................ B-1
Appendix C -- Capitalization.............................................. C-1
Appendix D -- Management's Discussion of Fund Performance for the Liberty
Tax-Exempt Fund......................................................... D-1
</TABLE>
1
<PAGE> 5
This combined Prospectus/Proxy Statement contains information you should
know before voting on the proposed acquisition of the Liberty Florida Tax-Exempt
Fund (the "Florida Fund"), the Liberty Michigan Tax-Exempt Fund (the "Michigan
Fund"), the Liberty Minnesota Tax-Exempt Fund (the "Minnesota Fund"), the
Liberty North Carolina Tax-Exempt Fund (the "North Carolina Fund") and the
Liberty Oregon Tax-Free Fund (the "Oregon Fund") (each, an "Acquired Fund," and
together, the "Acquired Funds") by the Liberty Tax-Exempt Fund (the "National
Fund") (each, an "Acquisition," and together, the "Acquisitions") or voting on
the other proposals to be considered at a Special Meeting of Shareholders of
each Acquired Fund (the "Meetings"), which will be held at 10:00 a.m. Eastern
Time on December 27, 2000 at the offices of Colonial Management Associates, Inc.
("Colonial"), One Financial Center, Boston, Massachusetts 02111-2621. Please
read this Prospectus/Proxy Statement and keep it for future reference.
Proposal 1 in this Prospectus/Proxy Statement relates to the proposed
acquisition of the Florida Fund by the National Fund. Proposal 2 in this
Prospectus/Proxy Statement relates to the proposed acquisition of the Michigan
Fund by the National Fund. Proposal 3 in this Prospectus/Proxy Statement relates
to the proposed acquisition of the Minnesota Fund by the National Fund. Proposal
4 in this Prospectus/Proxy Statement relates to the proposed acquisition of the
North Carolina Fund by the National Fund. Proposal 5 in this Prospectus/Proxy
Statement relates to the proposed acquisition of the Oregon Fund by the National
Fund. If the Acquisition of your Fund occurs, you will become a shareholder of
the National Fund. The National Fund seeks as high a level of after-tax total
return as is consistent with prudent risk, by pursuing current income exempt
from federal income tax and opportunities for long-term appreciation. If the
Agreement and Plan of Reorganization is approved by the shareholders of your
Fund and the Acquisitions occur, your Fund will transfer all of the assets and
liabilities attributable to each class of its shares to the National Fund in
exchange for shares of the same class of the National Fund with the same
aggregate net asset value as the assets and liabilities transferred. After that
exchange, shares of each class received by each Acquired Fund will be
distributed pro rata to its shareholders of the same class.
Proposal 6 in this Prospectus/Proxy Statement relates to the election of
Trustees of Liberty Funds Trust V ("Trust V"), of which the Florida Fund, the
Michigan Fund, the Minnesota Fund and the North Carolina Fund are series.
Proposal 6 also relates to the election of Trustees of Liberty Funds Trust III
("Trust III") (together with Trust V, the "Liberty Trusts"), of which the Oregon
Fund is a series.
If you are a shareholder of the Florida Fund, you are being asked to vote
on Proposals 1 and 6 in this Prospectus/Proxy Statement. If you are a
shareholder of the Michigan Fund, you are being asked to vote on Proposals 2 and
6 in this Prospectus/Proxy Statement. If you are a shareholder of the Minnesota
Fund, you are being asked to vote on Proposals 3 and 6 in this Prospectus/Proxy
Statement. If you are a shareholder of the North Carolina Fund, you are being
asked to vote on Proposals 4 and 6 in this Prospectus/Proxy Statement. If you
are a shareholder of the Oregon Fund, you are being asked to vote on Proposals 5
and 6 in this Prospectus/Proxy Statement. All shareholders should review these
Proposals carefully, as well as the section "Information Applicable to Proposals
1 through 5."
Please review the enclosed Prospectus of the National Fund. This document
is incorporated in this Prospectus/Proxy Statement by reference. The following
documents have also been filed with the Securities and Exchange Commission (the
"SEC") and are incorporated in this Prospectus/Proxy Statement by reference:
- The Prospectus of each of the Florida Fund, the Michigan Fund, the
Minnesota Fund and the North Carolina Fund dated June 1, 2000, as
supplemented on June 23, 2000, September 12, 2000, October 23, 2000 and
October 26, 2000.
- The Prospectus of the Oregon Fund dated March 1, 2000, as supplemented on
June 23, 2000, August 1, 2000, October 23, 2000 and October 26, 2000.
- The Statement of Additional Information of each of the Florida Fund, the
Michigan Fund, the Minnesota Fund and the North Carolina Fund dated June
1, 2000, as supplemented on June 23, 2000, August 21, 2000 and October
23, 2000.
2
<PAGE> 6
- The Statement of Additional Information of the Oregon Fund dated March 1,
2000, as supplemented on June 23, 2000, August 21, 2000 and October 23,
2000.
- The Statement of Additional Information of the National Fund dated April
1, 2000, as supplemented on June 23, 2000, August 18, 2000 and October
23, 2000.
- The Report of Independent Accountants and financial statements included
in the Annual Report to Shareholders of each of the Florida Fund, the
Michigan Fund, the Minnesota Fund and the North Carolina Fund dated
January 31, 2000.
- The financial statements included in the Florida, Michigan, Minnesota and
North Carolina Funds' Semi-Annual Report to Shareholders dated July 31,
2000.
- The Report of Independent Accountants and financial statements included
in the Annual Report to Shareholders of the Oregon Fund dated October 31,
1999.
- The financial statements included in the Oregon Fund's Semi-Annual Report
to Shareholders dated April 30, 2000.
- The Statement of Additional Information of the National Fund dated
November 17, 2000 relating to the Acquisitions.
Each Acquired Fund has previously sent its Annual and Semi-Annual Reports
to its shareholders. For a free copy of these Reports or any of the documents
listed above, please call 1-800-426-3750 or write to your Fund at One Financial
Center, Boston, Massachusetts 02111-2621. You may also obtain many of these
documents by accessing our web site at www.libertyfunds.com. Our hearing
impaired shareholders may call Liberty Funds Services, Inc., the Funds' transfer
agent, at 1-800-528-6979 if you have special TTD equipment. Text-only versions
of all the Acquired Fund and National Fund documents can be viewed online or
downloaded from the Edgar database on the SEC's internet site at www.sec.gov.
You can review and copy information about the Funds by visiting the following
location, and you can obtain copies, upon payment of a duplicating fee, by
electronic request at the following e-mail address: [email protected], or by
writing the Public Reference Room, U.S. Securities and Exchange Commission,
Washington, DC 20549-0102. Information on the operation of the Public Reference
Room may be obtained by calling 202-942-8090.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
3
<PAGE> 7
QUESTIONS AND ANSWERS
THE FOLLOWING QUESTIONS AND ANSWERS PROVIDE AN OVERVIEW OF KEY FEATURES OF THE
ACQUISITIONS AND OF THE OTHER MATTERS TO BE CONSIDERED AT THE MEETINGS AND OF
THE INFORMATION CONTAINED IN THIS COMBINED PROSPECTUS/ PROXY STATEMENT. PLEASE
REVIEW THE FULL PROSPECTUS/PROXY STATEMENT PRIOR TO CASTING YOUR VOTE.
1. WHAT IS BEING PROPOSED?
First, the Trustees of the Liberty Trusts are recommending in Proposal 1 that
the National Fund acquire the Florida Fund, in Proposal 2 that the National Fund
acquire the Michigan Fund, in Proposal 3 that the National Fund acquire the
Minnesota Fund, in Proposal 4 that the National Fund acquire the North Carolina
Fund, and in Proposal 5 that the National Fund acquire the Oregon Fund. This
means that the National Fund would acquire all of the assets and liabilities of
each of the Acquired Funds in exchange for shares of the National Fund
representing the aggregate net asset value of each Acquired Fund's assets and
liabilities. If the Proposal for the Acquisition of your Acquired Fund is
approved, you will receive shares of the National Fund with an aggregate net
asset value equal to the aggregate net asset value of your Acquired Fund shares
as of the business day before the closing of the Acquisitions. The Acquisitions
are currently scheduled to take place on or around January 22, 2001. Note that
the closing of each Acquisition is not conditioned on the closing of the other
Acquisitions proposed in this Prospectus/Proxy Statement. Accordingly, in the
event that the shareholders of one of the Acquired Funds approves their Fund's
Acquisition, it is expected that the approved Acquisition will, subject to the
terms of the Agreement and Plan of Reorganization, take place as described in
this Prospectus/Proxy Statement, even if the shareholders of another Acquired
Fund have not approved their Fund's Acquisition.
In addition, the Trustees of the Liberty Trusts are recommending in Proposal 6
that you vote in favor of eleven nominees for Trustees.
2. WHY ARE THE ACQUISITIONS BEING PROPOSED?
The Trustees of the Liberty Trusts recommend approval of the Acquisitions. In
reviewing the Acquisitions, the Trustees considered:
- that absent the Acquisitions, Liberty Financial Companies, Inc. ("Liberty
Financial"), the indirect parent of the investment advisors to each
Acquired Fund, has indicated to the Trustees that it will recommend that
each Acquired Fund for which the Acquisition is not consummated be
liquidated;
- the expected reduction in the fees and expenses payable by the Michigan
Fund, the Minnesota Fund and the North Carolina Fund as a result of the
Acquisitions;
- the expected reduction in the fees and expenses payable by the Florida
Fund and the Oregon Fund as a result of the Acquisitions, assuming each
such Fund's investment advisor declined to continue the voluntary fee
waiver or expense reimbursement in effect with respect to such Fund;
- that the Acquisitions offer shareholders of each Acquired Fund an
investment in a larger, more diversified fund which earns and distributes
income exempt from federal income tax;
- that the Acquired Funds have not achieved sufficient sales growth and are
not likely to do so in the near future and recently each such Fund has
been experiencing net shareholder redemptions; and
- the expected tax-free nature of the Acquisitions as opposed to other
alternatives for the Funds and for shareholders.
The Trustees also considered the Acquired Fund shareholders' loss of all or a
portion of the exemption from state tax on personal income (or in the case of
the Florida Fund, the state intangibles tax) earned from the Fund. Please review
"Reasons for the Acquisition" in Proposals 1 through 5 of this Prospectus/Proxy
Statement for a full description of the factors considered by the Trustees.
4
<PAGE> 8
3. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE AND WHAT ARE
THEY ESTIMATED TO BE FOLLOWING THE ACQUISITIONS?
The following tables allow you to compare the sales charges and management fees
and expenses of each Acquired Fund and the National Fund and to analyze the
estimated expenses that Liberty Financial, the indirect parent of each Fund's
investment advisor, expects the combined fund to bear in the first year
following the Acquisitions. The shareholder fees presented below for the
National Fund apply both before and after giving effect to the Acquisition.
Sales charges are paid directly by shareholders to Liberty Funds Distributor,
Inc., each Fund's distributor. Annual Fund Operating Expenses are deducted from
the Fund's assets. They include management fees, 12b-1 fees and administrative
costs, including pricing and custody services. The Annual Fund Operating
Expenses shown in the table below represent expenses incurred by the Oregon Fund
for its fiscal year ended October 31, 1999; by the Florida, Michigan, Minnesota
and North Carolina Funds for their last fiscal years ended January 31, 2000; and
by the National Fund for its last fiscal year ended November 30, 1999.
Detailed pro forma combined expense information presented in the Annual Fund
Operating Expenses table below for the combined fund is provided based on the
assumption that the National Fund acquires all the Acquired Funds. In addition,
following the presentation of that detailed information, the total Annual Fund
Operating Expenses are presented on a pro forma combined basis for each possible
scenario in which the National Fund acquires one or more, but not all, of the
Acquired Funds.
SHAREHOLDER FEES(1)
(paid directly from your investment)
<TABLE>
<CAPTION>
FLORIDA FUND MICHIGAN FUND
------------ -------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load) on
purchases (%) (as a percentage of the
offering price) 4.75 0.00 0.00 4.75 0.00 0.00
-----------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
on redemptions (%) (as a percentage
of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00 1.00(2) 5.00 1.00
-----------------------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage
of amount redeemed, if applicable) (3) (3) (3) (3) (3) (3)
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND NORTH CAROLINA FUND
-------------- -------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load) on
purchases (%) (as a percentage of the
offering price) 4.75 0.00 0.00 4.75 0.00 0.00
-----------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
on redemptions (%) (as a percentage
of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00 1.00(2) 5.00 1.00
-----------------------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage
of amount redeemed, if applicable) (3) (3) (3) (3) (3) (3)
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
OREGON FUND NATIONAL FUND
----------- -------------
CLASS A CLASS B CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load) on
purchases (%) (as a percentage of the
offering price) 4.75 0.00 4.75 0.00 0.00
-----------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
on redemptions (%) (as a percentage
of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00(2) 5.00 1.00
-----------------------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage
of amount redeemed, if applicable) (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>
FLORIDA FUND MICHIGAN FUND
------------ -------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Management fee(4)(%) 0.50 0.50 0.50 0.50 0.50 0.50
-----------------------------------------------------------------------------------------------------
Distribution and service (12b-1)
fees(5)(6)(%) 0.19 0.94 0.94 0.18 0.93 0.93
-----------------------------------------------------------------------------------------------------
Other expenses(4)(%) 0.34 0.34 0.34 0.36 0.36 0.36
-----------------------------------------------------------------------------------------------------
Total annual fund operating
expenses(4)(6)(%) 1.03 1.78 1.78 1.04 1.79 1.79
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND NORTH CAROLINA FUND
-------------- -------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Management fee(%) 0.50 0.50 0.50 0.50 0.50 0.50
-----------------------------------------------------------------------------------------------------
Distribution and service (12b-1)
fees(5)(6)(%) 0.19 0.94 0.94 0.19 0.94 0.94
-----------------------------------------------------------------------------------------------------
Other expenses(%) 0.37 0.37 0.37 0.43 0.43 0.43
-----------------------------------------------------------------------------------------------------
Total annual fund operating
expenses(6)(%) 1.06 1.81 1.81 1.12 1.87 1.87
</TABLE>
<TABLE>
<CAPTION>
OREGON FUND NATIONAL FUND
----------- -------------
CLASS A CLASS B CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Management fee(7)(%) 0.55 0.55 0.52 0.52 0.52
-----------------------------------------------------------------------------------------------------
Distribution and service (12b-1)
fees(6)(%) 0.25 1.00 0.25 1.00 1.00
-----------------------------------------------------------------------------------------------------
Other expenses(7)(%) 0.50 0.50 0.23 0.23 0.23
-----------------------------------------------------------------------------------------------------
Total annual fund operating
expenses(6)(7)(%) 1.30 2.05 1.00 1.75 1.75
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
NATIONAL FUND* (PRO FORMA COMBINED)
-----------------------------------
CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C>
Management fee(%) 0.52 0.52 0.52
-----------------------------------------------------------------------------------------------------------
Distribution and service (12b-1)
fees(8)(9)(%) 0.25 1.00 1.00
-----------------------------------------------------------------------------------------------------------
Other expenses(%) 0.23 0.23 0.23
-----------------------------------------------------------------------------------------------------------
Total annual fund operating
expenses(8)(%) 1.00 1.75 1.75
</TABLE>
---------------
(4) The Florida Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses so that the total annual fund
operating expenses (exclusive of distribution and service fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.75%. As a result, the actual management fee for each share class
would be 0.41% and total annual fund operating expenses for Class A, B and C
shares would be 0.94%, 1.69% and 1.69%, respectively. This arrangement may
be modified or terminated by the advisor at any time.
(5) With respect to the Florida Fund, the Michigan Fund, the Minnesota Fund and
the North Carolina Fund, the annual service fee portion of the 12b-1 fee may
equal up to 0.10% on net assets attributable to shares issued prior to
December 1, 1994 and 0.25% on net assets attributable to shares issued
thereafter. This arrangement results in a rate of service fee that is a
blend between the 0.10% and 0.25% rates.
(6) The distributor of the National Fund, the Florida Fund, the Michigan Fund,
the Minnesota Fund and the North Carolina Fund has voluntarily agreed to
waive a portion of the 12b-1 fee for Class C shares. As a result, the actual
12b-1 fee would be 0.85% for National Fund Class C shares, 0.64% for Florida
Fund, Minnesota Fund and North Carolina Fund Class C shares, and 0.63% for
Michigan Fund Class C shares; and the total annual fund operating expenses
would be 1.60% for National Fund Class C shares, 1.39% for Florida Fund
Class C shares, 1.49% for Michigan Fund Class C shares, 1.51% for Minnesota
Fund Class C shares, and 1.57% for North Carolina Fund Class C shares. This
arrangement may be modified or terminated by the distributor at any time.
(7) The Oregon Fund's management fee includes both the management fee and
administration fee. The Oregon Fund's advisor and administrator have
voluntarily agreed to waive advisory and administration fees and reimburse
the Fund for certain expenses so that the total annual fund operating
expenses (exclusive of distribution and service fees, brokerage commissions,
interest, taxes and extraordinary expenses, if any) will not exceed 0.73%.
As a result, the actual management and administration fees for each share
class would be 0.23%, other expenses for each share class would be 0.50%,
and total annual fund operating expenses for Class A and Class B shares
would be 0.98% and 1.73%, respectively. This arrangement may be modified or
terminated by the advisor or administrator at any time.
(8) The distributor of the National Fund has voluntarily agreed to waive a
portion of the 12b-1 fee for Class C shares. As a result, the actual 12b-1
fee would be 0.85% and the total annual fund operating expenses would be
1.60% for Class C shares. This arrangement may be modified or terminated by
the distributor at any time.
(9) With respect to the National Fund, the annual service fee portion of the
12b-1 fee may equal up to 0.10% on net assets attributable to shares of the
National Fund issued in exchange for shares of the Florida Fund, the
Michigan Fund, the Minnesota Fund and the North Carolina Fund issued prior
to December 1, 1994 and 0.25% on net assets attributable to shares of the
National Fund issued in exchange for shares of the Florida Fund, the
Michigan Fund, the Minnesota Fund and the North Carolina Fund issued
thereafter as well as on net assets attributable to shares issued in
exchange for shares of the Oregon Fund and shares of the National Fund
issued prior to the merger date and subsequent to completion of the
Acquisitions. This arrangement results in a service fee rate that is a blend
between the 0.10% and 0.25% rates.
* The pro forma combined total Annual Fund Operating Expenses detailed above
and the Example Expenses detailed below assume that each Acquired Fund
approves the Acquisition. Which Acquired Fund or Funds approve the
Acquisitions will affect the total annual fund operating expenses of the
National Fund on a pro forma combined basis after the Acquisitions. The
tables below present the pro forma combined total Annual Operating Expenses
and Example Expenses assuming in each case only one of the five Acquired
Funds approves the Acquisition. If more than one, but less than all, of the
Acquired Funds were to approve the Acquisitions, the pro forma combined
total Annual Fund Operating Expenses and Example Expenses after the
Acquisitions would be between the percentages or amounts presented in this
footnote and those presented in the respective Operating Expenses and
Example Expenses tables.
If only the Florida Fund were to approve the Acquisition, the total Annual
Fund Operating Expenses and Example Expenses would be as follows:
ANNUAL FUND OPERATING EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee(%) 0.53 0.53 0.53
-------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees(8)(9)(%) 0.25 1.00 1.00
-------------------------------------------------------------------------------------------
Other expenses(%) 0.23 0.23 0.23
-------------------------------------------------------------------------------------------
Total annual fund operating expenses(8)(%) 1.01 1.76 1.76
</TABLE>
7
<PAGE> 11
EXAMPLE EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $573 $781 $1,006 $1,653
------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $179 $554 $ 954 $1,875
sold all your shares at end of period $679 $854 $1,154 $1,875
------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $179 $554 $ 954 $2,073
sold all your shares at end of period $279 $554 $ 954 $2,073
</TABLE>
If only the Michigan Fund were to approve the Acquisition, the total Annual
Fund Operating Expenses and Example Expenses would be as follows:
ANNUAL FUND OPERATING EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee (%) 0.53 0.53 0.53
-------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees(8)(9)(%) 0.25 1.00 1.00
-------------------------------------------------------------------------------------------
Other expenses(%) 0.23 0.23 0.23
-------------------------------------------------------------------------------------------
Total annual fund operating expenses(8)(%) 1.01 1.76 1.76
</TABLE>
EXAMPLE EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $573 $781 $1,006 $1,653
------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $179 $554 $ 954 $1,875
sold all your shares at end of period $679 $854 $1,154 $1,875
------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $179 $554 $ 954 $2,073
sold all your shares at end of period $279 $554 $ 954 $2,073
</TABLE>
If only the Minnesota Fund were to approve the Acquisition, the total Annual
Fund Operating Expenses and Example Expenses would be as follows:
ANNUAL FUND OPERATING EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee (%) 0.53 0.53 0.53
-------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees(8)(9)(%) 0.25 1.00 1.00
-------------------------------------------------------------------------------------------
Other expenses %) 0.23 0.23 0.23
-------------------------------------------------------------------------------------------
Total annual fund operating expenses(8)(%) 1.01 1.76 1.76
</TABLE>
EXAMPLE EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $573 $781 $1,006 $1,653
------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $179 $554 $ 954 $1,875
sold all your shares at end of period $679 $854 $1,154 $1,875
------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $179 $554 $ 954 $2,073
sold all your shares at end of period $279 $554 $ 954 $2,073
</TABLE>
8
<PAGE> 12
If only the North Carolina Fund were to approve the Acquisition, the total
Annual Fund Operating Expenses and Example Expenses would be as follows:
ANNUAL FUND OPERATING EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee (%) 0.53 0.53 0.53
-------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees(8)(9)(%) 0.25 1.00 1.00
-------------------------------------------------------------------------------------------
Other expenses(%) 0.23 0.23 0.23
-------------------------------------------------------------------------------------------
Total annual fund operating expenses(8)(%) 1.01 1.76 1.76
</TABLE>
EXAMPLE EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $573 $781 $1,006 $1,653
------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $179 $554 $ 954 $1,875
sold all your shares at end of period $679 $854 $1,154 $1,875
------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $179 $554 $ 954 $2,073
sold all your shares at end of period $279 $554 $ 954 $2,073
</TABLE>
If only the Oregon Fund were to approve the Acquisition, the total Annual
Fund Operating Expenses and Example Expenses would be as follows:
ANNUAL FUND OPERATING EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee (%) 0.53 0.53 0.53
-------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees(8)(9)(%) 0.25 1.00 1.00
-------------------------------------------------------------------------------------------
Other expenses(%) 0.23 0.23 0.23
-------------------------------------------------------------------------------------------
Total annual fund operating expenses(8)(%) 1.01 1.76 1.76
</TABLE>
EXAMPLE EXPENSES
NATIONAL FUND
(pro forma combined)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $573 $781 $1,006 $1,653
------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $179 $554 $ 954 $1,875
sold all your shares at end of period $679 $854 $1,154 $1,875
------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $179 $554 $ 954 $2,073
sold all your shares at end of period $279 $554 $ 954 $2,073
</TABLE>
9
<PAGE> 13
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in your Acquired Fund
and the National Fund currently with the cost of investing in the combined fund
on a pro forma basis and also allows you to compare this with the cost of
investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Each Fund's operating expenses remain the same
- Assumes reinvestment of all dividends and distributions
- Assumes Class B shares convert to Class A shares after eight years
EXAMPLE EXPENSES
(your actual costs may be higher or lower)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
FLORIDA FUND
Class A $575 $787 $1,017 $1,675
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $181 $560 $ 964 $1,897
sold all your shares at end of period $681 $860 $1,164 $1,897
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $181 $560 $ 964 $2,095
sold all your shares at end of period $281 $560 $ 964 $2,095
MICHIGAN FUND
Class A $576 $790 $1,022 $1,686
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $182 $563 $ 970 $1,908
sold all your shares at end of period $682 $863 $1,170 $1,908
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $182 $563 $ 970 $2,105
sold all your shares at end of period $282 $563 $ 970 $2,105
MINNESOTA FUND
Class A $578 $796 $1,032 $1,708
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $184 $569 $ 980 $1,930
sold all your shares at end of period $684 $869 $1,180 $1,930
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $184 $569 $ 980 $2,127
sold all your shares at end of period $284 $569 $ 980 $2,127
NORTH CAROLINA FUND
Class A $584 $814 $1,063 $1,773
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $190 $588 $1,011 $1,995
sold all your shares at end of period $690 $888 $1,211 $1,995
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $190 $588 $1,011 $2,190
sold all your shares at end of period $290 $588 $1,011 $2,190
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
OREGON FUND
Class A $601 $868 $1,154 $1,968
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $208 $643 $1,103 $2,187
sold all your shares at end of period $708 $943 $1,303 $2,187
NATIONAL FUND
Class A $572 $778 $1,001 $1,641
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $178 $551 $ 949 $1,864
sold all your shares at end of period $678 $851 $1,149 $1,864
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $178 $551 $ 949 $2,062
sold all your shares at end of period $278 $551 $ 949 $2,062
NATIONAL FUND (pro forma combined)
Class A $572 $778 $1,001 $1,641
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $178 $551 $ 949 $1,864
sold all your shares at end of period $678 $851 $1,149 $1,864
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $178 $551 $ 949 $2,062
sold all your shares at end of period $278 $551 $ 949 $2,062
</TABLE>
Significant assumptions underlying the pro forma Annual Fund Operating Expenses
and Example Expenses are as follows: (1) the current contractual agreements will
remain in place; (2) certain duplicate costs involved in operating the Acquired
Funds are eliminated; and (3) expense ratios are based on pro forma combined
average net assets for the twelve months ended July 31, 2000.
11
<PAGE> 15
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF EACH ACQUIRED FUND
AND THE NATIONAL FUND COMPARE?
This table shows the investment goals and primary investment strategies of
each Fund:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
FLORIDA FUND MICHIGAN FUND
-------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT GOAL: The Florida Fund INVESTMENT GOAL: The Michigan Fund
seeks as high a level of after-tax seeks as high a level of after-tax
total return as is consistent with total return as is consistent with
prudent risk. prudent risk.
-------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Florida Fund seeks to achieve The Michigan Fund seeks to achieve
its goal as follows: its goal as follows:
- The Fund invests primarily in - The Fund invests primarily in
investment grade municipal bonds, investment grade municipal bonds,
the interest on which is exempt the interest on which is exempt
from federal income tax and from federal income tax and
Florida's intangibles tax. Michigan personal income tax.
- The Fund invests at least 80% of - The Fund invests at least 80% of
its total assets in tax-exempt its total assets in tax-exempt
securities. securities.
- The Fund may invest in municipal - The Fund may invest up to 25% of
bonds not issued by the State of total assets in lower-rated debt
Florida as long as they are securities.
exempt from Florida's intangibles
tax.
- The Fund may invest up to 25% of
total assets in lower-rated debt
securities.
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
MINNESOTA FUND NORTH CAROLINA
-------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT GOAL: The Minnesota Fund INVESTMENT GOAL: The North Carolina
seeks as high a level of after-tax Fund seeks as high a level of
total return as is consistent with after-tax total return as is
prudent risk. consistent with prudent risk.
-------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Minnesota Fund seeks to achieve The North Carolina Fund seeks to
its goal as follows: achieve its goal as follows:
- The Fund invests primarily in - The Fund invests primarily in
investment grade municipal bonds, investment grade municipal bonds,
the interest on which is exempt the interest on which is exempt
from federal income tax and from federal income tax and North
Minnesota personal income tax. Carolina personal income tax.
- The Fund invests at least 80% of - The Fund invests at least 80% of
its total assets in tax-exempt its total assets in tax-exempt
securities. securities.
- The Fund invests so that at least - The Fund may invest up to 25% of
95% of its exempt-interest its total assets in lower-rated
dividends are derived from debt securities.
Minnesota sources.
- The Fund may invest up to 25% of
its total assets in lower-rated
debt securities.
-------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
OREGON FUND NATIONAL FUND
-------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT GOAL: The Oregon Fund INVESTMENT GOAL: The National Fund
seeks to provide as high a level of seeks as high a level of after-tax
income exempt from federal and total return as is consistent with
Oregon income taxes as is prudent risk, by pursuing current
consistent with prudent investment income exempt from federal income
management and the preservation of tax and opportunities for long-term
capital. appreciation.
-------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Oregon Fund seeks to achieve The National Fund seeks to achieve
its goal as follows: its goal as follows:
- At least 80% of the Fund's total - The Fund invests at least 80% of
assets will be invested in its total assets in investment
municipal bonds, the interest on grade bonds exempt from federal
which is exempt from federal income tax.
income tax and Oregon personal - The Fund may purchase bonds of
income tax. any maturity.
- At least 65% of the Fund's total - The Fund may invest up to 35% of
assets will be invested in its total assets in any
municipal bonds issued by the combination of the following (not
State of Oregon. including pre- refunded bonds):
- The Fund invests primarily in (i) bonds rated below investment
investment grade securities. grade and (ii) bonds that are not
rated, provided that total
investment in unrated bonds does
not exceed 25%.
-------------------------------------------------------------------------------
</TABLE>
The Acquired Funds and the National Fund have similar investment goals except
that the Acquired Funds seek income exempt from federal income tax and from
state personal income tax (or, in the case of the Florida Fund, the Florida
intangibles tax), while the National Fund seeks income exempt from only federal
income tax. Therefore, by becoming a shareholder of the National Fund, the
interest income that you receive as distributions generally will be exempt from
only federal income tax and not from both federal income tax and state personal
income tax (or the Florida intangibles tax, as applicable), as was generally the
case with distributions of income by the Acquired Funds. Unlike the Acquired
Funds, the National Fund seeks opportunities for long-term appreciation in
addition to pursuing tax-exempt income.
The following compares the primary investment strategies that each Fund uses to
achieve its investment goal:
- Each of the Florida, Michigan, Minnesota and North Carolina Funds may
invest up to 25% of total Fund assets in lower-rated debt securities or
comparable unrated securities, and the National Fund may invest up to 35%
of its total assets in (i) bonds rated below investment grade and (ii)
unrated bonds, provided that the Fund's total investment in unrated bonds
may not exceed 25%.
- The Minnesota Fund must invest so that at least 95% of its
exempt-interest dividends are derived from Minnesota sources, while the
Florida Fund may invest in municipal bonds not issued by the State of
Florida as long as they are exempt from Florida's intangibles tax. The
Oregon Fund must invest at least 65% of its total assets in municipal
bonds issued by the State of Oregon (including its subdivisions,
agencies, authorities and instrumentalities).
13
<PAGE> 17
The fundamental and non-fundamental investment policies of each of the Acquired
Funds, on the one hand, and the National Fund, on the other hand, are similar,
except:
- the National Fund is a diversified fund, while the Acquired Funds are
non-diversified funds; and
- the Oregon Fund, unlike each of the other Acquired Funds and the National
Fund, is not subject to the restriction that each Fund may not invest
more than 20% of its assets in bonds subject to the federal alternative
minimum tax ("AMT").
There are also certain other differences among the non-fundamental policies
of the Funds. In addition, each of the Acquired Funds utilizes investment
strategies designed to result in federal and state tax exemptions for some or
all of the interest income earned by the Fund and distributed to shareholders,
while the National Fund utilizes investment strategies designed to result in
federal tax exemptions for some or all of the interest income earned by the Fund
and distributed to shareholders. Therefore, unlike the Acquired Funds, the
National Fund is not required to, and does not, seek specific state tax
exemptions for the interest income received by the Fund and distributed to
shareholders.
5. WHAT CLASS OF SHARES WILL YOU RECEIVE IN THE NATIONAL FUND IF THE
ACQUISITIONS OCCUR?
You will receive the same class of shares that you currently own in your
Acquired Fund. The shares will have the same exchange rights and will bear the
same contingent deferred sales charges ("CDSCs"), if applicable, as your current
shares. The shares will also have the same distribution, purchase and redemption
procedures as your current shares.
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITIONS?
Each Acquisition is expected to be tax free to you for federal income tax
purposes. This means that no gain or loss will be recognized by any Acquired
Fund or any such Fund's shareholders as a result of the Acquisitions.
The cost basis and holding period of your Acquired Fund shares are expected to
carry over to your new shares in the National Fund.
PROPOSAL 1 -- ACQUISITION OF THE LIBERTY FLORIDA TAX-EXEMPT FUND
BY THE LIBERTY TAX-EXEMPT FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of Agreement and Plan of Reorganization is
attached as Appendix A to this Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Florida Fund by the National Fund under the Agreement and Plan of
Reorganization.
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the National Fund, and how do they
compare with the Florida Fund?
Because the Funds have somewhat similar goals and strategies, the principal
risks associated with each Fund are similar. Investing in each of the Funds
involves market risk, interest rate risk, issuer risk and the risks associated
with tax-exempt bonds. Market risk means that security prices in a market,
sector or industry may move down. Downward movements will reduce the value of
your investment. Interest rate risk is the risk of a change in the price of a
bond when interest rates increase or decline, and issuer risk is the possibility
that changes in the financial condition of this issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its ability to make timely payments of interest or principal,
which could result in a decrease in the price of a security. Tax-exempt bonds
are subject to special risks, including changes in tax laws or adverse
determinations by the Internal Revenue Service that may make the income from
some of these bonds taxable. In addition, bonds that are backed by the issuer's
14
<PAGE> 18
taxing authority, known as general obligation bonds, may partially depend for
payment on legislative appropriation and/or aid from other governments. These
bonds may be vulnerable to legal limits on a government's power to raise revenue
or increase taxes. Other tax-exempt bonds, known as special revenue obligations,
are payable from revenues earned by a particular project or other revenue
source. These bonds are subject to greater risk of default than general
obligations because investors can look only to the revenue generated by the
project or private company, rather than to the credit of the state or local
government issuer of the bonds.
Both the Florida Fund and the National Fund are subject to risks associated
with lower-rated debt securities. Lower-rated debt securities involve greater
risk of loss due to credit deterioration and are less liquid, especially during
periods of economic uncertainty or change, than higher quality debt securities.
Lower-rated debt securities have the added risk that the issuer of the security
may default and not make payment of interest or principal.
The National Fund is a diversified fund, while the Florida Fund is a
non-diversified fund. As a non-diversified mutual fund, the Florida Fund is
allowed to invest a greater percentage of its total assets in the securities of
a single issuer. This may concentrate risk and, therefore, the Florida Fund has
an increased risk of loss compared to a similar diversified mutual fund. In
addition, because the Florida Fund concentrates its investments in the State of
Florida, it is subject to the risks associated with such concentration and state
municipal market volatility.
While the Florida Fund pursues income exempt from federal income tax and
the Florida intangibles tax, the National Fund seeks income exempt from federal
income tax only. Although the State of Florida does not impose a personal income
tax on its residents, it does impose a tax on intangible personal property.
Shareholders of the National Fund receive income that is generally free from
federal tax, but may be subject to any applicable state tax. The interest income
distributed by the Funds from certain tax-exempt bonds may be subject to the
federal AMT for individuals and corporations.
For more information about the principal investment risks of the National
Fund, please see the enclosed Prospectus of the National Fund. The actual risks
of investing in each Fund depend on the securities held in each Fund's portfolio
and on market conditions, both of which change over time.
INFORMATION ABOUT THE ACQUISITION
Please see the section "Information Applicable to Proposals 1 through 5" of
this combined Prospectus/ Proxy Statement.
Shares You Will Receive
If the Acquisition occurs, you will receive shares in the National Fund of
the same class as the shares that you currently own in the Florida Fund. In
comparison to the shares you currently own, the shares you receive will have the
following characteristics:
- The shares you receive will have an aggregate net asset value equal to
the aggregate net asset value of your current shares as of the business
day before the closing of the Acquisition.
- If applicable, your National 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 Florida 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 National Fund and Liberty Funds Trust IV ("Trust IV").
Information concerning the capitalization of each of the Funds is contained
in Appendix C.
15
<PAGE> 19
Reasons for the Acquisition
The Trustees of each Trust, including all Trustees who are not "interested
persons" of the Trust, have determined that the Acquisition would be in the best
interests of each Fund, on balance in light of all relevant factors, and that
the interests of existing shareholders of each Fund would not be diluted as a
result of the Acquisition. For these reasons, the Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the Agreement and Plan of Reorganization, a form of which is
attached as Appendix A to this Prospectus/Proxy Statement. Each shareholder
should carefully consider whether remaining a shareholder of the National Fund
after the Acquisition is consistent with that shareholder's financial needs and
circumstances.
The Acquisition is one of several proposed acquisitions and liquidations of
funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial,
the indirect parent of each of the investment advisors to the Liberty and Stein
Roe Funds. The overall purposes of these acquisitions and liquidations include
streamlining the product offerings of the Liberty and Stein Roe Funds,
potentially reducing fund expense ratios by creating larger funds and permitting
the Liberty Financial organization to concentrate its portfolio management
resources on a more focused group of portfolios.
In proposing the Acquisition, Liberty Financial presented to the Trustees
the following reasons for the Florida Fund to enter into the Acquisition:
- Absent the Acquisition, Liberty Financial indicated to the Trustees that
it will discontinue subsidizing the Florida Fund's operations (through
fee waivers or expense reductions) and that it will recommend to the
Trustees that the Florida Fund be liquidated. Liberty Financial informed
the Trustees that the Florida Fund has not achieved sufficient sales
growth and is not likely to do so in the near future (and has recently
been experiencing net shareholder redemptions), and, therefore, the Fund
may not be able to provide a competitive investment return in the absence
of a subsidy.
- The Acquisition is intended to permit the Florida Fund's shareholders to
exchange their investment, without recognizing gain or loss for federal
income tax purposes, for an investment in a larger, more diversified fund
which earns and distributes income exempt from federal income tax
(although not the Florida intangibles tax). By contrast, if a Florida
Fund shareholder redeemed his or her shares to invest in another fund,
like the National Fund, the transaction would likely be a taxable event
for such shareholder. Similarly, if the Florida 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 National Fund shares at net
asset value (subject to any applicable CDSC) at any time, at which point
they would recognize a taxable gain or loss.
- As a result of Liberty Financial's decision to discontinue its expense
subsidy of the Florida Fund, the expense ratio of the Florida Fund will
increase if the Acquisition does not occur. If the Acquisition does
occur, then the expense ratio of the combined National Fund is expected
to be lower than the Florida Fund's expense ratio after Liberty Financial
discontinues its subsidy. Although, as explained below, it is not
possible to predict future expense ratios with certainty, information
provided to the Trustees by Liberty Financial indicated that, based on
the assets of the Florida and National Funds on July 31, 2000 and the
Funds' current expense structures (assuming the voluntary expense
limitation is discontinued), the National Fund's annualized expense ratio
(excluding 12b-1 fees) immediately after the Acquisition would be
approximately 0.15% lower than the Florida Fund's current expense ratio
(for example, for Class A shares after the Acquisition, a 0.75% expense
ratio for the National Fund, as compared to 0.90% for the Florida Fund if
the limitation were discontinued and 0.75% if it continued). The service
fee portion of the 12b-1 fee of the Florida Fund may equal up to 0.10% on
net assets attributable to shares issued prior to December 1, 1994 and
0.25% on net assets attributable to shares issued thereafter. This
arrangement (the "grandfather arrangement") results in a service fee rate
that is a blend between the 0.10% and 0.25% rates which is currently
0.19%. Therefore the 12b-1 fees for Class A, B and C shares of the
Florida Fund are 0.19%, 0.94% and 0.94%, respectively. The 12b-1 fees for
Class A, B and C shares of the National Fund are 0.25%, 1.00% and 1.00%,
respectively. On a pro
16
<PAGE> 20
forma basis, the 12b-1 fees on Class A, B and C shares of the National
Fund (while giving effect to the grandfather arrangement) are 0.25%,
1.00% and 1.00%, respectively.
In reviewing the Acquisition, the Trustees also considered a Florida Fund
shareholder's loss of all or a portion of the exemption from the Florida
intangibles tax. The Trustees determined, despite this consideration, that on
balance the Acquisition is in the best interests of the Florida Fund
shareholders.
The Trustees also considered the differences in the Funds' investment
objectives, policies and strategies and the related risks. In addition, the
Trustees considered the relative Fund performance results which are based on the
factors and assumptions set forth below under "Performance Information." No
assurance can be given that the National Fund will achieve any particular level
of performance after the Acquisition.
The projected post-Acquisition expense reductions presented above are based
on the National Fund's current expense structure and the projected
post-Acquisition assets of the combined Fund. The projected reductions are
further based upon numerous material assumptions, including that: (1) the
current contractual agreements will remain in place; (2) certain duplicate costs
involved in operating the Florida Fund are eliminated; and (3) the National Fund
acquires all of the Acquired Funds. See the table "Annual Fund Operating
Expenses" under Question 3 in the "Questions and Answers" section above for the
expenses that would be applicable if one or more of the Acquisitions did not
take place. Although these projections represent good faith estimates, there can
be no assurance that any particular level of expenses or expense savings will be
achieved, because expenses depend on a variety of factors (including the future
level of Fund assets), many of which factors are beyond the control of the
National Fund or Liberty Financial.
Although the Trustees are proposing that the National Fund acquire all of
the Acquired Funds, the acquisition of the Florida Fund is not conditioned upon
the acquisition of the other Acquired Funds. Accordingly, if the Florida Fund's
shareholders approve the acquisition of the Florida Fund, but the other Acquired
Funds' shareholders do not approve the acquisition of one or more of the other
Acquired Funds, it is expected that, subject to the terms of the Agreement and
Plan of Reorganization, the Acquisition proposed in this Proposal 1 will take
place as described in this Prospectus/Proxy Statement.
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 Florida Fund and the Class A shares of the National
Fund. They should give you a general idea of how each Fund's return has varied
from year to year. The charts include the effects of Fund expenses, but not
sales charges. Returns would be lower if applicable sales charges were included.
The calculations of total return assume the reinvestment of all dividends and
capital gain distributions on the reinvestment date. Past performance is not an
indication of future results. Performance results include the effect of expense
reduction arrangements, if any. If these arrangements were not in place, then
the performance results would have been lower. Any expense reduction
arrangements may be discontinued at any time.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, which are incorporated by reference in this Prospectus/ Proxy
Statement.
17
<PAGE> 21
FLORIDA FUND
[BAR CHART]
<TABLE>
<S> <C>
Florida Fund
1994 -7.27%
1995 16.59%
1996 3.62%
1997 9.11%
1998 5.93%
1999 -4.39%
</TABLE>
The Fund's year-to-date total return through
September 30, 2000 was 6.55%.
For period shown in bar chart:
Best quarter: First quarter 1995, +7.66%
Worst quarter: First quarter 1994, -7.65%
NATIONAL FUND
[BAR CHART]
<TABLE>
<S> <C>
National Fund
1990 6.44%
1991 11.74%
1992 8.27%
1993 10.73%
1994 -6.27%
1995 17.64%
1996 2.68%
1997 9.61%
1998 6.67%
1999 -4.91%
</TABLE>
The Fund's year-to-date total return through
September 30, 2000 was 5.40%.
For period shown in bar chart:
Best quarter: First quarter 1995, +7.75%
Worst quarter: First quarter 1994, -5.38%
The following tables list each Fund's average annual total return for each
class of its shares for the one-year, five-year and ten-year (or, if shorter,
life of the Fund) periods ending December 31, 1999, including the applicable
sales charges. These tables are intended to provide you with some indication of
the risks of investing in the Funds. At the bottom of each table, you can
compare the Funds' performance with one or more indices or averages.
18
<PAGE> 22
FLORIDA FUND*
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS LIFE OF FUND
<S> <C> <C> <C> <C>
Class A (%) 2/1/93 (8.93) 4.92 3.92
-----------------------------------------------------------------------------------------------------
Class B (%) 2/1/93 (9.68) 4.83 3.88
-----------------------------------------------------------------------------------------------------
Class C (%) 8/1/97 (5.74) 5.31(1) 3.98(1)
-----------------------------------------------------------------------------------------------------
Lehman Index (%) (2.06) 6.91 5.73
-----------------------------------------------------------------------------------------------------
Lipper Florida Average (%) (4.34) 5.90 4.85
</TABLE>
NATIONAL FUND+
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (%) 10/4/78 (9.43) 5.05 5.51
---------------------------------------------------------------------------------------------------
Class B (%) 5/5/92 (10.14) 4.96 5.42(2)
---------------------------------------------------------------------------------------------------
Class C (%) 8/1/97 (6.39) 5.77(2) 5.87(2)
---------------------------------------------------------------------------------------------------
Lehman Index (%) (2.06) 6.91 6.89
---------------------------------------------------------------------------------------------------
Lipper General Average (%) (4.63) 5.76 6.18
</TABLE>
---------------
* The Florida Fund's return is compared to the Lehman Municipal Bond Index
("Lehman Index"), an unmanaged index that tracks the performance of the
municipal bond market. 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 Florida Fund's return is also
compared to the average return of the funds included in the Lipper, Inc.
Florida Tax-Exempt Municipal Funds category average ("Lipper Florida
Average"). This Lipper Florida Average, which is calculated by Lipper, Inc.,
is composed of funds with similar investment objectives to the Florida Fund.
Sales charges are not reflected in the Lipper Florida Average.
+ The National Fund's return is compared to the Lehman Index. Unlike the Fund,
indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in indices.
The National Fund's return is also compared to the average return of the
funds included in the Lipper General Municipal Debt Funds category average
("Lipper General Average"). This Lipper General Average, which is calculated
by Lipper, Inc., is composed of funds with similar investment objectives to
the National Fund. Sales charges are not reflected in the Lipper General
Average.
(1) Class C is a newer class of shares. Its 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 of shares. These Class A
share returns are not restated to reflect any differences in expenses (such
as Rule 12b-1 fees) between Class A and Class C shares. If differences in
expenses were reflected, the returns for periods prior to the inception of
the newer class of shares would be lower. Class A and B shares were
initially offered on February 1, 1993, and Class C shares were initially
offered on August 1, 1997.
(2) Class B and Class C are newer classes of shares. Their performance
information includes returns of the National Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. These Class A share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class A shares
and the newer classes of shares. If differences in expenses were reflected,
the returns for periods prior to the inception of the newer classes of
shares would be lower. Class A shares were initially offered on October 4,
1978, Class B shares were initially offered on May 5, 1992, and Class C
shares were initially offered on August 1, 1997.
THE TRUSTEES OF TRUST V UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN
OF REORGANIZATION.
The Declaration of Trust establishing Trust V (the "Trust V Declaration")
provides that any series of Trust V (such as the Florida 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
19
<PAGE> 23
vote, if the Acquisition is submitted for shareholder approval. The Trust V
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 Trust V Declaration to provide that the Florida Fund may
be terminated by majority vote of the Florida Fund's shares entitled to vote (or
by Trustee notice to shareholders), and will so amend the Trust V Declaration if
a majority of the Florida Fund's shareholders entitled to vote on the proposal
vote in favor of such proposal.
Required Vote for Proposal 1
Approval of the Agreement and Plan of Reorganization dated October 26, 2000
among Trust V on behalf of the Florida Fund, Trust IV on behalf of the National
Fund, and Liberty Financial will require the affirmative vote of a majority of
the shares of the Florida Fund outstanding at the record date for the Meetings.
PROPOSAL 2 -- ACQUISITION OF THE LIBERTY MICHIGAN TAX-EXEMPT FUND
BY THE LIBERTY TAX EXEMPT FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of the Agreement and Plan of Reorganization is
attached as Appendix A to this Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Michigan Fund by the National Fund under the Agreement and Plan of
Reorganization.
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the National Fund, and how do they
compare with the Michigan Fund?
Because the Funds have somewhat similar goals and strategies, the principal
risks associated with each Fund are similar. Investing in each of the Funds
involves market risk, interest rate risk, issuer risk and the risks associated
with tax-exempt bonds. Market risk means that security prices in a market,
sector or industry may move down. Downward movements will reduce the value of
your investment. Interest rate risk is the risk of a change in the price of a
bond when interest rates increase or decline, and issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its ability to make timely payments of interest or principal,
which could result in a decrease in the price of a security. Tax-exempt bonds
are subject to special risks, including changes in tax laws or adverse
determinations by the Internal Revenue Service that may make the income from
some of these bonds taxable. In addition, bonds that are backed by the issuer's
taxing authority, known as general obligation bonds, may partially depend for
payment on legislative appropriation and/or aid from other governments. These
bonds may be vulnerable to legal limits on a government's power to raise revenue
or increase taxes. Other tax-exempt bonds, known as special revenue obligations,
are payable from revenues earned by a particular project or other revenue
source. These bonds are subject to greater risk of default than general
obligations because investors can look only to the revenue generated by the
project or private company, rather than to the credit of the state or local
government issuer of the bonds.
Both the Michigan Fund and the National Fund are subject to risks
associated with lower-rated debt securities. Lower-rated debt securities involve
greater risk of loss due to credit deterioration and are less liquid, especially
during periods of economic uncertainty or change, than higher quality debt
securities. Lower-rated debt securities have the added risk that the issuer of
the security may default and not make payment of interest or principal.
The National Fund is a diversified fund, while the Michigan Fund is a
non-diversified fund. As a non-diversified mutual fund, the Michigan Fund is
allowed to invest a greater percentage of its total assets in the securities of
a single issuer. This may concentrate risk and, therefore, the Michigan Fund has
an increased risk
20
<PAGE> 24
of loss compared to a similar diversified mutual fund. In addition, because the
Michigan Fund concentrates its investments in the State of Michigan, it is
subject to the risks associated with such concentration and state municipal
market volatility.
While the Michigan Fund pursues income exempt from federal income tax and
Michigan personal income tax, the National Fund seeks income exempt from federal
income tax only. Therefore, shareholders of the National Fund receive income
that is generally free from federal tax, but may be subject to state tax. The
interest income distributed by the Funds from certain tax-exempt bonds may be
subject to the federal AMT, and any applicable state AMT, for individuals and
corporations.
For more information about the principal investment risks of the National
Fund, please see the enclosed Prospectus of the National Fund. The actual risks
of investing in each Fund depend on the securities held in each Fund's portfolio
and on market conditions, both of which change over time.
INFORMATION ABOUT THE ACQUISITION
Please see the section "Information Applicable to Proposals 1 through 5" of
this combined Prospectus/ Proxy Statement.
Shares You Will Receive
If the Acquisition occurs, you will receive shares in the National Fund of
the same class as the shares that you currently own in the Michigan Fund. In
comparison to the shares you currently own, the shares you receive will have the
following characteristics:
- The shares you receive will have an aggregate net asset value equal to
the aggregate net asset value of your current shares as of the business
day before the closing of the Acquisition.
- If applicable, your National 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 Michigan
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 National Fund and Liberty Funds Trust IV ("Trust IV").
Information concerning the capitalization of each of the Funds is contained
in Appendix C.
Reasons for the Acquisition
The Trustees of each Trust, including all Trustees who are not "interested
persons" of the Trust, have determined that the Acquisition would be in the best
interests of each Fund, on balance in light of all relevant factors, and that
the interests of existing shareholders of each Fund would not be diluted as a
result of the Acquisition. For these reasons, the Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the Agreement and Plan of Reorganization, a form of which is
attached as Appendix A to this Prospectus/Proxy Statement. Each shareholder
should carefully consider whether remaining a shareholder of the National Fund
after the Acquisition is consistent with that shareholder's financial needs and
circumstances.
The Acquisition is one of several proposed acquisitions and liquidations of
funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial,
the indirect parent of each of the investment advisors to the Liberty and Stein
Roe Funds. The overall purposes of these acquisitions and liquidations include
streamlining the product offerings of the Liberty and Stein Roe Funds,
potentially reducing fund expense ratios by creating larger funds and permitting
the Liberty organization to concentrate its portfolio management resources on a
more focused group of portfolios.
21
<PAGE> 25
In proposing the Acquisition, Liberty Financial presented to the Trustees
the following reasons for the Michigan Fund to enter into the Acquisition:
- Absent the Acquisition, Liberty Financial indicated to the Trustees that
it will discontinue subsidizing the Michigan Fund's operations (through
fee waivers or expense reductions) and that it will recommend to the
Trustees that the Michigan Fund be liquidated. Liberty Financial informed
the Trustees that the Michigan Fund has not achieved sufficient sales
growth and is not likely to do so in the near future (and has recently
been experiencing net shareholder redemptions).
- The Acquisition provides shareholders an interest in a larger, more
diversified fund which earns and distributes income exempt from federal
income tax (although not Michigan personal income tax), with lower
operating expenses as a percentage of fund assets. This expense ratio
reduction would benefit Michigan 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
Michigan and National Funds on July 31, 2000 and the Funds' current
expense structures, the National Fund's annualized expense ratio
(excluding 12b-1 fees) immediately after the Acquisition would be about
0.19% lower than the Michigan Fund's current expense ratio (for example,
for Class A shares, a 0.75% expense ratio for the National Fund, as
compared to 0.94% currently for the Michigan Fund). The service fee
portion of the 12b-1 fee of the Michigan Fund may equal up to 0.10% on
net assets attributable to shares issued prior to December 1, 1994 and
0.25% on net assets attributable to shares issued thereafter. This
arrangement (the "grandfather arrangement") results in a service fee rate
that is a blend between the 0.10% and 0.25% rates which is currently
0.19%. Therefore the 12b-1 fees for Class A, B and C shares of the
Michigan Fund are 0.18%, 0.93% and 0.93%, respectively. The 12b-1 fees
for Class A, B and C shares of the National Fund are 0.25%, 1.00% and
1.00%, respectively. On a pro forma basis, the 12b-1 fees on Class A, B
and C shares of the National Fund (while giving effect to the grandfather
arrangement) are 0.25%, 1.00% and 1.00%, respectively.
- The Acquisition is intended to permit the Michigan Fund's shareholders to
exchange their investment for an investment in the National Fund without
recognizing gain or loss for federal income tax purposes. By contrast, if
a Michigan Fund shareholder redeemed his or her shares to invest in
another fund, like the National Fund, the transaction would likely be a
taxable event for such shareholder. Similarly, if the Michigan 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 National Fund
shares at net asset value (subject to any applicable CDSC) at any time,
at which point they would recognize a taxable gain or loss.
In reviewing the Acquisition, the Trustees also considered a Michigan Fund
shareholder's loss of all or a portion of the exemption from state tax on
personal income earned from the Fund. The Trustees determined, despite this
consideration, that on balance the Acquisition is in the best interests of the
Michigan Fund shareholders.
The Trustees also considered the differences in the Funds' investment
objectives, policies and strategies and the related risks. In addition, the
Trustees considered the relative Fund performance results which are based on the
factors and assumptions set forth below under "Performance Information." No
assurance can be given that the National Fund will achieve any particular level
of performance after the Acquisition.
The projected post-Acquisition expense reductions presented above are based
on the National Fund's current expense structure and the projected
post-Acquisition assets of the combined Fund. The projected reductions are
further based upon numerous material assumptions, including that: (1) the
current contractual agreements will remain in place; (2) certain duplicate costs
involved in operating the Michigan Fund are eliminated; and (3) the National
Fund acquires all of the Acquired Funds. See the table "Annual Fund Operating
Expenses" under Question 3 in the "Questions and Answers" section above for the
expenses that would be applicable if one or more of the Acquisitions did not
take place. Although these projections represent good faith estimates, there can
be no assurance that any particular level of expenses or expense savings will be
22
<PAGE> 26
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
National Fund or Liberty Financial.
Although the Trustees are proposing that the National Fund acquire all of
the Acquired Funds, the acquisition of the Michigan Fund is not conditioned upon
the acquisition of the other Acquired Funds. Accordingly, if the Michigan Fund's
shareholders approve the acquisition of the Michigan Fund, but the other
Acquired Funds' shareholders do not approve the acquisition of one or more of
the other Acquired Funds, it is expected that, subject to the terms of the
Agreement and Plan of Reorganization, the Acquisition proposed in this Proposal
2 will take place as described in this Prospectus/Proxy Statement.
Performance Information
The charts below show the percentage gain or loss in each calendar year for
the 10-year period ending December 31, 1999 or, if shorter, since inception, for
the Class A shares of the Michigan Fund and the Class A shares of the National
Fund. They should give you a general idea of how each Fund's return has varied
from year to year. The charts include the effects of Fund expenses, but not
sales charges. Returns would be lower if applicable sales charges were included.
The calculations of total return assume the reinvestment of all dividends and
capital gain distributions on the reinvestment date. Past performance is not an
indication of future results. Performance results include the effect of expense
reduction arrangements, if any. If these arrangements were not in place, then
the performance results would have been lower. Any expense reduction
arrangements may be discontinued at any time.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, which are incorporated by reference in this Prospectus/ Proxy
Statement.
MICHIGAN FUND
[BAR CHART]
<TABLE>
<S> <C>
1990 4.75%
1991 11.83%
1992 8.82%
1993 11.07%
1994 -5.95%
1995 16.54%
1996 3.24%
1997 9.71%
1998 5.96%
1999 -3.85%
</TABLE>
The Fund's year-to-date total return through
September 30, 2000 was 5.82%.
For period shown in bar chart:
Best quarter: First quarter 1995, +7.41%
Worst quarter: First quarter 1994, -5.97%
23
<PAGE> 27
NATIONAL FUND
[BAR CHART]
<TABLE>
<S> <C>
National Fund
1990 6.44%
1991 11.74%
1992 8.27%
1993 10.73%
1994 -6.27%
1995 17.64%
1996 2.68%
1997 9.61%
1998 6.67%
1999 -4.91%
</TABLE>
The Fund's year-to-date total return through
September 30, 2000 was 5.40%.
For period shown in bar chart:
Best quarter: First quarter 1995, +7.75%
Worst quarter: First quarter 1994, -5.38%
The following tables list each Fund's average annual total return for each
class of its shares for the one-year, five-year and ten-year periods ending
December 31, 1999, including the applicable sales charges. These tables are
intended to provide you with some indication of the risks of investing in the
Funds. At the bottom of each table, you can compare the Funds' performance with
one or more indices or averages.
MICHIGAN FUND*
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (%) 9/26/86 (8.42) 5.08 5.48
---------------------------------------------------------------------------------------------------
Class B (%) 8/4/92 (9.16) 4.99 5.42(1)
---------------------------------------------------------------------------------------------------
Class C (%) 8/1/97 (5.20) 5.87(1) 5.88(1)
---------------------------------------------------------------------------------------------------
Lehman Index (%) (2.06) 6.91 6.89
---------------------------------------------------------------------------------------------------
Lipper Michigan Average (%) (4.05) 5.74 6.24
</TABLE>
NATIONAL FUND+
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (%) 10/4/78 (9.43) 5.05 5.51
--------------------------------------------------------------------------------------------------
Class B (%) 5/5/92 (10.14) 4.96 5.42(2)
--------------------------------------------------------------------------------------------------
Class C (%) 8/1/97 (6.39) 5.77(2) 5.87(2)
--------------------------------------------------------------------------------------------------
Lehman Index (%) (2.06) 6.91 6.89
--------------------------------------------------------------------------------------------------
Lipper General Average (%) (4.63) 5.76 6.18
</TABLE>
---------------
* The Michigan Fund's return is compared to the Lehman Municipal Bond Index
("Lehman Index"). Unlike the Fund, indices are not investments, do not incur
fees or expenses and are not professionally managed. It is not possible to
invest directly in indices. The Michigan Fund's return is also compared to
the average return of the funds included in the Lipper, Inc. Michigan
Tax-Exempt Municipal Funds category average ("Lipper Michigan Average").
This Lipper Michigan Average, which is calculated by Lipper, Inc., is
composed of funds with similar investment objectives to the Michigan Fund.
Sales charges are not reflected in the Lipper Michigan Average.
24
<PAGE> 28
+ The National Fund's return is compared to the Lehman Index. Unlike the Fund,
indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in indices.
The National Fund's return is also compared to the average return of the
funds included in the Lipper General Municipal Debt Funds category average
("Lipper General Average"). This Lipper General Average, which is calculated
by Lipper, Inc., is composed of funds with similar investment objectives to
the National Fund. Sales charges are not reflected in the Lipper General
Average.
(1) Class B and Class C are newer classes of shares. Their performance
information includes returns of the Michigan Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. These Class A share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class A shares
and the newer classes of shares. If differences in expenses were reflected,
the returns for periods prior to the inception of the newer classes of
shares would be lower. Class A shares were initially offered on September
26, 1986, Class B shares were initially offered on August 4, 1992, and Class
C shares were initially offered on August 1, 1997.
(2) Class B and Class C are newer classes of shares. Their performance
information includes returns of the National Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. These Class A share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class A shares
and the newer classes of shares. If differences in expenses were reflected,
the returns for periods prior to the inception of the newer classes of
shares would be lower. Class A shares were initially offered on October 4,
1978, Class B shares were initially offered on May 5, 1992, and Class C
shares were initially offered on August 1, 1997.
THE TRUSTEES OF TRUST V UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN
OF REORGANIZATION.
The Declaration of Trust establishing Trust V (the "Trust V Declaration")
provides that any series of Trust V (such as the Michigan 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 Trust V 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 Trust V
Declaration to provide that the Michigan Fund may be terminated by majority vote
of the Michigan Fund's shares entitled to vote (or by Trustee notice to
shareholders), and will so amend the Trust V Declaration if a majority of the
Michigan Fund's shareholders entitled to vote on the proposal vote in favor of
such proposal.
Required Vote for Proposal 2
Approval of the Agreement and Plan of Reorganization dated October 26, 2000
among Trust V on behalf of the Michigan Fund, Trust IV on behalf of the National
Fund, and Liberty Financial will require the affirmative vote of a majority of
the shares of the Michigan Fund outstanding at the record date for the Meetings.
PROPOSAL 3 -- ACQUISITION OF THE LIBERTY MINNESOTA TAX-EXEMPT FUND
BY THE LIBERTY TAX-EXEMPT FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of the Agreement and Plan of Reorganization is
attached as Appendix A to this Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Minnesota Fund by the National Fund under the Agreement and Plan of
Reorganization.
25
<PAGE> 29
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the National Fund, and how do they
compare with the Minnesota Fund?
Because the Funds have somewhat similar goals and strategies, the principal
risks associated with each Fund are similar. Investing in each of the Funds
involves market risk, interest rate risk, issuer risk and the risks associated
with tax-exempt bonds. Market risk means that security prices in a market,
sector or industry may move down. Downward movements will reduce the value of
your investment. Interest rate risk is the risk of a change in the price of a
bond when interest rates increase or decline, and issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its ability to make timely payments of interest or principal,
which could result in a decrease in the price of a security. Tax-exempt bonds
are subject to special risks, including changes in tax laws or adverse
determinations by the Internal Revenue Service that may make the income from
some of these bonds taxable. In addition, bonds that are backed by the issuer's
taxing authority, known as general obligation bonds, may partially depend for
payment on legislative appropriation and/or aid from other governments. These
bonds may be vulnerable to legal limits on a government's power to raise revenue
or increase taxes. Other tax-exempt bonds, known as special revenue obligations,
are payable from revenues earned by a particular project or other revenue
source. These bonds are subject to greater risk of default than general
obligations because investors can look only to the revenue generated by the
project or private company, rather than to the credit of the state or local
government issuer of the bonds.
Both the Minnesota Fund and the National Fund are subject to risks
associated with lower-rated debt securities. Lower-rated debt securities involve
greater risk of loss due to credit deterioration and are less liquid, especially
during periods of economic uncertainty or change, than higher quality debt
securities. Lower-rated debt securities have the added risk that the issuer of
the security may default and not make payment of interest or principal.
The National Fund is a diversified fund, while the Minnesota Fund is a
non-diversified fund. As a non-diversified mutual fund, the Minnesota Fund is
allowed to invest a greater percentage of its total assets in the securities of
a single issuer. This may concentrate risk and, therefore, the Minnesota Fund
has an increased risk of loss compared to a similar diversified mutual fund. In
addition, because the Minnesota Fund concentrates its investments in the State
of Minnesota, it is subject to the risks associated with such concentration and
state municipal market volatility.
While the Minnesota Fund pursues income exempt from federal income tax and
Minnesota personal income tax, the National Fund seeks income exempt from
federal income tax only. Therefore, shareholders of the National Fund receive
income that is generally free from federal tax, but may be subject to state tax.
The interest income distributed by the Funds from certain tax-exempt bonds may
be subject to the federal AMT, and in the case of the Minnesota Fund, state AMT,
for individuals and corporations.
For more information about the principal investment risks of the National
Fund, please see the enclosed Prospectus of the National Fund. The actual risks
of investing in each Fund depend on the securities held in each Fund's portfolio
and on market conditions, both of which change over time.
INFORMATION ABOUT THE ACQUISITION
Please see the section "Information Applicable to Proposals 1 through 5" of
this combined Prospectus/ Proxy Statement.
26
<PAGE> 30
Shares You Will Receive
If the Acquisition occurs, you will receive shares in the National Fund of
the same class as the shares that you currently own in the Minnesota Fund. In
comparison to the shares you currently own, the shares you receive will have the
following characteristics:
- The shares you receive will have an aggregate net asset value equal to
the aggregate net asset value of your current shares as of the business
day before the closing of the Acquisition.
- If applicable, your National 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 Minnesota
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 National Fund and Liberty Funds Trust IV ("Trust IV").
Information concerning the capitalization of each of the Funds is contained
in Appendix C.
Reasons for the Acquisition
The Trustees of each Trust, including all Trustees who are not "interested
persons" of the Trust, have determined that the Acquisition would be in the best
interests of each Fund, on balance in light of all relevant factors, and that
the interests of existing shareholders of each Fund would not be diluted as a
result of the Acquisition. For these reasons, the Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the Agreement and Plan of Reorganization, a form of which is
attached as Appendix A to this Prospectus/Proxy Statement. Each shareholder
should carefully consider whether remaining a shareholder of the National Fund
after the Acquisition is consistent with that shareholder's financial needs and
circumstances.
The Acquisition is one of several proposed acquisitions and liquidations of
funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial,
the indirect parent of each of the investment advisors to the Liberty and Stein
Roe Funds. The overall purposes of these acquisitions and liquidations include
streamlining the product offerings of the Liberty and Stein Roe Funds,
potentially reducing fund expense ratios by creating larger funds and permitting
the Liberty organization to concentrate its portfolio management resources on a
more focused group of portfolios.
In proposing the Acquisition, Liberty Financial presented to the Trustees
the following reasons for the Minnesota Fund to enter into the Acquisition:
- Absent the Acquisition, Liberty Financial indicated to the Trustees that
it will discontinue subsidizing the Minnesota Fund's operations (through
fee waivers or expense reductions) and that it will recommend to the
Trustees that the Minnesota Fund be liquidated. Liberty Financial
informed the Trustees that the Minnesota Fund has not achieved sufficient
sales growth and is not likely to do so in the near future (and has
recently been experiencing net shareholder redemptions).
- The Acquisition provides shareholders an interest in a larger, more
diversified fund which earns and distributes income exempt from federal
income tax (although not Minnesota personal income tax), with lower
operating expenses as a percentage of fund assets. This expense ratio
reduction would benefit Minnesota 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
Minnesota and National Funds on July 31, 2000 and the Funds' current
expense structures, the National Fund's annualized expense ratio
(excluding 12b-1 fees) immediately after the Acquisition would be about
0.26% lower than the Minnesota Fund's
27
<PAGE> 31
current expense ratio (for example, for Class A shares, a 0.75% expense
ratio for the National Fund, as compared to 1.01% currently for the
Minnesota Fund). The service fee portion of the 12b-1 fee of the
Minnesota Fund may equal up to 0.10% on net assets attributable to shares
issued prior to December 1, 1994 and 0.25% on net assets attributable to
shares issued thereafter. This arrangement (the "grandfather
arrangement") results in a service fee rate that is a blend between the
0.10% and 0.25% rates which is currently 0.19%. Therefore the 12b-1 fees
for Class A, B and C shares of the Minnesota Fund are 0.19%, 0.94% and
0.94%, respectively. The 12b-1 fees for Class A, B and C shares of the
National Fund are 0.25%, 1.00% and 1.00%, respectively. On a pro forma
basis, the 12b-1 fees on Class A, B and C shares of the National Fund
(while giving effect to the grandfather arrangement) are 0.25%, 1.00% and
1.00%, respectively.
- The Acquisition is intended to permit the Minnesota Fund's shareholders
to exchange their investment for an investment in the National Fund
without recognizing gain or loss for federal income tax purposes. By
contrast, if a Minnesota Fund shareholder redeemed his or her shares to
invest in another fund, like the National Fund, the transaction would
likely be a taxable event for such shareholder. Similarly, if the
Minnesota 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 National Fund shares at net asset value (subject to any
applicable CDSC) at any time, at which point they would recognize a
taxable gain or loss.
In reviewing the Acquisition, the Trustees also considered a Minnesota Fund
shareholder's loss of all or a portion of the exemption from state tax on
personal income earned from the Fund. The Trustees determined, despite this
consideration, that on balance the Acquisition is in the best interests of the
Minnesota Fund shareholders.
The Trustees also considered the differences in the Funds' investment
objectives, policies and strategies and the related risks. In addition, the
Trustees considered the relative Fund performance results which are based on the
factors and assumptions set forth below under "Performance Information." No
assurance can be given that the National Fund will achieve any particular level
of performance after the Acquisition.
The projected post-Acquisition expense reductions presented above are based
on the National Fund's current expense structure and the projected
post-Acquisition assets of the combined Fund. The projected reductions are
further based upon numerous material assumptions, including that: (1) the
current contractual agreements will remain in place; (2) certain duplicate costs
involved in operating the Minnesota Fund are eliminated; and (3) the National
Fund acquires all of the Acquired Funds. See the table "Annual Fund Operating
Expenses" under Question 3 in the "Questions and Answers" section above for the
expenses that would be applicable if one or more of the Acquisitions did not
take place. Although these projections represent good faith estimates, there can
be no assurance that any particular level of expenses or expense savings will be
achieved, because expenses depend on a variety of factors (including the future
level of Fund assets), many of which factors are beyond the control of the
National Fund or Liberty Financial.
Although the Trustees are proposing that the National Fund acquire all of
the Acquired Funds, the acquisition of the Minnesota Fund is not conditioned
upon the acquisition of the other Acquired Funds. Accordingly, if the Minnesota
Fund's shareholders approve the acquisition of the Minnesota Fund, but the other
Acquired Funds' shareholders do not approve the acquisition of one or more of
the other Acquired Funds, it is expected that, subject to the terms of the
Agreement and Plan of Reorganization, the Acquisition proposed in this Proposal
3 will take place as described in this Prospectus/Proxy Statement.
Performance Information
The charts below show the percentage gain or loss in each calendar year for
the 10-year period ending December 31, 1999 for the Class A shares of the
Minnesota Fund and the Class A shares of the National Fund. They should give you
a general idea of how each Fund's return has varied from year to year. The
charts include the effects of Fund expenses, but not sales charges. Returns
would be lower if applicable sales charges were included. The calculations of
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment date. Past performance is not an indication of
future results. Performance
28
<PAGE> 32
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.
MINNESOTA FUND
[BAR CHART]
<TABLE>
<S> <C>
Minnesota Fund
1990 7.31%
1991 9.30%
1992 7.35%
1993 10.70%
1994 -4.84%
1995 16.14%
1996 3.16%
1997 9.71%
1998 6.42%
1999 -5.70%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was 5.68%.
For period shown in bar chart:
Best quarter: First quarter 1995, +7.06%
Worst quarter: First quarter 1994, -4.54%
NATIONAL FUND
[BAR CHART]
<TABLE>
<S> <C>
National Fund
1990 6.44%
1991 11.74%
1992 8.27%
1993 10.73%
1994 -6.27%
1995 17.64%
1996 2.68%
1997 9.61%
1998 6.67%
1999 -4.91%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was 5.40%.
For period shown in bar chart:
Best quarter: First quarter 1995, +7.75%
Worst quarter: First quarter 1994, -5.38%
29
<PAGE> 33
The following tables list each Fund's average annual total return for each
class of its shares for the one-year, five-year and ten-year periods ending
December 31, 1999, including the applicable sales charge. These tables are
intended to provide you with some indication of the risks of investing in the
Funds. At the bottom of each table, you can compare the Funds' performance with
one or more indices or averages.
MINNESOTA FUND*
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (%) 9/26/86 (10.18) 4.67 5.24
---------------------------------------------------------------------------------------------------
Class B (%) 8/4/92 (10.91) 4.58 5.17(1)
---------------------------------------------------------------------------------------------------
Class C (%) 8/1/97 (7.02) 5.46(1) 5.64(1)
---------------------------------------------------------------------------------------------------
Lehman Index (%) (2.06) 6.91 6.89
---------------------------------------------------------------------------------------------------
Lipper Minnesota Average (%) (4.26) 5.47 5.95
</TABLE>
NATIONAL FUND+
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (%) 10/4/78 (9.43) 5.05 5.51
---------------------------------------------------------------------------------------------------
Class B (%) 5/5/92 (10.14) 4.96 5.42(2)
---------------------------------------------------------------------------------------------------
Class C (%) 8/1/97 (6.39) 5.77(2) 5.87(2)
---------------------------------------------------------------------------------------------------
Lehman Index (%) (2.06) 6.91 6.89
---------------------------------------------------------------------------------------------------
Lipper General Average (%) (4.63) 5.76 6.18
</TABLE>
---------------
* The Minnesota Fund's return is compared to the Lehman Municipal Bond Index
("Lehman Index"). Unlike the Fund, indices are not investments, do not incur
fees or expenses and are not professionally managed. It is not possible to
invest directly in indices. The Minnesota Fund's return is also compared to
the average return of the funds included in the Lipper, Inc. Minnesota
Tax-Exempt Municipal Funds category average ("Lipper Minnesota Average").
This Lipper Minnesota Average, which is calculated by Lipper, Inc., is
composed of funds with similar investment objectives to the Minnesota Fund.
Sales charges are not reflected in the Lipper Minnesota Average.
+ The National Fund's return is compared to the Lehman Index. Unlike the Fund,
indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in indices.
The National Fund's return is also compared to the average return of the
funds included in the Lipper General Municipal Debt Funds category average
("Lipper General Average"). This Lipper General Average, which is calculated
by Lipper, Inc., is composed of funds with similar investment objectives to
the National Fund. Sales charges are not reflected in the Lipper General
Average.
(1) Class B and Class C are newer classes of shares. Their performance
information includes returns of the Minnesota Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. These Class A share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class A shares
and the newer classes of shares. If differences in expenses were reflected,
the returns for periods prior to the inception of the newer classes of
shares would be lower. Class A shares were initially offered on September
26, 1986, Class B shares were initially offered on August 4, 1992, and Class
C shares were initially offered on August 1, 1997.
(2) Class B and Class C are newer classes of shares. Their performance
information includes returns of the National Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. These Class A share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class A shares
and the newer classes of shares. If differences in expenses were reflected,
the returns for periods prior to the inception of the newer classes of
shares would be lower. Class A shares were initially offered on October 4,
1978, Class B shares were initially offered on May 5, 1992, and Class C
shares were initially offered on August 1, 1997.
30
<PAGE> 34
THE TRUSTEES OF TRUST V UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN
OF REORGANIZATION.
The Declaration of Trust establishing Trust V (the "Trust V Declaration")
provides that any series of Trust V (such as the Minnesota 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 Trust V 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 Trust V
Declaration to provide that the Minnesota Fund may be terminated by majority
vote of the Minnesota Fund's shares entitled to vote (or by Trustee notice to
shareholders), and will so amend the Trust V Declaration if a majority of the
Minnesota Fund's shareholders entitled to vote on the proposal vote in favor of
such proposal.
Required Vote for Proposal 3
Approval of the Agreement and Plan of Reorganization dated October 26, 2000
among Trust V on behalf of the Minnesota Fund, Trust IV on behalf of the
National Fund, and Liberty Financial will require the affirmative vote of a
majority of the shares of the Minnesota Fund outstanding at the record date for
the Meetings.
PROPOSAL 4 -- ACQUISITION OF THE LIBERTY NORTH CAROLINA TAX-EXEMPT FUND
BY THE LIBERTY TAX-EXEMPT FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of the Agreement and Plan of Reorganization is
attached as Appendix A to this Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the North Carolina Fund by the National Fund under the Agreement and Plan of
Reorganization.
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the National Fund, and how do they
compare with the North Carolina Fund?
Because the Funds have somewhat similar goals and strategies, the principal
risks associated with each Fund are similar. Investing in each of the Funds
involves market risk, interest rate risk, issuer risk and the risks associated
with tax-exempt bonds. Market risk means that security prices in a market,
sector or industry may move down. Downward movements will reduce the value of
your investment. Interest rate risk is the risk of a change in the price of a
bond when interest rates increase or decline, and issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its ability to make timely payments of interest or principal,
which could result in a decrease in the price of a security. Tax-exempt bonds
are subject to special risks, including changes in tax laws or adverse
determinations by the Internal Revenue Service that may make the income from
some of these bonds taxable. In addition, bonds that are backed by the issuer's
taxing authority, known as general obligation bonds, may partially depend for
payment on legislative appropriation and/or aid from other governments. These
bonds may be vulnerable to legal limits on a government's power to raise revenue
or increase taxes. Other tax-exempt bonds, known as special revenue obligations,
are payable from revenues earned by a particular project or other revenue
source. These bonds are subject to greater risk of default than general
obligations because investors can look only to the revenue generated by the
project or private company, rather than to the credit of the state or local
government issuer of the bonds.
31
<PAGE> 35
Both the North Carolina Fund and the National Fund are subject to risks
associated with lower-rated debt securities. Lower-rated debt securities involve
greater risks of loss due to credit deterioration and are less liquid,
especially during periods of economic uncertainty or change, than higher quality
debt securities. Lower-rated debt securities have the added risk that the issuer
of the security may default and not make payment of interest or principal.
The National Fund is a diversified fund, while the North Carolina Fund is a
non-diversified fund. As a non-diversified mutual fund, the North Carolina Fund
is allowed to invest a greater percentage of its total assets in the securities
of a single issuer. This may concentrate risk and, therefore, the North Carolina
Fund has an increased risk of loss compared to a similar diversified mutual
fund. In addition, because the North Carolina Fund concentrates its investments
in the State of North Carolina, it is subject to the risks associated with such
concentration and state municipal market volatility.
While the North Carolina Fund pursues income exempt from federal income tax
and North Carolina personal income tax, the National Fund seeks income exempt
from federal income tax only. Therefore, shareholders of the National Fund
receive income that is generally free from federal tax, but may be subject to
state tax. The interest income distributed by the Funds from certain tax-exempt
bonds may be subject to the federal AMT, and any applicable state AMT, for
individuals and corporations.
For more information about the principal investment risks of the National
Fund, please see the enclosed Prospectus of the National Fund. The actual risks
of investing in each Fund depend on the securities held in each Fund's portfolio
and on market conditions, both of which change over time.
INFORMATION ABOUT THE ACQUISITION
Please see the section "Information Applicable to Proposals 1 through 5" of
this combined Prospectus/ Proxy Statement.
Shares You Will Receive
If the Acquisition occurs, you will receive shares in the National Fund of
the same class as the shares that you currently own in the North Carolina Fund.
In comparison to the shares you currently own, the shares you receive will have
the following characteristics:
- The shares you receive will have an aggregate net asset value equal to
the aggregate net asset value of your current shares as of the business
day before the closing of the Acquisition.
- If applicable, your National 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 North
Carolina 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 National Fund and Liberty Funds Trust IV ("Trust IV").
Information concerning the capitalization of each of the Funds is contained
in Appendix C.
Reasons for the Acquisition
The Trustees of each Trust, including all Trustees who are not "interested
persons" of the Trust, have determined that the Acquisition would be in the best
interests of each Fund, on balance in light of all relevant factors, and that
the interests of existing shareholders of each Fund would not be diluted as a
result of the Acquisition. For these reasons, the Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the Agreement and Plan of Reorganization, a form of which
32
<PAGE> 36
is attached as Appendix A to this Prospectus/Proxy Statement. Each shareholder
should carefully consider whether remaining a shareholder of the National Fund
after the Acquisition is consistent with that shareholder's financial needs and
circumstances.
The Acquisition is one of several proposed acquisitions and liquidations of
funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial,
the indirect parent of each of the investment advisors to the Liberty and Stein
Roe Funds. The overall purposes of these acquisitions and liquidations include
streamlining the product offerings of the Liberty and Stein Roe Funds,
potentially reducing fund expense ratios by creating larger funds and permitting
the Liberty organization to concentrate its portfolio management resources on a
more focused group of portfolios.
In proposing the Acquisition, Liberty Financial presented to the Trustees
the following reasons for the North Carolina Fund to enter into the Acquisition:
- Absent the Acquisition, Liberty Financial indicated to the Trustees that
it will discontinue subsidizing the North Carolina Fund's operations
(through fee waivers or expense reductions) and that it will recommend to
the Trustees that the North Carolina Fund be liquidated. Liberty
Financial informed the Trustees that the North Carolina Fund has not
achieved sufficient sales growth and is not likely to do so in the near
future (and has recently been experiencing net shareholder redemptions).
- The Acquisition provides shareholders an interest in a larger, more
diversified fund which earns and distributes income exempt from federal
income tax (although not North Carolina personal income tax), with lower
operating expenses as a percentage of fund assets. This expense ratio
reduction would benefit North Carolina 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
North Carolina and National Funds on July 31, 2000 and the Funds' current
expense structures, the National Fund's annualized expense ratio
(excluding 12b-1 fees) immediately after the Acquisition would be about
0.31% lower than the North Carolina Fund's current expense ratio (for
example, for Class A shares, a 0.75% expense ratio for the National Fund,
as compared to 1.06% currently for the North Carolina Fund). The service
fee portion of the 12b-1 fee of the North Carolina Fund may equal up to
0.10% on net assets attributable to shares issued prior to December 1,
1994 and 0.25% on net assets attributable to shares issued thereafter.
This arrangement (the "grandfather arrangement") results in a service fee
rate that is a blend between the 0.10% and 0.25% rates which is currently
0.19%. Therefore the 12b-1 fees for Class A, B and C shares of the North
Carolina Fund are 0.19%, 0.94% and 0.94%, respectively. The 12b-1 fees
for Class A, B and C shares of the National Fund are 0.25%, 1.00% and
1.00%, respectively. On a pro forma basis, the 12b-1 fees on Class A, B
and C shares of the National Fund (while giving effect to the grandfather
arrangement) are 0.25%, 1.00% and 1.00%, respectively.
- The Acquisition is intended to permit the North Carolina Fund's
shareholders to exchange their investment for an investment in the
National Fund without recognizing gain or loss for federal income tax
purposes. By contrast, if a North Carolina Fund shareholder redeemed his
or her shares to invest in another fund, like the National Fund, the
transaction would likely be a taxable event for such shareholder.
Similarly, if the North Carolina 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 National Fund shares at net asset value (subject to
any applicable CDSC) at any time, at which point they would recognize a
taxable gain or loss.
In reviewing the Acquisition, the Trustees also considered a North Carolina
Fund shareholder's loss of all or a portion of the exemption from state tax on
personal income earned from the Fund. The Trustees determined, despite this
consideration, that on balance the Acquisition is in the best interests of the
North Carolina Fund shareholders.
33
<PAGE> 37
The Trustees also considered the differences in the Funds' investment
objectives, policies and strategies and the related risks. In addition, the
Trustees considered the relative Fund performance results which are based on the
factors and assumptions set forth below under "Performance Information." No
assurance can be given that the National Fund will achieve any particular level
of performance after the Acquisition.
The projected post-Acquisition expense reductions presented above are based
on the National Fund's current expense structure and the projected
post-Acquisition assets of the combined Fund. The projected reductions are
further based upon numerous material assumptions, including that: (1) the
current contractual agreements will remain in place; (2) certain duplicate costs
involved in operating the North Carolina Fund are eliminated; and (3) the
National Fund acquires all of the Acquired Funds. See the table "Annual Fund
Operating Expenses" under Question 3 in the "Questions and Answers" section
above for the expenses that would be applicable if one or more of the
Acquisitions did not take place. Although these projections represent good faith
estimates, there can be no assurance that any particular level of expenses or
expense savings will be achieved, because expenses depend on a variety of
factors (including the future level of Fund assets), many of which factors are
beyond the control of the National Fund or Liberty Financial.
Although the Trustees are proposing that the National Fund acquire all of
the Acquired Funds, the acquisition of the North Carolina Fund is not
conditioned upon the acquisition of the other Acquired Funds. Accordingly, if
the North Carolina Fund's shareholders approve the acquisition of the North
Carolina Fund, but the other Acquired Funds' shareholders do not approve the
acquisition of one or more of the other Acquired Funds, it is expected that,
subject to the terms of the Agreement and Plan of Reorganization, the
Acquisition proposed in this Proposal 4 will take place as described in this
Prospectus/Proxy Statement.
Performance Information
The charts below show the percentage gain or loss in each calendar year for
the 10-year period ending December 31, 1999 or, if shorter, since inception, for
the Class A shares of the North Carolina Fund and the Class A shares of the
National Fund. They should give you a general idea of how each Fund's return has
varied from year to year. The charts include the effects of Fund expenses, but
not sales charges. Returns would be lower if applicable sales charges were
included. The calculations of total return assume the reinvestment of all
dividends and capital gain distributions on the reinvestment date. Past
performance is not an indication of future results. Performance results include
the effect of expense reduction arrangements, if any. If these arrangements were
not in place, then the performance results would have been lower. Any expense
reduction arrangements may be discontinued at any time.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, which are incorporated by reference in this Prospectus/ Proxy
Statement.
34
<PAGE> 38
NORTH CAROLINA FUND
[BAR CHART]
<TABLE>
<S> <C>
North Carolina Fund
1994 -8.45%
1995 18.54%
1996 3.71%
1997 9.54%
1998 6.59%
1999 -4.63%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was 6.40%.
For period shown in bar chart:
Best quarter: First quarter 1995, +8.66%
Worst quarter: First quarter 1994, -8.35%
NATIONAL FUND
[BAR CHART]
<TABLE>
<S> <C>
National Fund
1990 6.44%
1991 11.74%
1992 8.27%
1993 10.73%
1994 -6.27%
1995 17.64%
1996 2.68%
1997 9.61%
1998 6.67%
1999 -4.91%
</TABLE>
The Fund's year-to-date total return through September 30, 2000 was 5.40%.
For period shown in bar chart:
Best quarter: First quarter 1995, +7.75%
Worst quarter: First quarter 1994, -5.38%
The following tables list each Fund's average annual total return for each
class of its shares for the one-year, five-year and ten-year (or, if shorter,
life of the Fund) periods ending December 31, 1999, including the applicable
sales charges. These tables are intended to provide you with some indication of
the risks of investing in the Funds. At the bottom of each table, you can
compare the Funds' performance with one or more indices or averages.
35
<PAGE> 39
NORTH CAROLINA FUND*
<TABLE>
<CAPTION>
INCEPTION LIFE OF
DATE 1 YEAR 5 YEARS FUND
<S> <C> <C> <C> <C>
Class A (%) 9/1/93 (9.16) 5.45 3.10
---------------------------------------------------------------------------------------------------
Class B (%) 9/1/93 (9.91) 5.37 3.12
---------------------------------------------------------------------------------------------------
Class C (%) 8/1/97 (5.98) 5.82(1) 3.22(1)
---------------------------------------------------------------------------------------------------
Lehman Index (%) (2.06) 6.91 4.96
---------------------------------------------------------------------------------------------------
Lipper NC Average (%) (4.55) 5.77 3.71
</TABLE>
NATIONAL FUND+
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (%) 10/4/78 (9.43) 5.05 5.51
---------------------------------------------------------------------------------------------------
Class B (%) 5/5/92 (10.14) 4.96 5.42(2)
---------------------------------------------------------------------------------------------------
Class C (%) 8/1/97 (6.39) 5.77(2) 5.87(2)
---------------------------------------------------------------------------------------------------
Lehman Index (%) (2.06) 6.91 6.89
---------------------------------------------------------------------------------------------------
Lipper General Average (%) (4.63) 5.76 6.18
</TABLE>
---------------
* The North Carolina Fund's return is compared to the Lehman Municipal Bond
Index ("Lehman Index"). Unlike the Fund, indices are not investments, do not
incur fees or expenses and are not professionally managed. It is not
possible to invest directly in indices. The North Carolina Fund's return is
also compared to the average return of the funds included in the Lipper,
Inc. North Carolina Tax-Exempt Municipal Funds category average ("Lipper NC
Average"). This Lipper NC Average, which is calculated by Lipper, Inc., is
composed of funds with similar investment objectives to the North Carolina
Fund. Sales charges are not reflected in the Lipper NC Average.
+ The National Fund's return is compared to the Lehman Index. Unlike the Fund,
indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in indices.
The National Fund's return is also compared to the average return of the
funds included in the Lipper General Municipal Debt Funds category average
("Lipper General Average"). This Lipper General Average, which is calculated
by Lipper, Inc., is composed of funds with similar investment objectives to
the National Fund. Sales charges are not reflected in the Lipper General
Average.
(1) Class C is a newer classes of shares. Its performance information includes
returns of the North Carolina Fund's Class A shares (the oldest existing
fund class) for periods prior to the inception of the newer class of shares.
These Class A share returns are not restated to reflect any differences in
expenses (such as Rule 12b-1 fees) between Class A shares and the newer
class of shares. If differences in expenses were reflected, the returns for
periods prior to the inception of the newer class of shares would be lower.
Class A and Class B shares were initially offered on September 1, 1993, and
Class C shares were initially offered on August 1, 1997.
(2) Class B and Class C are newer classes of shares. Their performance
information includes returns of the National Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. These Class A share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class A shares
and the newer classes of shares. If differences in expenses were reflected,
the returns for periods prior to the inception of the newer classes of
shares would be lower. Class A shares were initially offered on October 4,
1978, Class B shares were initially offered on May 5, 1992, and Class C
shares were initially offered on August 1, 1997.
THE TRUSTEES OF TRUST V UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN
OF REORGANIZATION.
The Declaration of Trust establishing Trust V (the "Trust V Declaration")
provides that any series of Trust V (such as the North Carolina 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,
36
<PAGE> 40
if the Acquisition is submitted for shareholder approval. The Trust V
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 Trust V Declaration to provide that the North Carolina
Fund may be terminated by majority vote of the North Carolina Fund's shares
entitled to vote (or by Trustee notice to shareholders), and will so amend the
Trust V Declaration if a majority of the North Carolina Fund's shareholders
entitled to vote on the proposal vote in favor of such proposal.
Required Vote for Proposal 4
Approval of the Agreement and Plan of Reorganization dated October 26, 2000
among Trust V on behalf of the North Carolina Fund, Trust IV on behalf of the
National Fund, and Liberty Financial will require the affirmative vote of a
majority of the shares of the North Carolina Fund outstanding at the record date
for the Meetings.
PROPOSAL 5 -- ACQUISITION OF THE LIBERTY OREGON TAX-FREE FUND BY THE LIBERTY
TAX-EXEMPT FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization
dated October 26, 2000. A form of Agreement and Plan of Reorganization is
attached as Appendix A to this Prospectus/Proxy Statement. By approving the
Agreement and Plan of Reorganization, you are also approving the Acquisition of
the Oregon Fund by the National Fund under the Agreement and Plan of
Reorganization.
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the National Fund, and how do they
compare with the Oregon Fund?
Because the Funds have somewhat similar goals and strategies, the principal
risks associated with each Fund are similar. Investing in each of the Funds
involves market risk, interest rate risk, issuer risk and the risks associated
with tax-exempt bonds. Market risk means that security prices in a market,
sector or industry may move down. Downward movements will reduce the value of
your investment. Interest rate risk is the risk of a change in the price of a
bond when interest rates increase or decline, and issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its ability to make timely payments of interest or principal,
which could result in a decrease in the price of a security. Tax-exempt bonds
are subject to special risks, including changes in tax laws or adverse
determinations by the Internal Revenue Service that may make the income from
some of these bonds taxable. In addition, bonds that are backed by the issuer's
taxing authority, known as general obligation bonds, may partially depend for
payment on legislative appropriation and/or aid from other governments. These
bonds may be vulnerable to legal limits on a government's power to raise revenue
or increase taxes. Other tax-emempt bonds, known as special revenue obligations,
are payable from revenues earned by a particular project or other revenue
source. These bonds are subject to greater risk of default than general
obligations because investors can look only to the revenue generated by the
project or private company, rather than to the credit of the state or local
government issuer of the bonds.
Because the National Fund may invest up to 35% of its total assets in
lower-rated debt securities, it is more subject to the special risks associated
with such securities than the Oregon Fund, which does not invest in below
investment grade municipal bonds as part of its primary investment strategy.
Lower-rated debt securities involve greater risk of loss due to credit
deterioration and are less liquid, especially during periods of economic
uncertainty or change, than higher quality debt securities. Lower-rated debt
securities have the added risk that the issuer of the security may default and
not make payment of interest or principal.
37
<PAGE> 41
The National Fund is a diversified fund, while the Oregon Fund is a
non-diversified fund. As a non-diversified mutual fund, the Oregon Fund is
allowed to invest a greater percentage of its total assets in the securities of
a single issuer. This may concentrate risk and, therefore, the Oregon Fund has
an increased risk of loss compared to a similar diversified mutual fund. In
addition, because the Oregon Fund concentrates its investments in the State of
Oregon, it is subject to the risks associated with such concentration and state
municipal market volatility.
While the Oregon Fund pursues income exempt from federal income tax and
Oregon personal income tax, the National Fund seeks income exempt from federal
income tax only. Therefore, shareholders of the National Fund receive income
that is generally free from federal tax, but may be subject to state tax. The
interest income distributed by the Funds from certain tax-exempt bonds may be
subject to the federal AMT, and any applicable state AMT, for individuals and
corporations. As a fundamental policy that cannot be changed without shareholder
approval, the National Fund may not invest more than 20% of total Fund assets in
bonds subject to the federal AMT. The Oregon Fund, however, is not subject to
this restriction.
For more information about the principal investment risks of the National
Fund, please see the enclosed Prospectus of the National Fund. The actual risks
of investing in each Fund depend on the securities held in each Fund's portfolio
and on market conditions, both of which change over time.
INFORMATION ABOUT THE ACQUISITION
Please see the section "Information Applicable to Proposals 1 through 5" of
this combined Prospectus/ Proxy Statement.
Shares You Will Receive
If the Acquisition occurs, you will receive shares in the National Fund of
the same class as the shares that you currently own in the Oregon Fund. In
comparison to the shares you currently own, the shares you receive will have the
following characteristics:
- The shares you receive will have an aggregate net asset value equal to
the aggregate net asset value of your current shares as of the business
day before the closing of the Acquisition.
- If applicable, your National 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 Oregon 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 National Fund and Liberty Funds Trust IV ("Trust IV").
Information concerning the capitalization of each of the Funds is contained
in Appendix C.
Reasons for the Acquisition
The Trustees of each Trust, including all Trustees who are not "interested
persons" of the Trust, have determined that the Acquisition would be in the best
interests of each Fund, on balance in light of all relevant factors, and that
the interests of existing shareholders of each Fund would not be diluted as a
result of the Acquisition. For these reasons, the Trustees have unanimously
approved the Acquisition and recommend that you vote in favor of the Acquisition
by approving the Agreement and Plan of Reorganization, a form of which is
attached as Appendix A to this Prospectus/Proxy Statement. Each shareholder
should carefully consider whether remaining a shareholder of the National Fund
after the Acquisition is consistent with that shareholder's financial needs and
circumstances.
38
<PAGE> 42
The Acquisition is one of several proposed acquisitions and liquidations of
funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial,
the indirect parent of each of the investment advisors to the Liberty and Stein
Roe Funds. The overall purposes of these acquisitions and liquidations include
streamlining the product offerings of the Liberty and Stein Roe Funds,
potentially reducing fund expense ratios by creating larger funds and permitting
the Liberty organization to concentrate its portfolio management resources on a
more focused group of portfolios.
In proposing the Acquisition, Liberty Financial presented to the Trustees
the following reasons for the Oregon Fund to enter into the Acquisition:
- Absent the Acquisition, Liberty Financial indicated to the Trustees that
it will discontinue subsidizing the Oregon Fund's operations (through fee
waivers or expense reductions) and that it will recommend to the Trustees
that the Oregon Fund be liquidated. Liberty Financial informed the
Trustees that the Oregon Fund has not achieved sufficient sales growth
and is not likely to do so in the near future (and has recently been
experiencing net shareholder redemptions), and, therefore, the Fund may
not be able to provide a competitive investment return in the absence of
a subsidy.
- The Acquisition is intended to permit the Oregon Fund's shareholders to
exchange their investment, without recognizing gain or loss for federal
income tax purposes, for an investment in a larger, more diversified fund
which earns and distributes income exempt from federal income tax
(although not Oregon personal income tax). By contrast, if an Oregon Fund
shareholder redeemed his or her shares to invest in another fund, like
the National Fund, the transaction would likely be a taxable event for
such shareholder. Similarly, if the Oregon 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 National Fund shares at net
asset value (subject to any applicable CDSC) at any time, at which point
they would recognize a taxable gain or loss.
- As a result of Liberty Financial's decision to discontinue its expense
subsidy of the Oregon Fund, the expense ratio of the Oregon Fund will
increase significantly if the Acquisition does not occur. If the
Acquisition does occur, then the expense ratio of the combined National
Fund is expected to be materially lower than the Oregon Fund's expense
ratio after Liberty Financial discontinues its subsidy. (The Trustees did
note that the National Fund has a higher expense ratio than the
subsidized expense ratio of the Oregon Fund). Although, as explained
below, it is not possible to predict future expense ratios with
certainty, information provided to the Trustees by Liberty Financial
indicated that, based on the assets of the Oregon and National Funds on
July 31, 2000 and the Funds' current expense structures (assuming the
voluntary expense limitation is discontinued), the National Fund's
annualized expense ratio (excluding 12b-1 fees) immediately after the
Acquisitions would be about 0.30% lower than the Oregon Fund's current
expense ratio (for example, for Class A shares, a 0.75% expense ratio for
the National Fund, as compared to 1.05% for the Oregon Fund if the
limitation were discontinued and 0.73% if it continued). Note that the
12b-1 fees for Class A, B and C shares of each Fund are 0.25%, 1.00% and
1.00%, respectively.
In reviewing the Acquisition, the Trustees also considered an Oregon Fund
shareholder's loss of all or a portion of the exemption from state tax on
personal income earned from the Fund. The Trustees determined, despite this
consideration, that on balance the Acquisition is in the best interests of the
Oregon Fund shareholders.
The Trustees also considered the differences in the Funds' investment
objectives, policies and strategies and the related risks. In addition, the
Trustees considered the relative Fund performance results which are based on the
factors and assumptions set forth below under "Performance Information." No
assurance can be given that the National Fund will achieve any particular level
of performance after the Acquisition.
The projected post-Acquisition expense reductions presented above are based
on the National Fund's current expense structure and the projected
post-Acquisition assets of the combined Fund. The projected reductions are
further based upon numerous material assumptions, including that: (1) the
current contractual agreements will remain in place; (2) certain duplicate costs
involved in operating the Oregon Fund are
39
<PAGE> 43
eliminated; and (3) the National Fund acquires all of the Acquired Funds. See
the table "Annual Fund Operating Expenses" under Question 3 in the "Questions
and Answers" section above for the expenses that would be applicable if one or
more of the Acquisitions did not take place. Although these projections
represent good faith estimates, there can be no assurance that any particular
level of expenses or expense savings will be achieved, because expenses depend
on a variety of factors (including the future level of Fund assets), many of
which factors are beyond the control of the National Fund or Liberty Financial.
Although the Trustees are proposing that the National Fund acquire all of
the Acquired Funds, the acquisition of the Oregon Fund is not conditioned upon
the acquisition of the other Acquired Funds. Accordingly, if the Oregon Fund's
shareholders approve the acquisition of the Oregon Fund, but the other Acquired
Funds' shareholders do not approve the acquisition of one or more of the other
Acquired Funds, it is expected that, subject to the terms of the Agreement and
Plan of Reorganization, the Acquisition proposed in this Proposal 5 will take
place as described in this Prospectus/Proxy Statement.
Performance Information
The charts below show the percentage gain or loss in each calendar year for
the 10-year period ending December 31, 1999 for the Class A shares of the Oregon
Fund and the Class A shares of the National Fund. They should give you a general
idea of how each Fund's return has varied from year to year. The charts include
the effects of Fund expenses, but not sales charges. Returns would be lower if
applicable sales charges were included. The calculations of total return assume
the reinvestment of all dividends and capital gain distributions on the
reinvestment date. Past performance is not an indication of future results.
Performance results include the effect of expense reduction arrangements, if
any. If these arrangements were not in place, then the performance results would
have been lower. Any expense reduction arrangements may be discontinued at any
time.
Additional discussion of the manner of calculation of total return is
contained in each Fund's respective Prospectus and Statement of Additional
Information, which are incorporated by reference in this Prospectus/ Proxy
Statement.
40
<PAGE> 44
OREGON FUND
[BAR CHART]
<TABLE>
<CAPTION>
OREGON FUND
-----------
<S> <C>
1990 6.37%
1991 9.85%
1992 7.33%
1993 8.94%
1994 -2.69%
1995 12.15%
1996 2.94%
1997 7.02%
1998 5.40%
1999 -4.76%
</TABLE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 7.10%. Best quarter: First quarter 1995, +4.71%
Worst quarter: First quarter 1994, -3.68%
</TABLE>
NATIONAL FUND
[BAR CHART]
<TABLE>
<S> <C>
National Fund
1990 6.44%
1991 11.74%
1992 8.27%
1993 10.73%
1994 -6.27%
1995 17.64%
1996 2.68%
1997 9.61%
1998 6.67%
1999 -4.91%
</TABLE>
<TABLE>
<S> <C>
The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2000 was 5.40%. Best quarter: First quarter 1995, +7.75%
Worst quarter: First quarter 1994, -5.38%
</TABLE>
The following tables list each Fund's average annual total return for each
class of its shares for the one-year, five-year and ten-year periods ending
December 31, 1999, including the applicable sales charges. These tables are
intended to provide you with some indication of the risks of investing in the
Funds. At the bottom of each table, you can compare the Funds' performance with
one or more indices or averages.
OREGON FUND*
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (%) 10/4/84 (9.29) 3.39 4.62
--------------------------------------------------------------------------------------------------
Class B (%) 1/27/99 (10.13) 3.98 5.09(1)
--------------------------------------------------------------------------------------------------
Lehman Index (%) (0.14) 6.35 3.00
--------------------------------------------------------------------------------------------------
Lipper States Average (%) (2.01) 5.20 5.32
</TABLE>
41
<PAGE> 45
NATIONAL FUND+
<TABLE>
<CAPTION>
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (%) 10/4/78 (9.43) 5.05 5.51
-------------------------------------------------------------------------------------------------
Class B (%) 5/5/92 (10.14) 4.96 5.42(2)
-------------------------------------------------------------------------------------------------
Class C (%) 8/1/97 (6.39) 5.77(2) 5.87(2)
-------------------------------------------------------------------------------------------------
Lehman Index (%) (2.06) 6.91 6.89
-------------------------------------------------------------------------------------------------
Lipper General Average (%) (4.63) 5.76 6.18
</TABLE>
---------------
* The Oregon Fund's return is compared to the Lehman Municipal Bond Index
("Lehman Index"). Unlike the Fund, indices are not investments, do not incur
fees or expenses and are not professionally managed. It is not possible to
invest directly in indices. The Oregon Fund's return is also compared to the
average return of the funds included in the Lipper States Intermediate
Municipal Fund category average ("Lipper States Average"). This Lipper
States Average, which is calculated by Lipper, Inc., is composed of funds
with similar investment objectives to the Oregon Fund. Sales charges are not
reflected in the Lipper States Average.
+ The National Fund's return is compared to the Lehman Index. Unlike the Fund,
indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in indices.
The National Fund's return is also compared to the average return of the
funds included in the Lipper General Municipal Debt Funds category average
("Lipper General Average"). This Lipper General Average, which is calculated
by Lipper, Inc., is composed of funds with similar investment objectives to
the National Fund. Sales charges are not reflected in the Lipper General
Average.
(1) Class B is a newer class of shares. Its performance information includes
returns of the Oregon Fund's Class A shares (the oldest existing fund class)
for periods prior to the inception of the newer class of shares. These Class
A share returns are not restated to reflect any differences in expenses
(such as Rule 12b-1 fees) between Class A shares and the newer class of
shares. If differences in expenses were reflected, the returns for periods
prior to the inception of the newer class of shares would be lower. Class A
shares were initially offered on October 4, 1984 and Class B shares were
initially offered on January 27, 1999.
(2) Class B and Class C are newer classes of shares. Their performance
information includes returns of the National Fund's Class A shares (the
oldest existing fund class) for periods prior to the inception of the newer
classes of shares. These Class A share returns are not restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class A shares
and the newer classes of shares. If differences in expenses were reflected,
the returns for periods prior to the inception of the newer classes of
shares would be lower. Class A shares were initially offered on October 4,
1978, Class B shares were initially offered on May 5, 1992, and Class C
shares were initially offered on August 1, 1997.
THE TRUSTEES OF TRUST III UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND
PLAN OF REORGANIZATION.
The Declaration of Trust establishing Trust III (the "Trust III
Declaration") provides that any series of Trust III (such as the Oregon 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 Trust III 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 Trust III Declaration to provide that the Oregon Fund may be terminated by
majority vote of the Oregon Fund's shares entitled to vote (or by Trustee notice
to shareholders), and will so amend the Trust III Declaration if a majority of
the Oregon Fund's shareholders entitled to vote on the proposal vote in favor of
such proposal.
42
<PAGE> 46
Required Vote for Proposal 5
Approval of the Agreement and Plan of Reorganization dated October 26, 2000
among Trust III on behalf of the Oregon Fund, Trust IV on behalf of the National
Fund, and Liberty Financial will require the affirmative vote of a majority of
the shares of the Oregon Fund outstanding at the record date for the Meetings.
INFORMATION APPLICABLE TO PROPOSALS 1 THROUGH 5
Terms of the Agreement and Plan of Reorganization
If approved by the shareholders of each Acquired Fund, the Acquisitions are
expected to occur on or around January 22, 2001 under the Agreement and Plan of
Reorganization, a form of which is attached as Appendix A to this combined
Prospectus/Proxy Statement. Please review Appendix A. The following is a brief
summary of the principal terms of the Agreement and Plan of Reorganization:
- Each Acquired Fund will transfer all of the assets and liabilities
attributable to each class of its shares to the National Fund in exchange
for shares of the same class of the National Fund with an aggregate net
asset value equal to the net asset value of the transferred assets and
liabilities.
- The Acquisitions will occur on the next business day after the time
(currently scheduled to be 4:00 p.m. Eastern Time on January 19, 2001 or
such other date and time as the parties may determine) when the assets of
each Fund are valued for purposes of the Acquisitions.
- The shares of each class of the National Fund received by each Acquired
Fund will be distributed to each Acquired Fund's respective shareholders
of the same class pro rata in accordance with their percentage ownership
of each class of such Acquired Fund in full liquidation of such Acquired
Fund.
- After the Acquisitions, each Acquired Fund will be terminated, and its
affairs will be wound up in an orderly fashion.
- Each Acquisition requires approval by the Acquired Fund's shareholders
and satisfaction of a number of other conditions; each Acquisition may be
terminated at any time with the approval of the Trustees of Trust III and
Trust IV and Trust V, as the case may be.
Although the Trustees are proposing that the National Fund acquire each of
the Acquired Funds, the Acquisition proposed in each Proposal is not conditioned
upon the approval of the Acquisitions proposed in the other Proposals.
Accordingly, in the event that the shareholders of the respective Acquired Funds
approve one or more but not all of the Acquisitions, it is expected that the
approved Acquisition or Acquisitions will, subject to the terms of the Agreement
and Plan of Reorganization, take place as described above.
Shareholders who object to the Acquisitions will not be entitled under
Massachusetts law or the Trust III or Trust V Declaration to demand payment for,
or an appraisal of, their shares. However, shareholders should be aware that the
Acquisitions as proposed are not expected to result in recognition of gain or
loss to shareholders for federal income tax purposes and that, if the
Acquisitions are consummated, shareholders will be free to redeem the shares
which they receive in the transaction at their then-current net asset value,
plus any applicable CDSC. In addition, shares may be redeemed (at net asset
value plus any applicable CDSC) at any time prior to the consummation of the
Acquisitions.
The form of Agreement and Plan of Reorganization attached as Appendix A to
this combined Prospectus/Proxy Statement is a general form which will be used
for each of the Acquisitions. There will be a separate Agreement and Plan of
Reorganization with respect to each Acquisition, among Trust III or Trust V, as
applicable, on behalf of the relevant Acquired Fund, Trust IV on behalf of the
National Fund, and Liberty Financial. The form of Agreement and Plan of
Reorganization for each Acquisition has been filed with the SEC as part of the
Registration Statement of which this Prospectus/Proxy Statement forms a part.
Please see page 3 of this Prospectus/Proxy Statement for information on how to
obtain a copy of the Registration Statement or the form of Agreement and Plan of
Reorganization for your Fund's Acquisition.
43
<PAGE> 47
Federal Income Tax Consequences
Each Acquisition is intended to be a tax-free reorganization. Ropes & Gray
has delivered to each Acquired Fund and the National Fund an opinion, and the
closing of each Acquisition will be conditioned on receipt of a letter from
Ropes & Gray confirming such opinion, to the effect that, on the basis of
existing law under specified sections of the Internal Revenue Code of 1986, as
amended (the "Code"), for federal income tax purposes:
- under Section 361 or Section 354 of the Code, respectively, no gain or
loss will be recognized by the Acquired Funds or the shareholders of the
Acquired Funds as a result of each Acquisition;
- under Section 358 of the Code, the tax basis of the National Fund shares
you receive will be the same, in the aggregate, as the aggregate tax
basis of your shares in an Acquired Fund;
- under Section 1223(1) of the Code, your holding period for the National
Fund shares you receive will include the holding period for your shares
in an Acquired Fund if you hold your shares as a capital asset;
- under Section 1032 of the Code, no gain or loss will be recognized by the
National Fund as a result of each Acquisition;
- under Section 362(b) of the Code, the National Fund's tax basis in the
assets that the National Fund receives from each Acquired Fund will be
the same as such Acquired Fund's basis in such assets; and
- under Section 1223(2) of the Code, the National Fund's holding period in
such assets will include the relevant Acquired Fund's holding period in
such assets.
The opinion is, and the confirmation letter will be, based on certain
factual certifications made by officers of each Trust. The opinion is not a
guarantee that the tax consequences of the Acquisitions will be as described
above.
Prior to the closing of the Acquisitions, each Acquired Fund and the
National Fund will each distribute to their shareholders all of their respective
investment company taxable income and net realized capital gains that have not
previously been distributed to shareholders. Such distributions will be taxable
to the shareholders of the respective Funds.
This description of the federal income tax consequences of the Acquisitions
does not take into account your particular facts and circumstances. Consult your
own tax advisor about the effect of state, local, foreign, and other tax laws.
PROPOSAL 6 -- 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 the Liberty
Trusts of which the Acquired Funds are 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 the Liberty
Trusts, as well as nine Liberty closed-end funds and seven other Liberty
open-end trusts (or in the case of Messrs. Lowry, Mayer and Neuhauser, eleven
Liberty closed-end Funds and eight other Liberty open-end trusts (collectively,
the "Liberty Mutual Funds")), and have served in that capacity continuously
since originally elected or appointed. All of the currently serving members,
other than Mr. Palombo, have been previously elected by the shareholders of the
Liberty Trusts. The proposed four new members currently serve on the Board of
Trustees of two Stein Roe closed-end funds and seven Stein Roe open-end trusts
(collectively, the "Stein Roe Mutual Funds"), and were recommended for election
as Trustees of the Liberty Mutual Funds by the Board of Trustees at meetings
held on October 25 and 26, 2000. Each of the nominees elected will serve as a
Trustee of the Liberty Trusts until the next meetings of shareholders of the
Liberty Trusts called for the purpose of
44
<PAGE> 48
electing a Board of Trustees, and until a successor is elected and qualified or
until death, retirement, resignation or removal.
Currently, two different boards of trustees are responsible for overseeing
substantially all of the Liberty and Stein Roe Mutual Funds. Liberty Financial
and the Trustees of the Liberty Trusts have agreed that shareholder interests
can more effectively be represented by a single board with responsibility for
overseeing substantially all of the Liberty and Stein Roe Mutual Funds. Creation
of a single, consolidated board should also provide certain administrative
efficiencies for Liberty Financial and potential future cost savings for both
the Liberty and Stein Roe Mutual Funds and Liberty Financial. The nominees
listed below will be the members of the single, consolidated Board of Trustees.
The persons named in the enclosed proxy card intend to vote at the Meetings in
favor of the election of the nominees named below as Trustees of the Liberty
Trusts (if so instructed). If any nominee listed below becomes unavailable for
election, the proxy may be voted for a substitute nominee in the discretion of
the proxy holder(s).
INFORMATION ABOUT THE NOMINEES
Set forth below is information concerning each of the nominees.
<TABLE>
<CAPTION>
NOMINEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ------------------------------------------------- -------------
<S> <C> <C>
Douglas A. Hacker Executive Vice President and Chief Financial New nominee
(43) Officer of UAL, Inc. (airline) since July 1999;
Senior Vice President and Chief Financial Officer
of UAL, Inc. prior thereto.
Janet Langford Kelly Executive Vice President -- Corporate New nominee
(41) Development, General Counsel, and Secretary of
Kellogg Company (food, beverage and tobacco
producer) since September 1999; Senior Vice
President, Secretary and General Counsel of Sara
Lee Corporation (branded, packaged,
consumer-products manufacturer) prior thereto.
Richard W. Lowry Private Investor since 1987. (Formerly Chairman 1995
(64) and Chief Executive Officer of U.S. Plywood
Corporation (building product producer) from
August 1985 to August 1987.)
Salvatore Macera Private Investor since 1981. (Formerly Executive 1998
(69) Vice President and Director of Itek Corporation
(electronics) from 1975 to 1981.)
William E. Mayer(2) Partner, Park Avenue Equity Partners (venture 1994
(60) capital), since November 1996; Dean, College of
Business and Management, University of Maryland,
prior thereto; Director, Johns Manville (building
products producer), Lee Enterprises (print and
on-line media) and WR Hambrecht + Co. (financial
services provider).
Charles R. Nelson Van Voorhis Professor, Department of Economics, New nominee
(57) University of Washington; Consultant on economic
and statistical matters.
John J. Neuhauser Academic Vice President and Dean of Faculties, 1985
(57) Boston College, since August 1999; Dean, Boston
College School of Management, prior thereto.
</TABLE>
45
<PAGE> 49
<TABLE>
<CAPTION>
NOMINEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ------------------------------------------------- -------------
<S> <C> <C>
Joseph R. Palombo(3) Trustee of the Stein Roe Mutual Funds since 2000
(47) October 2000; Executive Vice President and
Director of Colonial and Stein Roe & Farnham
Incorporated since April 1999; Executive Vice
President and Chief Administrative Officer of
Liberty Funds Group LLC since April 1999;
Director of AlphaTrade Inc. (broker-dealer),
Colonial Advisory Services, Inc., Liberty Funds
Distributor, Inc. and Liberty Funds Services,
Inc. since April 1999. (Formerly Vice President
of the Stein Roe Mutual Funds from April 1999 to
October 2000, Vice President of the Liberty
Mutual Funds from April 1999 to August 2000, and
Chief Operating Officer of Putnam Mutual Funds
(investments) from 1994 to 1998.)
Thomas E. Stitzel Business Consultant since 1999; Professor of 1998
(64) Finance and Dean, College of Business, Boise
State University, prior thereto; Chartered
Financial Analyst.
Thomas C. Theobald Managing Director, William Blair Capital Partners New nominee
(62) (private equity investing), since 1994; Chief
Executive Officer and Chairman of the Board of
Directors of Continental Bank Corporation
(banking services) prior thereto.
Anne-Lee Verville Consultant since 1997; General Manager, Global 1998
(55) Education Industry (global education
applications), prior thereto. (Formerly
President, Applications Solutions Division, IBM
Corporation (global education and global
applications), from 1991 to 1994.)
</TABLE>
---------------
(1) Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
(2) Mr. Mayer is not affiliated with Liberty Financial, but is an "interested
person," as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), because of his affiliation with WR Hambrecht + Co. (a
registered broker-dealer).
(3) Mr. Palombo is an "interested person," as defined in the 1940 Act, because
of his affiliation with Liberty Financial.
The following persons who are currently serving on the Board of Trustees of
each of Trust III and Trust V are not standing for reelection:
<TABLE>
<CAPTION>
TRUSTEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ------------------------------------------------- -------------
<S> <C> <C>
Tom Bleasdale Retired (formerly Chairman of the Board and Chief 1987
(70) Executive Officer, Shore Bank & Trust Company
(banking services) from 1992 to 1993); Director,
Empire Co. (food distributor).
Lora S. Collins Attorney (formerly Attorney, Kramer Levin 1991
(65) Naftalis & Frankel LLP (law firm) from 1986 to
1996).
James E. Grinnell Private investor since November 1988. 1995
(72)
</TABLE>
46
<PAGE> 50
<TABLE>
<CAPTION>
TRUSTEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ------------------------------------------------- -------------
<S> <C> <C>
James L. Moody, Jr. Retired (formerly Chairman of the Board, 1986
(70) Hannaford Bros. Co. (food retailer) from 1984 to
1997 and Chief Executive Officer prior thereto).
</TABLE>
---------------
(1) Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
TRUSTEES' COMPENSATION
The members of the Board of Trustees will serve as Trustees of the Liberty
and Stein Roe Mutual Funds, for which service each Trustee, except for Mr.
Palombo, will receive an annual retainer of $45,000, and attendance fees of
$8,000 for each regular joint meeting and $1,000 for each special joint meeting.
The Board of Trustees is expected to hold six regular joint meetings each year.
Committee chairs will receive an additional annual retainer of $5,000, and
receive $1,000 for each special meeting attended on a day other than a regular
joint meeting day. Committee members will receive an additional annual retainer
of $1,000, and receive $1,000 for each special meeting attended on a day other
than a regular joint meeting day. Two-thirds of the Trustees' fees are allocated
among the Liberty and Stein Roe Mutual Funds based on each Fund's relative net
assets, and one-third of the fees is divided equally among the Liberty and Stein
Roe Mutual Funds.
The Liberty Mutual Funds do not currently provide pension or retirement
plan benefits to the Trustees. However, certain Trustees currently serving on
the Board of Trustees of the Liberty Mutual Funds who are not continuing on the
combined Board of Trustees of the Liberty and Stein Roe Mutual Funds will
receive payments at an annual rate equal to their 1999 Trustee compensation for
the lesser of two years or until the date they would otherwise have retired at
age 72. These payments will be made quarterly, beginning in 2001. Liberty
Financial and the Liberty Mutual Funds will each bear one-half of the cost of
the payments; the Liberty Mutual Funds' portion of the payments will be
allocated among the Liberty Mutual Funds based on each fund's share of the
Trustee fees for 2000.
Further information concerning the Trustees' compensation is included in
Appendix B.
MEETINGS AND CERTAIN COMMITTEES
Composition. The current Board of Trustees of the Liberty Mutual Funds
consists of two interested and nine non-interested Trustees. Mr. Mayer is not
affiliated with Liberty Financial or any of its investment advisor affiliates,
but is considered interested as a result of his affiliation with a
broker-dealer. Mr. Palombo is an interested person because of his affiliation
with Liberty Financial.
Audit Committee. The Audit Committee of the Liberty Mutual Funds,
consisting of Ms. Verville (Chairperson) and Messrs. Bleasdale, Grinnell, Lowry,
Macera and Moody, all of whom are non-interested Trustees, recommends to the
Board of Trustees the independent accountants to serve as auditors, reviews with
the independent accountants the results of the auditing engagement and internal
accounting procedures and considers the independence of the independent
accountants, the range of their audit services and their fees.
Compensation Committee. The Compensation Committee of the Liberty Mutual
Funds, consisting of Messrs. Neuhauser (Chairman), Grinnell and Stitzel and Ms.
Collins, all of whom are non-interested Trustees, reviews compensation of the
Board of Trustees.
Governance Committee. The Governance Committee of the Liberty Mutual
Funds, consisting of Messrs. Bleasdale (Chairman), Lowry, Mayer and Moody and
Ms. Verville, all of whom are non-interested Trustees, except for Mr. Mayer (Mr.
Mayer is interested as a result of his affiliation with a broker-dealer, but is
not affiliated with Liberty Financial or any of its investment advisor
affiliates), recommends to the Board of Trustees, among other things, nominees
for trustee and for appointments to various committees. The Committee will
consider candidates for trustee recommended by shareholders. Written
recommendations with
47
<PAGE> 51
supporting information should be directed to the Committee in care of Trust III
or Trust V, as applicable, Attention: Secretary, One Financial Center, Boston,
Massachusetts 02111-2621.
Record of Board and Committee Meetings. During the fiscal year ended
October 31, 2000, the Board of Trustees of Trust III (excluding the Liberty
Federal Securities Fund, which has a different fiscal year end) held six
meetings, the Audit Committee held four meetings, the Compensation Committee
held two meetings, and the Governance Committee held six meetings. During fiscal
year January 31, 2000, the Board of Trustees of Trust V held six meetings, the
Audit Committee held three meetings, the Compensation Committee held one
meeting, and the Governance Committee held four meetings.
During the most recently completed fiscal years, each of the current
Trustees attended more than 75% of the meetings of the Board of Trustees and the
committees of which such Trustee was a member.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE ACQUIRED FUNDS
VOTE FOR EACH NOMINEE IN PROPOSAL 6.
Required Vote for Proposal 6
A plurality of the votes cast at the Meetings for each of Trust III and
Trust V, if a quorum is represented, is required for the election of each
Trustee to the Board of Trustees of the respective Trusts. 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 and Trust V are soliciting proxies from the
shareholders of each Acquired Fund in connection with the Meetings, which have
been called to be held at 10:00 a.m. Eastern Time on December 27, 2000 at
Colonial's offices, One Financial Center, Boston, Massachusetts 02111-2621. The
meeting notice, this combined Prospectus/Proxy Statement and proxy cards and
inserts are being mailed to shareholders beginning on or about November 17,
2000.
Information About Proxies and the Conduct of the Meetings
Solicitation of Proxies. Proxies will be solicited primarily by mailing
this combined Prospectus/Proxy Statement and its enclosures, but proxies may
also be solicited through further mailings, telephone calls, personal interviews
or e-mail by officers of your Acquired Fund or by employees or agents of
Colonial and its affiliated companies. In addition, Shareholder Communications
Corporation ("SCC") has been engaged to assist in the solicitation of proxies,
at an estimated total cost of $700,000 for all of the proposed acquisitions of
funds in the Liberty and Stein Roe Mutual Fund groups scheduled to take place in
January 2001.
Voting Process
You can vote in any one of the following four ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, by calling toll-free 1-877-518-9416 between the hours of 9:00
a.m. and 11:00 p.m. Eastern Time and following the instructions;
c. By fax (not available for all shareholders; refer to enclosed proxy
insert); or
d. In person at the Meetings.
Shareholders who owned shares on the record date, September 29, 2000, are
entitled to vote at the Meetings. Shareholders are entitled to cast one vote for
each share owned on the record date. If you choose to vote by mail or by fax,
and you are an individual account owner, please sign exactly as your name
appears on
48
<PAGE> 52
the proxy card. Either owner of a joint account may sign the proxy card, but the
signer's name must exactly match the name that appears on the card.
Costs. The estimated costs of the Meetings, including the costs of
soliciting proxies, and the costs of the Acquisitions to be borne by the Florida
Fund, the Michigan Fund, the Minnesota Fund, the North Carolina Fund, the Oregon
Fund and the National Fund are approximately $26,000, $28,000, $33,000, $28,000,
$23,000 and $0, respectively. Liberty Financial is also bearing a portion of
such costs. This portion to be borne by Liberty Financial is in addition to the
amounts to be borne by the Funds.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy card. If no instructions are
given, the proxy will be voted in favor of each Proposal. You can revoke your
proxy by sending a signed, written letter of revocation to the Secretary of your
Acquired Fund, by properly executing and submitting a later-dated proxy or by
attending the Meetings and voting in person.
Votes cast in person or by proxy at the Meetings will be counted by persons
appointed by each Acquired Fund as tellers for the Meetings (the "Tellers").
Thirty percent (30%) of the shares of any Fund outstanding on the record date,
present in person or represented by proxy, constitutes a quorum for the
transaction of business by the shareholders of any such Fund at the Meetings.
Shareholders of the Florida Fund, the Michigan Fund, the Minnesota Fund and the
North Carolina Fund vote together with the shareholders of the other series of
Trust V for the election of Trustees; thirty percent (30%) of the outstanding
shares of Trust V constitutes a quorum for voting on the election of Trustees.
Shareholders of the Oregon 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 Proposals 1 through 5 and will
have no effect on the outcome of Proposal 6. "Broker non-votes" are shares held
by brokers or nominees as to which (i) the broker or nominee does not have
discretionary voting power and (ii) the broker or nominee has not received
instructions from the beneficial owner or other person who is entitled to
instruct how the shares will be voted.
Advisors', Administrator's and Underwriter's Address. The address of each
Acquired Fund's (other than the Oregon Fund, for which Colonial acts as
administrator) investment advisor, Colonial Management Associates, Inc., is One
Financial Center, Boston, Massachusetts 02111-2621. The address of the Oregon
Fund's investment advisor, Crabbe Huson Group, Inc., is 121 S.W. Morrison, Suite
1400, Portland, Oregon 97204. The address of each Fund' principal underwriter,
Liberty Funds Distributor, Inc., is One Financial Center, Boston, Massachusetts
02111-2621.
Information About Liberty Financial. On November 1, 2000, Liberty
Financial announced that it had retained CS First Boston to help it explore
strategic alternatives, including the possible sale of Liberty Financial.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists for each Acquired Fund and the Liberty Trusts
the total number of shares outstanding as of September 29, 2000 for each class
of the shares of each such Fund and the Liberty Trusts entitled to vote at the
Meetings. It also lists for the National Fund and Trust IV the total number of
shares outstanding as of September 29, 2000. 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 Trusts and their shareholdings
in the Funds and Trusts.
Adjournments; Other Business. If an Acquired Fund or the Trust of which it
is a series, as applicable, has not received enough votes by the time of the
Meetings to approve any Proposal, the persons named as proxies may propose that
such Meetings be adjourned one or more times to permit further solicitation of
proxies. Any adjournment requires the affirmative vote of a majority of the
total number of shares of such Acquired Fund or Trust, as applicable, that are
present in person or by proxy on the question when the adjournment is being
voted on. The persons named as proxies will vote in favor of any such
adjournment all
49
<PAGE> 53
proxies that they are entitled to vote in favor of the relevant Proposal (or in
favor of any nominee, in the case of Proposal 6). 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 6). They will not vote any proxy
that directs them to abstain from voting on the Proposal in question.
The Meetings have been called to transact any business that properly comes
before them. The only business that management of each Acquired Fund intends to
present or knows that others will present is Proposals 1 through 6. If any other
matters properly come before the Meetings, and on all matters incidental to the
conduct of the Meetings, the persons named as proxies intend to vote the proxies
in accordance with their judgment, unless the Secretary of the relevant Acquired
Fund has previously received written contrary instructions from the shareholder
entitled to vote the shares.
Shareholder Proposals at Future Meetings. Trust III and Trust V do not
hold annual or other regular meetings of shareholders. Shareholder proposals to
be presented at any future meeting of shareholders of the Funds or the Trusts
must be received by the relevant Fund or Trust in writing a reasonable amount of
time before the Trust solicits proxies for that meeting in order to be
considered for inclusion in the proxy materials for that meeting. Shareholder
proposals should be sent to your Fund, care of Trust III or Trust V, as
applicable, Attention: Secretary, One Financial Center, Boston, Massachusetts
02111-2621.
50
<PAGE> 54
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 26, 2000 is
by and among [Name of Acquired Fund Trust] (the "Trust"), a Massachusetts
business trust established under a Declaration of Trust dated __________, as
amended, on behalf of [Name of Acquired Fund] (the "Acquired Fund"), a series of
the Trust, Liberty Funds Trust IV (the "Acquiring Trust"), a Massachusetts
business trust established under a Declaration of Trust dated August 29, 1978,
as amended, on behalf of Liberty Tax-Exempt Fund (the "Acquiring Fund"), a
series of the Acquiring Trust, and Liberty Financial Companies, Inc.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and any successor
provision. The reorganization will consist of the transfer of all of the assets
of the Acquired Fund in exchange solely for Class A, B and C shares of
beneficial interest of the Acquiring Fund ("Acquiring Shares") and the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund (other
than certain expenses of the reorganization contemplated hereby) and the
distribution of such Acquiring Shares to the shareholders of the Acquired Fund
in liquidation of the Acquired Fund, all upon the terms and conditions set forth
in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES
AND ACQUIRING SHARES AND LIQUIDATION OF ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein,
(a) The Trust, on behalf of the Acquired Fund, will transfer and deliver
to the Acquiring Fund, and the Acquiring Fund will acquire, all the
assets of the Acquired Fund as set forth in paragraph 1.2;
(b) The Acquiring Fund will assume all of the Acquired Fund's
liabilities and obligations of any kind whatsoever, whether
absolute, accrued, contingent or otherwise in existence on the
Closing Date (as defined in paragraph 1.2 hereof) (the
"Obligations"), except that expenses of reorganization contemplated
hereby to be paid by the Acquired Fund pursuant to paragraphs 1.5
and 9.2 shall not be assumed or paid by the Acquiring Fund; and
(c) The Acquiring Fund will issue and deliver to the Acquired Fund in
exchange for such assets the number of Acquiring Shares (including
fractional shares, if any) determined by dividing the net asset
value of the Acquired Fund, computed in the manner and as of the
time and date set forth in paragraph 2.1, by the net asset value of
one Acquiring Share, computed in the manner and as of the time and
date set forth in paragraph 2.2. Such transactions shall take place
at the closing provided for in paragraph 3.1 (the "Closing").
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all cash, securities, dividends and interest
receivable, receivables for shares sold and all other assets which are
owned by the Acquired Fund on the closing date provided in paragraph
3.1 (the "Closing Date") and any deferred expenses, other than
unamortized organizational expenses, shown as an asset on the books of
the Acquired Fund on the Closing Date.
1.3 As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to its shareholders of record
("Acquired Fund Shareholders"), determined as of the close of business
on the Valuation Date (as defined in paragraph 2.1), the Acquiring
Shares received by the Acquired Fund pursuant to paragraph 1.1. Such
liquidation and distribution will be accomplished by the transfer of
the
A-1
<PAGE> 55
Acquiring Shares then credited to the account of the Acquired Fund on
the books of the Acquiring Fund to open accounts on the share records
of the Acquiring Fund in the names of the Acquired Fund Shareholders
and representing the respective pro rata number of Acquiring Shares due
such shareholders. The Acquiring Fund shall not be obligated to issue
certificates representing Acquiring Shares in connection with such
exchange.
1.4 With respect to Acquiring Shares distributable pursuant to paragraph
1.3 to an Acquired Fund Shareholder holding a certificate or
certificates for shares of the Acquired Fund, if any, on the Valuation
Date, the Acquiring Trust will not permit such shareholder to receive
Acquiring Share certificates therefor, exchange such Acquiring Shares
for shares of other investment companies, effect an account transfer of
such Acquiring Shares, or pledge or redeem such Acquiring Shares until
the Acquiring Trust has been notified by the Acquired Fund or its agent
that such Acquired Fund Shareholder has surrendered all his or her
outstanding certificates for Acquired Fund shares or, in the event of
lost certificates, posted adequate bond.
1.5 [RESERVED]
1.6 As promptly as possible after the Closing Date, the Acquired Fund shall
be terminated pursuant to the provisions of the laws of the
Commonwealth of Massachusetts, and, after the Closing Date, the
Acquired Fund shall not conduct any business except in connection with
its liquidation.
2. VALUATION.
2.1 For the purpose of paragraph 1, the value of the Acquired Fund's assets
to be acquired by the Acquiring Fund hereunder shall be the net asset
value computed as of the close of regular trading on the New York Stock
Exchange on the business day next preceding the Closing (such time and
date being herein called the "Valuation Date") using the valuation
procedures set forth in the Declaration of Trust of the Acquiring Trust
and the then current prospectus or statement of additional information
of the Acquiring Fund, after deduction for the expenses of the
reorganization contemplated hereby to be paid by the Acquired Fund
pursuant to paragraphs 1.5, and shall be certified by the Acquired
Fund.
2.2 For the purpose of paragraph 2.1, the net asset value of an Acquiring
Share shall be the net asset value per share computed as of the close
of regular trading on the New York Stock Exchange on the Valuation
Date, using the valuation procedures set forth in the Declaration of
Trust of the Acquiring Trust and the then current prospectus or
prospectuses and the statement or statements of additional information
of the Acquiring Fund (collectively, as from time to time amended and
supplemented, the "Acquiring Fund Prospectus").
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be on January 22, 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
A-2
<PAGE> 56
accompanied by all necessary federal and state stock transfer stamps or
a check for the appropriate purchase price thereof. The cash delivered
shall be in the form of currency or certified or official bank checks,
payable to the order of "The Chase Manhattan Bank, custodian for
Acquiring Fund."
3.3 In the event that on the Valuation Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere
shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquired Fund or the Acquiring Fund is impracticable, the
Closing Date shall be postponed until the first business day after the
day when trading shall have been fully resumed and reporting shall have
been restored; provided that if trading shall not be fully resumed and
reporting restored within three business days of the Valuation Date,
this Agreement may be terminated by either of the Trust or the
Acquiring Trust upon the giving of written notice to the other party.
3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver
to the Acquiring Fund or its designated agent a list of the names and
addresses of the Acquired Fund Shareholders and the number of
outstanding shares of beneficial interest of the Acquired Fund owned by
each Acquired Fund Shareholder, all as of the close of business on the
Valuation Date, certified by the Secretary or Assistant Secretary of
the Trust. The Acquiring Trust will provide to the Acquired Fund
evidence satisfactory to the Acquired Fund that the Acquiring Shares
issuable pursuant to paragraph 1.1 have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. On the Liquidation
Date, the Acquiring Trust will provide to the Acquired Fund evidence
satisfactory to the Acquired Fund that such Acquiring Shares have been
credited pro rata to open accounts in the names of the Acquired Fund
shareholders as provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other such bills of
sale, instruments of assumption of liabilities, checks, assignments,
stock certificates, receipts or other documents as such other party or
its counsel may reasonably request in connection with the transfer of
assets, assumption of liabilities and liquidation contemplated by
paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Trust, on behalf of the Acquired Fund, represents and warrants the
following to the Acquiring Trust and to the Acquiring Fund as of the
date hereof and agrees to confirm the continuing accuracy and
completeness in all material respects of the following on the Closing
Date:
(a) The Trust is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Massachusetts;
(b) The Trust is a duly registered investment company classified as a
management company of the open-end type and its registration with
the Securities and Exchange Commission as an investment company
under the 1940 Act is in full force and effect, and the Acquired
Fund is a separate series thereof duly designated in accordance with
the applicable provisions of the Declaration of Trust of the Trust
and the 1940 Act;
(c) The Trust is not in violation in any material respect of any
provision of its Declaration of Trust or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust is a party or by which the Acquired
Fund is bound, and the execution, delivery and performance of this
Agreement will not result in any such violation;
(d) The Trust has no material contracts or other commitments (other than
this Agreement and such other contracts as may be entered into in
the ordinary course of its business) which if terminated may result
in material liability to the Acquired Fund or under which (whether
or not terminated) any material payments for periods subsequent to
the Closing Date will be due from the Acquired Fund;
(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
A-3
<PAGE> 57
assets, or any person whom the Acquired Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions contemplated hereby;
(f) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the schedule
of investments as at and for the two years ended [________, ____] of
the Acquired Fund, audited by [Name of Firm] [and the statement of
assets, the statement of changes in net assets and the schedule of
investments for the six months ended __________, 2000,], copies of
which have been furnished to the Acquiring Fund, fairly reflect the
financial condition and results of operations of the Acquired Fund
as of such dates and for the periods then ended in accordance with
generally accepted accounting principles consistently applied, and
the Acquired Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on the statements of
assets referred to above or those incurred in the ordinary course of
its business since __________, 2000;
(g) Since __________, 2000, there has not been any material adverse
change in the Acquired Fund's financial condition, assets,
liabilities or business (other than changes occurring in the
ordinary course of business), or any incurrence by the Acquired Fund
of indebtedness, except as disclosed in writing to the Acquiring
Fund. For the purposes of this subparagraph (g), distributions of
net investment income and net realized capital gains, changes in
portfolio securities, changes in the market value of portfolio
securities or net redemptions shall be deemed to be in the ordinary
course of business;
(h) By the Closing Date, all federal and other tax returns and reports
of the Acquired Fund required by law to have been filed by such date
(giving effect to extensions) shall have been filed, and all federal
and other taxes shown to be due on said returns and reports shall
have been paid so far as due, or provision shall have been made for
the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment
has been asserted with respect to such returns;
(i) For all taxable years and all applicable quarters of such years from
the date of its inception, the Acquired Fund has met the
requirements of subchapter M of the Code, for treatment as a
"regulated investment company" within the meaning of Section 851 of
the Code. Neither the Trust nor the Acquired Fund has at any time
since its inception been liable for nor is now liable for any
material excise tax pursuant to Section 852 or 4982 of the Code. The
Acquired Fund has duly filed all federal, state, local and foreign
tax returns which are required to have been filed, and all taxes of
the Acquired Fund which are due and payable have been paid except
for amounts that alone or in the aggregate would not reasonably be
expected to have a material adverse effect. The Acquired Fund is in
compliance in all material respects with applicable regulations of
the Internal Revenue Service pertaining to the reporting of
dividends and other distributions on and redemptions of its capital
stock and to withholding in respect of dividends and other
distributions to shareholders, and is not liable for any material
penalties which could be imposed thereunder;
(j) The authorized capital of the Trust consists of an unlimited number
of shares of beneficial interest with no par value, of multiple
series and classes. All issued and outstanding shares of the
Acquired Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and (except as set forth in the
Acquired Fund's then current prospectus or prospectuses and
statement 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
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rights to subscribe for or purchase, or securities convertible into,
any shares of beneficial interest of the Acquired Fund are
outstanding and none will be outstanding on the Closing Date (except
that Class B shares of the Acquired Fund convert automatically into
Class A shares, as set forth in the Acquired Fund Prospectus);
(k) The Acquired Fund's investment operations from inception to the date
hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in its
prospectus and statement of additional information as in effect from
time to time, except as previously disclosed in writing to the
Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has been
duly authorized by the Trustees of the Trust, and, upon approval
thereof by the required majority of the shareholders of the Acquired
Fund, this Agreement will constitute the valid and binding
obligation of the Acquired Fund enforceable in accordance with its
terms except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles;
(m) The Acquiring Shares to be issued to the Acquired Fund pursuant to
paragraph 1 will not be acquired for the purpose of making any
distribution thereof other than to the Acquired Fund Shareholders as
provided in paragraph 1.3;
(n) The information provided by the Acquired Fund for use in the
Registration Statement and Proxy Statement referred to in paragraph
5.3 shall be accurate and complete in all material respects and
shall comply with federal securities and other laws and regulations
applicable thereto;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement,
except such as may be required under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act and state insurance,
securities or "Blue Sky" laws (which term as used herein shall
include the laws of the District of Columbia and of Puerto Rico);
(p) At the Closing Date, the Trust, on behalf of the Acquired Fund, will
have good and marketable title to its assets to be transferred to
the Acquiring Fund pursuant to paragraph 1.1 and will have full
right, power and authority to sell, assign, transfer and deliver the
Investments (as defined below) and any other assets and liabilities
of the Acquired Fund to be transferred to the Acquiring Fund
pursuant to this Agreement. At the Closing Date, subject only to the
delivery of the Investments and any such other assets and
liabilities and payment therefor as contemplated by this Agreement,
the Acquiring Fund will acquire good and marketable title thereto
and will acquire the Investments and any such other assets and
liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof,
except as previously disclosed to the Acquiring Fund. As used in
this Agreement, the term "Investments" shall mean the Acquired
Fund's investments shown on the schedule of its investments as of
__________, 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 in compliance with
such mandatory investment restrictions as are set forth in the
Acquiring Fund Prospectus, as amended through the Closing Date; and
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(r) No registration of any of the Investments would be required if they
were, as of the time of such transfer, the subject of a public
distribution by either of the Acquiring Fund or the Acquired Fund,
except as previously disclosed by the Acquired Fund to the Acquiring
Fund.
4.2 The Acquiring Trust, on behalf of the Acquiring Fund, represents and
warrants the following to the Trust and to the Acquired Fund as of the
date hereof and agrees to confirm the continuing accuracy and
completeness in all material respects of the following on the Closing
Date:
(a) The Acquiring Trust is a business trust duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts;
(b) The Acquiring Trust is a duly registered investment company
classified as a management company of the open-end type and its
registration with the Securities and Exchange Commission as an
investment company under the 1940 Act is in full force and effect,
and the Acquiring Fund is a separate series thereof duly designated
in accordance with the applicable provisions of the Declaration of
Trust of the Acquiring Trust and the 1940 Act;
(c) The Acquiring Fund Prospectus conforms in all material respects to
the applicable requirements of the 1933 Act and the rules and
regulations of the Securities and Exchange Commission thereunder and
does not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading, and there are no material
contracts to which the Acquiring Fund is a party that are not
referred to in such Prospectus or in the registration statement of
which it is a part;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
(e) The Acquiring Trust is not in violation in any material respect of
any provisions of its Declaration of Trust or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Trust is a party or by which the
Acquiring Fund is bound, and the execution, delivery and performance
of this Agreement will not result in any such violation;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or
threatened against the Acquiring Fund or any of its properties or
assets. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings, and is not a party to
or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects
its business or its ability to consummate the transactions
contemplated hereby;
(g) The statement of assets, the statement of operations, the statement
of changes in assets and the schedule of investments as at and for
the two years ended November 30, 1999 of the Acquiring Fund, audited
by PricewaterhouseCoopers LLP, and the statement of assets, the
statement of changes in net assets and the schedule of investments
for the six months ended May 31, 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 May 31,
2000;
(h) Since May 31, 2000, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business (other than changes occurring in the ordinary course of
business), or any incurrence by the Acquiring Fund of indebtedness.
For the purposes of this subparagraph (h), changes in portfolio
securities, changes in the market value of portfolio securities or
net redemptions shall be deemed to be in the ordinary course of
business;
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(i) By the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law to have been filed by such
date (giving effect to extensions) shall have been filed, and all
federal and other taxes shown to be due on said returns and reports
shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquiring
Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(j) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company;
(k) The authorized capital of the Acquiring Trust consists of an
unlimited number of shares of beneficial interest, no par value, of
such number of different series as the Board of Trustees may
authorize from time to time. The outstanding shares of beneficial
interest in the Acquiring Fund are, and at the Closing Date will be,
divided into Class A shares, Class B shares and Class C shares each
having the characteristics described in the Acquiring Fund
Prospectus. All issued and outstanding shares of the Acquiring Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable (except as set forth in
the Acquiring Fund Prospectus) by the Acquiring Trust, and will have
been issued in compliance with all applicable registration or
qualification requirements of federal and state securities laws.
Except for Class B shares which convert to Class A shares after the
expiration of a period of time, no options, warrants or other rights
to subscribe for or purchase, or securities convertible into, any
shares of beneficial interest in the Acquiring Fund of any class are
outstanding and none will be outstanding on the Closing Date;
(l) The Acquiring Fund's investment operations from inception to the
date hereof have been in compliance in all material respects with
the investment policies and investment restrictions set forth in
its prospectus and statement of additional information as in
effect from time to time;
(m) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the
Acquiring Trust, and this Agreement constitutes the valid and
binding obligation of the Acquiring Trust and the Acquiring Fund
enforceable in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights
generally and other equitable principles;
(n) The Acquiring Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement will at the Closing
Date have been duly authorized and, when so issued and delivered,
will be duly and validly issued Class A shares, Class B shares and
Class C shares of beneficial interest in the Acquiring Fund, and
will be fully paid and non-assessable (except as set forth in the
Acquiring Fund Prospectus) by the Acquiring Trust, and no
shareholder of the Acquiring Trust will have any preemptive right
of subscription or purchase in respect thereof;
(o) The information to be furnished by the Acquiring Fund for use in
the Registration Statement and Proxy Statement referred to in
paragraph 5.3 shall be accurate and complete in all material
respects and shall comply with federal securities and other laws
and regulations applicable thereto; and
(p) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this Agreement,
except such as may be required under 1933 Act, the 1934 Act, the
1940 Act and state insurance, securities or "Blue Sky" laws (which
term as used herein shall include the laws of the District of
Columbia and of Puerto Rico).
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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 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.
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6.2 The Trust shall have received a favorable opinion from Ropes & Gray,
counsel to the Acquiring Trust for the transactions contemplated
hereby, dated the Closing Date and, in a form satisfactory to the
Trust, to the following effect:
(a) The Acquiring Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and
has power to own all of its properties and assets and to carry on
its business as presently conducted, and the Acquiring Fund is a
separate series thereof duly constituted in accordance with the
applicable provisions of the 1940 Act and the Declaration of Trust
and By-laws of the Acquiring Trust; (b) this Agreement has been
duly authorized, executed and delivered on behalf of the Acquiring
Fund and, assuming the Prospectus and Registration Statement
referred to in paragraph 5.3 complies with applicable federal
securities laws and assuming the due authorization, execution and
delivery of this Agreement by the Trust on behalf of the Acquired
Fund, is the valid and binding obligation of the Acquiring Fund
enforceable against the Acquiring Fund in accordance with its
terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable
principles; (c) the Acquiring Fund has the power to assume the
liabilities to be assumed by it hereunder and upon consummation of
the transactions contemplated hereby the Acquiring Fund will have
duly assumed such liabilities; (d) the Acquiring Shares to be
issued for transfer to the shareholders of the Acquired Fund as
provided by this Agreement are duly authorized and upon such
transfer and delivery will be validly issued and outstanding and
fully paid and nonassessable Class A shares, Class B shares and
Class C shares of beneficial interest in the Acquiring Fund, and
no shareholder of the Acquiring Fund has any preemptive right of
subscription or purchase in respect thereof; (e) the execution and
delivery of this Agreement did not, and the performance by the
Acquiring Trust and the Acquiring Fund of their respective
obligations hereunder will not, violate the Acquiring Trust's
Declaration of Trust or By-laws, or any provision of any agreement
known to such counsel to which the Acquiring Trust or the
Acquiring Fund is a party or by which either of them is bound or,
to the knowledge of such counsel, result in the acceleration of
any obligation or the imposition of any penalty under any
agreement, judgment, or decree to which the Acquiring Trust or the
Acquiring Fund is a party or by which either of them is bound; (f)
to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the Acquiring Trust or the
Acquiring Fund of the transactions contemplated by this Agreement
except such as may be required under state securities or "Blue
Sky" laws or such as have been obtained; (g) except as previously
disclosed, pursuant to section 4.2(f) above, such counsel does not
know of any legal or governmental proceedings relating to the
Acquiring Trust or the Acquiring Fund existing on or before the
date of mailing of the Prospectus referred to in paragraph 5.3 or
the Closing Date required to be described in the Registration
Statement referred to in paragraph 5.3 which are not described as
required; (h) the Acquiring Trust is registered with the
Securities and Exchange Commission as an investment company under
the 1940 Act; and (i) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or
threatened as to the Acquiring Trust or the Acquiring Fund or any
of their properties or assets and neither the Acquiring Trust nor
the Acquiring Fund is a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body,
which materially and adversely affects its business.
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7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, to the following further conditions:
7.1 The Trust, on behalf of the Acquired Fund, shall have delivered to the
Acquiring Trust a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquiring Trust and dated the Closing
Date, to the effect that the representations and warranties of the
Acquired Fund made in this Agreement are true and correct at and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and that the Trust and the Acquired
Fund have complied with all the covenants and agreements and satisfied
all of the conditions on its part to be performed or satisfied under
this Agreement at or prior to the Closing Date.
7.2 The Acquiring Trust shall have received a favorable opinion from [Ropes
& Gray/Bell, Boyd & Lloyd LLC], counsel to the Trust, dated the Closing
Date and in a form satisfactory to the Acquiring Trust, to the
following effect:
(a) The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts and has
corporate power to own all of its properties and assets and to
carry on its business as presently conducted, and the Acquired
Fund is a separate series thereof duly constituted in accordance
with the applicable provisions of the 1940 Act and the Declaration
of Trust of the Trust; (b) this Agreement has been duly
authorized, executed and delivered on behalf of the Acquired Fund
and, assuming the Proxy Statement referred to in paragraph 5.3
complies with applicable federal securities laws and assuming the
due authorization, execution and delivery of this Agreement by the
Acquiring Trust on behalf of the Acquiring Fund, is the valid and
binding obligation of the Acquired Fund enforceable against the
Acquired Fund in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, reorganization or other
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.
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7.3 [RESERVED]
7.4 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous dividends,
shall have the effect of distributing all of the Acquired Fund's
investment company taxable income for its taxable years ending on or
after __________, 2000 and on or prior to the Closing Date (computed
without regard to any deduction for dividends paid), and all of its net
capital gains realized in each of its taxable years ending on or after
__________, 2000 and on or prior to the Closing Date.
7.5 The Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer of the Trust, as to the adjusted tax basis in the hands of
the Acquired Fund of the securities delivered to the Acquiring Fund
pursuant to this Agreement.
7.6 The custodian of the Acquired Fund shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the
Acquired Fund held by such custodian as of the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND AND
THE ACQUIRED FUND.
The respective obligations of the Trust and the Acquiring Trust hereunder
are each subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the vote of the required majority of the holders of the
outstanding shares of the Acquired Fund of record on the record date
for the meeting of its shareholders referred to in paragraph 5.2.
8.2 On the Closing Date no action, suit or other preceding shall be pending
before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated hereby.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including
those of the Securities and Exchange Commission and of state Blue Sky
and securities authorities) deemed necessary by the Trust or the
Acquiring Trust to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except
where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties
of the Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement referred to in paragraph 5.3 shall have
become effective under the 1933 Act and no stop order suspending the
effectiveness thereof shall have been issued and, to the best knowledge
of the parties hereto, no investigation or proceeding for that purpose
shall have been instituted or be pending, threatened or contemplated
under the 1933 Act.
8.5 The Trust shall have received a favorable opinion of Ropes & Gray
satisfactory to the Trust and the Acquiring Trust shall have received a
favorable opinion of [Ropes & Gray/Bell, Boyd & Lloyd LLC] satisfactory
to the Acquiring Trust, each substantially to the effect that, for
federal income tax purposes:
(a) The acquisition by the Acquiring Fund of the assets of the Acquired
Fund in exchange for the Acquiring Fund's assumption of the
Obligations of the Acquired Fund and issuance of the Acquiring
Shares, followed by the distribution by the Acquired Fund of such
the Acquiring Shares to the shareholders of the Acquired Fund in
exchange for their shares of the Acquired Fund, all as provided in
paragraph 1 hereof, will constitute a reorganization within the
meaning of Section 368(a) of the Code, and the Acquired Fund and
the Acquiring Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund (i) upon
the transfer of its assets to the Acquiring Fund in exchange for
the Acquiring Shares or (ii) upon the distribution of the
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Acquiring Shares to the shareholders of the Acquired Fund as
contemplated in paragraph 1 hereof;
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the
assumption of the Obligations and issuance of the Acquiring Shares
as contemplated in paragraph 1 hereof;
(d) The tax basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be the same as the basis of those assets in the
hands of the Acquired Fund immediately prior to the transfer, and
the holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will include the period during which those
assets were held by the Acquired Fund;
(e) The shareholders of the Acquired Fund will recognize no gain or
loss upon the exchange of their shares of the Acquired Fund for the
Acquiring Shares;
(f) The tax basis of the Acquiring Shares to be received by each
shareholder of the Acquired Fund will be the same in the aggregate
as the aggregate tax basis of the shares of the Acquired Fund
surrendered in exchange therefor;
(g) The holding period of the Acquiring Shares to be received by each
shareholder of the Acquired Fund will include the period during
which the shares of the Acquired Fund surrendered in exchange
therefor were held by such shareholder, provided such shares of the
Acquired Fund were held as a capital asset on the date of the
exchange; and
(h) The Acquiring Fund will succeed to and take into account the items
of Acquired Fund described in Section 381(c) of the Code, subject
to the conditions and limitations specified in Sections 381, 382,
383 and 384 of the Code and the regulations thereunder.
8.6 At any time prior to the Closing, any of the foregoing conditions of
this Agreement may be waived jointly by the Board of Trustees of the
Trust and the Board of Trustees of the Acquiring Trust if, in their
judgment, such waiver will not have a material adverse effect on the
interests of the shareholders of the Acquired Fund and the Acquiring
Fund.
9. BROKERAGE FEES AND EXPENSES.
9.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Trust, on
behalf of the Acquiring Fund, each represents and warrants to the other
that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 The Acquiring Trust, on behalf of the Acquiring Fund, shall pay all
fees paid to governmental authorities for the registration or
qualification of the Acquiring Shares. All of the other out-of-pocket
expenses (other than tabulation costs which will be borne in their
entirety by Liberty Financial) of the transactions contemplated by this
Agreement shall be borne as follows: (a) as to expenses allocable to
the Trust, on behalf of the Acquired Fund, seventy-five percent (75%)
of such expenses shall be borne by the Trust, on behalf of the Acquired
Fund, and twenty-five percent (25%) of such expenses shall be borne by
Liberty Financial; and (b) as to expenses allocable to the Acquiring
Trust, on behalf of the Acquiring Fund, all such expenses shall be
borne by Liberty Financial. The foregoing sentence shall be subject,
however, to any undertaking by Liberty Financial to Liberty Funds Trust
I, II, III, IV, V, VI, VII and IX (or any of their series)
(collectively, the "Liberty Trusts") to limit the aggregate expenses
(other than fees paid to governmental authorities for the registration
or qualification of shares of the Liberty Trusts) of the transactions
contemplated by this Agreement and other transactions involving the
Liberty Trusts.
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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;
(b) A condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears
that it will not or cannot be met; or
(c) If the transactions contemplated by this Agreement have not been
substantially completed by May 31, 2001 this Agreement shall
automatically terminate on that date unless a later date is agreed
to by both the Trust and the Acquiring Trust.
11.2 If for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to any other party for any
damages resulting therefrom, including without limitation
consequential damages.
12. AMENDMENTS.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the Trust
on behalf of the Acquired Fund and the Acquiring Trust on behalf of the
Acquiring Fund; provided, however, that following the shareholders' meeting
called by the Acquired Fund pursuant to paragraph 5.2 no such amendment may have
the effect of changing the provisions for determining the number of the
Acquiring Shares to be issued to shareholders of the Acquired Fund under this
Agreement to the detriment of such shareholders without their further approval.
13. NOTICES.
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to: Liberty Funds Trust IV, One
Financial Center, Boston, Massachusetts 02111, Attention: Secretary, or to [Name
and Address of Acquired Fund Trust], Attention: Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT NON-RECOURSE.
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of The Commonwealth of Massachusetts,
without giving effect to any choice or conflicts of law rule or
provision that would result in the application of the domestic
substantive laws of any other jurisdiction.
A-13
<PAGE> 67
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be
made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
14.5 A copy of the Declaration of Trust of the Trust and the Declaration of
Trust of the Acquiring Trust are each on file with the Secretary of
State of the Commonwealth of Massachusetts, and notice is hereby given
that no trustee, officer, agent or employee of either the Trust or the
Acquiring Trust shall have any personal liability under this
Agreement, and that this Agreement is binding only upon the assets and
properties of the Acquired Fund and the Acquiring Fund.
A-14
<PAGE> 68
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.
[ACQUIRED FUND TRUST],
on behalf of [Name of Acquired Fund]
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
LIBERTY FUNDS TRUST IV,
on behalf of Liberty Tax-Exempt Fund
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
A-15
<PAGE> 69
Solely for purposes of Section 9.2
of the Agreement:
LIBERTY FINANCIAL COMPANIES, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
A-16
<PAGE> 70
APPENDIX B
FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE OREGON FUND AND TRUST III, THE
FLORIDA FUND, MICHIGAN FUND, MINNESOTA FUND AND NORTH CAROLINA FUND AND TRUST V
AND SHARES OUTSTANDING OF THE NATIONAL FUND AND TRUST IV
For each class of each Acquired Fund's shares and each Trust's shares
entitled to vote at the Meetings, and for each class of the National Fund's
shares and Trust IV's shares, the number of shares outstanding as of September
29, 2000 was as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING AND
FUND OR TRUST CLASS ENTITLED TO VOTE
------------- ----- --------------------------------
<S> <C> <C>
OREGON FUND...................... A 1,311,987
B 4,686
TRUST III........................ 297,008,531
FLORIDA FUND..................... A 3,187,588
B 2,715,487
C 51,250
MICHIGAN FUND.................... A 4,409,032
B 1,194,938
C 66,651
MINNESOTA FUND................... A 3,491,467
B 2,310,938
C 56,254
NORTH CAROLINA FUND.............. A 2,208,694
B 1,850,320
C 77,344
TRUST V.......................... 125,847,396
NATIONAL FUND.................... A 144,371,138
B 15,870,163
C 389,500
TRUST IV......................... 256,523,247
</TABLE>
B-1
<PAGE> 71
OWNERSHIP OF SHARES
As of September 29, 2000, each Trust believes that the Trustees and
officers of the respective Trusts, as a group, owned less than one percent of
each class of shares of each Fund and of each Trust as a whole. As of September
29, 2000, the following shareholders of record owned 5% or more of the
outstanding shares of the noted class of shares of the noted Fund:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF
OUTSTANDING OUTSTANDING
SHARES OF SHARES OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER CLASS OWNED CLASS OWNED
-------------- ------------------------------- ------------- -----------
<S> <C> <C> <C>
OREGON FUND........ N/A N/A N/A
FLORIDA FUND
CLASS A............ Merrill Lynch Pierce Fenner & Smith 515,088.530 16.16%
For the Sole Benefit of its
Customers
Attn: Fund Administration #97AX5
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS B............ Merrill Lynch Pierce Fenner & Smith 576,797.408 21.24%
For the Sole Benefit of its
Customers
Attn: Fund Administration #97AX5
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Richard J. Miele 28,089.888 54.81%
Carmel L. Miele
6 E. Highpoint Road
Sewalls Point, FL 34996-7008
Jean McCaughey Trustee 2,787.322 5.44%
McCaughey Family Revocable Trust
U/A 1/5/1994
4315 Rum Cay Circle
Sarasota, FL 34233
Marjorie E. Worstall 12,787.724 24.95%
PMB #197
3206 S. Hopkins Avenue
Titusville, FL 32780-5698
Dorothy C. Fisher 6,618.670 12.91%
Harry F. Fisher Jr. Trustee
Dorothy Fisher Rev Trust
U/A Dtd 11/11/1997
1048 Main Street
Sebastian, FL 32958-4170
MICHIGAN FUND
CLASS A............ Raymond James & Assoc. Inc. 262,700.467 5.96%
For Elite Acct #50008225
FAO James & Mary Workman
1530 Winterwood Drive NE
Grand Rapids, MI 49546
CLASS B............ Merrill Lynch Pierce Fenner & Smith 244,756.046 20.48%
For the Sole Benefit of its
Customers
Attn: Fund Administration #97057
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
B-2
<PAGE> 72
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF
OUTSTANDING OUTSTANDING
SHARES OF SHARES OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER CLASS OWNED CLASS OWNED
-------------- ------------------------------- ------------- -----------
<S> <C> <C> <C>
MINNESOTA FUND
CLASS B............ Merrill Lynch Pierce Fenner & Smith 144,026.019 6.23%
For the Sole Benefit of its
Customers
Attn: Fund Administration #97056
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Merrill Lynch Pierce Fenner & Smith 13,003.408 23.12%
For the Sole Benefit of its
Customers
Attn: Fund Administration #97056
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Luella C. Bellomo 8,545.511 15.19%
1857 Eagle Ridge Drive
St. Paul, MN 55118
Richard G. Lykke 11,227.366 19.96%
Dorothy M. Lykke
2711 Lake Court Drive
Mounds View, MN 55112
Mark J. Ritter TOD 6,265.916 11.14%
Robert M. Ritter
Subject to Sta TOD Rules
1626 Laurel Avenue
St. Paul, MN 55104
NORTH CAROLINA FUND
CLASS B............ Merrill Lynch Pierce Fenner & Smith 149,657.130 8.09%
For the Sole Benefit of its
Customers
Attn: Fund Administration #97B52
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Merrill Lynch Pierce Fenner & Smith 34,656.658 44.81%
For the Sole Benefit of its
Customers
Attn: Fund Administration #97AX5
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Patricia R. Holstein 7,117.493 9.20%
403 Elm Street
Raleigh, NC 27604
NATIONAL FUND
CLASS B............ Merrill Lynch Pierce Fenner & Smith 1,048,557.256 6.61%
For the Sole Benefit of its
Customers
Attn: Fund Administration #97B52
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Terry Collins 203,886.537 52.35%
Rosemary Collins
306 Jester Ct.
Petaluma, CA 94954
</TABLE>
B-3
<PAGE> 73
OWNERSHIP OF SHARES UPON CONSUMMATION OF ACQUISITION
As of September 29, 2000, the shareholders of record that owned 5% or more
of the outstanding shares of the noted class of shares of the noted Fund would
own the following percentage of the National Fund upon consummation of the
Acquisition:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES OF
CLASS OWNED UPON
CONSUMMATION OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER ACQUISITION
-------------- ------------------------------- ---------------------
<S> <C> <C>
OREGON FUND........ N/A N/A
FLORIDA FUND
CLASS A............ Merrill Lynch Pierce Fenner & Smith 0.20%
For the Sole Benefit of its Customers
Attn: Fund Administration #97AX5
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS B............ Merrill Lynch Pierce Fenner & Smith 1.60%
For the Sole Benefit of its Customers
Attn: Fund Administration #97AX5
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Richard J. Miele 3.00%
Carmel L. Miele
6 E. Highpoint Road
Sewalls Point, FL 34996-7008
Jean McCaughey Trustee 0.31%
McCaughey Family Revocable Trust
U/A 1/5/1994
4315 Rum Cay Circle
Sarasota, FL 34233
Marjorie E. Worstall 1.40%
PMB #197
3206 S. Hopkins Avenue
Titusville, FL 32780-5698
Dorothy C. Fisher 0.73%
Harry F. Fisher Jr. Trustee
Dorothy Fisher Rev Trust
U/A Dtd 11/11/1997
1048 Main Street
Sebastian, FL 32958-4170
MICHIGAN FUND
CLASS A............ Raymond James & Assoc. Inc. 0.09%
For Elite Acct #50008225
FAO James & Mary Workman
1530 Winterwood Drive NE
Grand Rapids, MI 49546
CLASS B............ Merrill Lynch Pierce Fenner & Smith 0.65%
For the Sole Benefit of its Customers
Attn: Fund Administration #97057
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
B-4
<PAGE> 74
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES OF
CLASS OWNED UPON
CONSUMMATION OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER ACQUISITION
-------------- ------------------------------- ---------------------
<S> <C> <C>
MINNESOTA FUND
CLASS B............ Merrill Lynch Pierce Fenner & Smith 0.25%
For the Sole Benefit of its Customers
Attn: Fund Administration #97056
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Merrill Lynch Pierce Fenner & Smith 1.30%
For the Sole Benefit of its Customers
Attn: Fund Administration #97056
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Luella C. Bellomo 0.86%
1857 Eagle Ridge Drive
St. Paul, MN 55118
Richard G. Lykke 1.13%
Dorothy M. Lykke
2711 Lake Court Drive
Mounds View, MN 55112
Mark J. Ritter TOD 0.63%
Robert M. Ritter
Subject to Sta TOD Rules
1626 Laurel Avenue
St. Paul, MN 55104
NORTH CAROLINA FUND
CLASS B............ Merrill Lynch Pierce Fenner & Smith 0.41%
For the Sole Benefit of its Customers
Attn: Fund Administration #97B52
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Merrill Lynch Pierce Fenner & Smith 3.67%
For the Sole Benefit of its Customers
Attn: Fund Administration #97AX5
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Patricia R. Holstein 0.75%
403 Elm Street
Raleigh, NC 27604
NATIONAL FUND
CLASS B............ Merrill Lynch Pierce Fenner & Smith 5.16%
For the Sole Benefit of its Customers
Attn: Fund Administration #97B52
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Terry Collins 38.61%
Rosemary Collins
306 Jester Ct.
Petaluma, CA 94954
</TABLE>
B-5
<PAGE> 75
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth certain information about the executive
officers of each Fund:
<TABLE>
<CAPTION>
YEAR OF
ELECTION
EXECUTIVE OFFICER AS EXECUTIVE
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION* OFFICER
----------------- ------------------------------------- ------------
<S> <C> <C>
Stephen E. Gibson.................... President of the Stein Roe Mutual 1998
(46) Funds since November 1999; President
of the Liberty Mutual Funds since
June 1998; Chairman of the Board
since July 1998, Chief Executive
Officer and President since December
1996, and Director since July 1996 of
Colonial (formerly Executive Vice
President of Colonial from July 1996
to December 1996); Chairman of the
Board, Director, Chief Executive
Officer and President of Liberty
Funds Group LLC ("LFG") since
December 1998 (formerly Director,
Chief Executive Officer and President
of The Colonial Group, Inc. from
December 1996 to December 1998);
Director since September 2000,
President since January 2000, and
Vice Chairman since August 1998 of
Stein Roe & Farnham Incorporated
("Stein Roe") (formerly Assistant
Chairman and Executive Vice President
of Stein Roe from August 1998 to
January 2000). (Formerly Managing
Director of Marketing of Putnam
Investments (investment advisor) from
June 1992 to July 1996.)
William J. Ballou.................... Assistant Secretary of the Stein Roe 2000
(35) Mutual Funds since May 2000;
Secretary of the Liberty Mutual Funds
since October 2000 (formerly
Assistant Secretary of the Liberty
Mutual Funds from October 1997 to
October 2000); Vice President,
Assistant Secretary and Counsel of
Colonial since October 1997; Vice
President and Counsel since April
2000, and Assistant Secretary since
December 1998 of LFG; Associate
Counsel, Massachusetts Financial
Services Company (financial services
provider) prior thereto.
</TABLE>
B-6
<PAGE> 76
<TABLE>
<CAPTION>
YEAR OF
ELECTION
EXECUTIVE OFFICER AS EXECUTIVE
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION* OFFICER
----------------- ------------------------------------- ------------
<S> <C> <C>
Kevin M. Carome...................... Executive Vice President of the 1999
(44) Liberty Mutual Funds since October
2000; Executive Vice President of the
Stein Roe Mutual Funds since May 1999
(formerly Vice President from April
1998 to May 1999, Secretary from
February 2000 to May 2000 and
Assistant Secretary from April 1998
to February 2000 of the Stein Roe
Mutual Funds); Chief Legal Officer of
Liberty Financial since August, 2000;
Senior Vice President, Legal, of LFG
since January 1999; General Counsel
and Secretary of Stein Roe since
January 1998; Associate General
Counsel and Vice President of Liberty
Financial prior thereto.
</TABLE>
---------------
* Except as otherwise noted, each individual has held the office indicated or
other offices in the same company for the last five years.
B-7
<PAGE> 77
ADDITIONAL INFORMATION CONCERNING TRUSTEE COMPENSATION
The current Board of Trustees received the following compensation from each
Fund as of each Fund's fiscal year end(1)
<TABLE>
<CAPTION>
FLORIDA MICHIGAN MINNESOTA NORTH CAROLINA OREGON NATIONAL
FUND FUND FUND FUND FUND FUND
TRUSTEE 1/31/00 1/31/00 1/31/00 1/31/00 10/31/99 11/30/99
------- ------- -------- --------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Mr. Bleasdale............. $882(2) $744(3) $752(4) $686(5) $601(14) $ 10,598(15)
Ms. Collins............... 821 694 701 639 566 9,974
Mr. Grinnell.............. 860 723 730 666 590 10,396
Mr. Lowry................. 828 701 708 646 573 10,109
Mr. Macera................ 815 688 695 634 568 9,985
Mr. Mayer................. 867 730 738 673 583 10,048
Mr. Moody................. 791(6) 656(7) 663(8) 605(9) 526(16) 9,384(17)
Mr. Neuhauser............. 872 734 742 677 600 10,504
Mr. Stitzel............... 815 688 695 634 568 9,985
Ms. Verville.............. 822(10) 695(11) 702(12) 640(13) 533(18) 9,869(19)
</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(20)
Ms. Collins................................................. 96,000
Mr. Grinnell................................................ 100,000
Mr. Lowry................................................... 97,000
Mr. Macera.................................................. 95,000
Mr. Mayer................................................... 101,000
Mr. Moody................................................... 91,000(21)
Mr. Neuhauser............................................... 101,252
Mr. Stitzel................................................. 95,000
Ms. Verville................................................ 96,000(22)
</TABLE>
For the calendar year ended December 31, 1999, certain of the Trustees
received the following compensation in their capacities as Trustees or Directors
of the Liberty All-Star Equity Fund, the Liberty All-Star Growth Fund, Inc. and
Liberty Funds Trust IX (together, the "Liberty All-Star Funds"):
<TABLE>
<CAPTION>
TRUSTEE TOTAL COMPENSATION(23)
------- ----------------------
<S> <C>
Mr. Grinnell.............................................. $25,000
Mr. Lowry................................................. 25,000
Mr. Mayer................................................. 25,000
Mr. Neuhauser............................................. 25,000
</TABLE>
---------------
(1) The Liberty Mutual Funds do not currently provide pension or retirement
plan benefits to the Trustees.
(2) Includes $503 payable in later years as deferred compensation.
(3) Includes $338 payable in later years as deferred compensation.
(4) Includes $379 payable in later years as deferred compensation.
(5) Includes $346 payable in later years as deferred compensation.
(6) Total compensation of $791 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(7) Total compensation of $656 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(8) Total compensation of $663 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(9) Total compensation of $605 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
B-8
<PAGE> 78
(10) Total compensation of $822 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(11) Total compensation of $695 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(12) Total compensation of $702 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation
(13) Total compensation of $640 for the fiscal year ended January 31, 1999, will
be payable in later years as deferred compensation.
(14) Includes $308 payable in later years as deferred compensation.
(15) Includes $5,487 payable in later years as deferred compensation
(16) Total compensation of $526 for the fiscal year ended October 31, 1999 will
be payable in later years as deferred compensation.
(17) Total compensation of $9,384 for the fiscal year ended November 30, 1999
will be payable in later years as deferred compensation.
(18) Total compensation of $533 for the fiscal year ended October 31, 1999 will
be payable in later years as deferred compensation.
(19) Total compensation of $9,869 for the fiscal year ended November 30, 1999
will be payable in later years as deferred compensation.
(20) Includes $52,000 payable in later years as deferred compensation.
(21) Total compensation of $91,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(22) Total compensation of $96,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(23) The Liberty All-Star Funds are advised by Liberty Asset Management Company
("LAMCO"). LAMCO is an indirect wholly-owned subsidiary of Liberty
Financial.
B-9
<PAGE> 79
APPENDIX C
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Florida Fund, the Michigan Fund, the Minnesota Fund, the North
Carolina Fund and the National 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 Acquired Funds by the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
OREGON FLORIDA MICHIGAN MINNESOTA NORTH CAROLINA NATIONAL FUND PRO FORMA
FUND FUND FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1)
------- ------- -------- --------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Net asset value......... $15,574 $23,216 $30,514 $23,399 $15,748 $1,837,544 $ (92)
Shares outstanding...... 1,298 3,144 4,448 3,465 2,205 144,368 (6,048)
Net asset value per
share................. $ 11.99 $ 7.39 $ 6.86 $ 6.75 $ 7.14 $ 12.73
Class B
Net asset value......... $ 107 $19,638 $ 7,480 $15,304 $13,284 $ 193,426 $ (45)
Shares outstanding...... 9 2,659 1,090 2,266 1,860 15,197 (3,504)
Net asset value per
share................. $ 11.99 $ 7.39 $ 6.86 $ 6.75 $ 7.14 $ 12.73
Class C
Net asset value......... $ 379 $ 459 $ 378 $ 553 $ 5,003 $ (1)
Shares outstanding...... 51 67 56 77 393 (113)
Net asset value per
share................. $ 7.39 $ 6.86 $ 6.75 $ 7.14 $ 12.73
<CAPTION>
NATIONAL FUND
PRO FORMA
COMBINED(2)
-------------
<S> <C>
Class A
Net asset value......... $1,945,902
Shares outstanding...... 152,882
Net asset value per
share................. $ 12.73
Class B
Net asset value......... $ 249,194
Shares outstanding...... 19,578
Net asset value per
share................. $ 12.73
Class C
Net asset value......... $ 6,771
Shares outstanding...... 532
Net asset value per
share................. $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $26,292, $27,603, $32,557, $28,390
and $0 to be borne by the Oregon Fund, the Florida Fund, the Michigan Fund,
the Minnesota Fund, the North Carolina Fund and the National Fund,
respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-1
<PAGE> 80
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Florida Fund, the Michigan Fund, the Minnesota Fund and the
National 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 Acquired Funds by
the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON FLORIDA MICHIGAN MINNESOTA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- ------- -------- --------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Net asset value.............. $15,574 $23,216 $30,514 $23,399 $1,837,544 $ (77) $1,930,169
Shares outstanding........... 1,298 3,144 4,448 3,465 144,368 (5,078) 151,646
Net asset value per share.... $ 11.99 $ 7.39 $ 6.86 $ 6.75 $ 12.73 $ 12.73
Class B
Net asset value.............. $ 107 $19,638 $ 7,480 $15,304 $ 193,426 $ (32) $ 235,923
Shares outstanding........... 9 2,659 1,090 2,266 15,197 (2,686) 18,536
Net asset value per share.... $ 11.99 $ 7.39 $ 6.86 $ 6.75 $ 12.73 $ 12.73
Class C
Net asset value.............. $ 379 $ 459 $ 378 $ 5,003 $ (1) $ 6,217
Shares outstanding........... 51 67 56 393 (79) 488
Net asset value per share.... $ 7.39 $ 6.86 $ 6.75 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $26,292, $27,603, $32,557 and $0 to
be borne by the Oregon Fund, the Florida Fund, the Michigan Fund, the
Minnesota Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-2
<PAGE> 81
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Florida Fund, the Michigan Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON FLORIDA MICHIGAN NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- ------- -------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value......................... $15,574 $23,216 $30,514 $1,837,544 $ (58) $1,906,789
Shares outstanding...................... 1,298 3,144 4,448 144,368 (3,450) 149,809
Net asset value per share............... $ 11.99 $ 7.39 $ 6.86 $ 12.73 $ 12.73
Class B
Net asset value......................... $ 107 $19,638 $ 7,480 $ 193,426 $ (18) $ 220,633
Shares outstanding...................... 9 2,659 1,090 15,197 (1,621) 17,334
Net asset value per share............... $ 11.99 $ 7.39 $ 6.86 $ 12.73 $ 12.73
Class C
Net asset value......................... $ 379 $ 459 $ 5,003 $ (1) $ 5,839
Shares outstanding...................... 51 67 393 (52) 459
Net asset value per share............... $ 7.39 $ 6.86 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $26,292, $27,603 and $0 to be borne
by the Oregon Fund, the Florida Fund, the Michigan Fund and the National
Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-3
<PAGE> 82
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Florida Fund and the National 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 Acquired Funds by the National Fund at net asset value as
of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON FLORIDA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- ------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value............ $15,574 $23,216 $1,837,544 $ (37) $1,876,296
Shares outstanding......... 1,298 3,144 144,368 (1,397) 147,413
Net asset value per
share.................... $ 11.99 $ 7.39 $ 12.73 $ 12.73
Class B
Net asset value............ $ 107 $19,638 $ 193,426 $ (12) $ 213,159
Shares outstanding......... 9 2,659 15,197 (1,118) 16,747
Net asset value per
share.................... $ 11.99 $ 7.39 $ 12.73 $ 12.73
Class C
Net asset value............ $ 379 $ 5,003 $ 5,382
Shares outstanding......... 51 393 (22) 423
Net asset value per
share.................... $ 7.39 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $26,292 and $0 to be borne by the
Oregon Fund, the Florida Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-4
<PAGE> 83
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Florida Fund, the Michigan Fund, the Minnesota Fund, the North Carolina Fund and
the National 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 Acquired
Funds by the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
FLORIDA MICHIGAN MINNESOTA NORTH CAROLINA NATIONAL FUND PRO FORMA
FUND FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1)
------- -------- --------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value........... $23,216 $30,514 $23,399 $15,748 $1,837,544 $ (69)
Shares outstanding........ 3,144 4,448 3,465 2,205 144,368 (5,971)
Net asset value per
share................... $ 7.39 $ 6.86 $ 6.75 $ 7.14 $ 12.73
Class B
Net asset value........... $19,638 $ 7,480 $15,304 $13,284 $ 193,426 $ (45)
Shares outstanding........ 2,659 1,090 2,266 1,860 15,197 (3,503)
Net asset value per
share................... $ 7.39 $ 6.86 $ 6.75 $ 7.14 $ 12.73
Class C
Net asset value........... $ 379 $ 459 $ 378 $ 553 $ 5,003 $ (1)
Shares outstanding........ 51 67 56 77 393 (113)
Net asset value per
share................... $ 7.39 $ 6.86 $ 6.75 $ 7.14 $ 12.73
<CAPTION>
NATIONAL FUND
PRO FORMA
COMBINED(2)
-------------
<S> <C>
Class A
Net asset value........... $1,930,351
Shares outstanding........ 151,660
Net asset value per
share................... $ 12.73
Class B
Net asset value........... $ 249,087
Shares outstanding........ 19,570
Net asset value per
share................... $ 12.73
Class C
Net asset value........... $ 6,771
Shares outstanding........ 532
Net asset value per
share................... $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $26,292, $27,603, $32,557, $28,390 and $0 to
be borne by the Florida Fund, the Michigan Fund, the Minnesota Fund, the
North Carolina Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-5
<PAGE> 84
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Florida Fund, the Michigan Fund, the Minnesota Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
FLORIDA MICHIGAN MINNESOTA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- -------- --------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value........................ $23,216 $30,514 $23,399 $1,837,544 $ (54) $1,914,618
Shares outstanding..................... 3,144 4,448 3,465 144,368 (5,002) 150,424
Net asset value per share.............. $ 7.39 $ 6.86 $ 6.75 $ 12.73 $ 12.73
Class B
Net asset value........................ $19,638 $ 7,480 $15,304 $ 193,426 $ (32) $ 235,816
Shares outstanding..................... 2,659 1,090 2,266 15,197 (2,686) 18,527
Net asset value per share.............. $ 7.39 $ 6.86 $ 6.75 $ 12.73 $ 12.73
Class C
Net asset value........................ $ 379 $ 459 $ 378 $ 5,003 $ (1) $ 6,217
Shares outstanding..................... 51 67 56 393 (79) 488
Net asset value per share.............. $ 7.39 $ 6.86 $ 6.75 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $26,292, $27,603, $32,557 and $0 to be borne
by the Florida Fund, the Michigan Fund, the Minnesota Fund and the National
Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-6
<PAGE> 85
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Florida Fund, the Michigan Fund, the North Carolina Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
FLORIDA MICHIGAN NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- -------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value.................. $23,216 $30,514 $15,748 $1,837,544 $ (50) $1,906,971
Shares outstanding............... 3,144 4,448 2,205 144,368 (4,343) 149,823
Net asset value per share........ $ 7.39 $ 6.86 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value.................. $19,638 $ 7,480 $13,284 $ 193,426 $ (31) $ 233,797
Shares outstanding............... 2,659 1,090 1,860 15,197 (2,438) 18,369
Net asset value per share........ $ 7.39 $ 6.86 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value.................. $ 379 $ 459 $ 553 $ 5,003 $ (1) $ 6,393
Shares outstanding............... 51 67 77 393 (86) 502
Net asset value per share........ $ 7.39 $ 6.86 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $26,292, $27,603, $28,390 and $0 to be borne
by the Florida Fund, the Michigan Fund, the North Carolina Fund and the
National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-7
<PAGE> 86
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Florida Fund, the Michigan Fund and the National 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 Acquired Funds by the National Fund at net asset
value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
FLORIDA MICHIGAN NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- -------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value............ $23,216 $30,514 $1,837,544 $ (35) $1,891,238
Shares outstanding......... 3,144 4,448 144,368 (3,373) 148,587
Net asset value per
share.................... $ 7.39 $ 6.86 $ 12.73 $ 12.73
Class B
Net asset value............ $19,638 $ 7,480 $ 193,426 $ (18) $ 220,526
Shares outstanding......... 2,659 1,090 15,197 (1,620) 17,326
Net asset value per
share.................... $ 7.39 $ 6.86 $ 12.73 $ 12.73
Class C
Net asset value............ $ 379 $ 459 $ 5,003 $ (1) $ 5,839
Shares outstanding......... 51 67 393 (52) 459
Net asset value per
share.................... $ 7.39 $ 6.86 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $26,292, $27,603 and $0 to be borne by the
Florida Fund, the Michigan Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-8
<PAGE> 87
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Florida Fund, the Minnesota Fund and the National 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 Acquired Funds by the National Fund at net asset
value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
FLORIDA MINNESOTA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- --------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value............ $23,216 $23,399 $ 1,837,544 $ (33) $1,884,125
Shares outstanding......... 3,144 3,465 144,368 (2,949) 148,028
Net asset value per
share.................... $ 7.39 $ 6.75 $ 12.73 $ 12.73
Class B
Net asset value............ $19,638 $15,304 $ 193,426 $ (26) $ 228,342
Shares outstanding......... 2,659 2,266 15,197 (2,182) 17,940
Net asset value per
share.................... $ 7.39 $ 6.75 $ 12.73 $ 12.73
Class C
Net asset value............ $ 379 $ 378 $ 5,003 $ (1) $ 5,759
Shares outstanding......... 51 56 393 (48) 452
Net asset value per
share.................... $ 7.39 $ 6.75 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $26,292, $32,557 and $0 to be borne by the
Florida Fund, the Minnesota Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-9
<PAGE> 88
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Florida Fund, the North Carolina Fund and the National 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 Acquired Funds by the National Fund at net asset
value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
FLORIDA NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value............ $23,216 $15,748 $1,837,544 $ (28) $1,876,480
Shares outstanding......... 3,144 2,205 144,368 (2,290) 147,427
Net asset value per
share.................... $ 7.39 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value............ $19,638 $13,284 $ 193,426 $ (25) $ 226,323
Shares outstanding......... 2,659 1,860 15,197 (1,935) 17,781
Net asset value per
share.................... $ 7.39 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value............ $ 379 $ 553 $ 5,003 $ (1) $ 5,934
Shares outstanding......... 51 77 393 (56) 466
Net asset value per
share.................... $ 7.39 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $26,292, $28,390 and $0 to be borne by the
Florida Fund, the North Carolina Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-10
<PAGE> 89
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Michigan Fund and the National 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 Acquired Funds by the National Fund at net asset value as
of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON MICHIGAN NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- -------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value............ $15,574 $30,514 $1,837,544 $ (44) $1,883,587
Shares outstanding......... 1,298 4,448 144,368 (2,129) 147,986
Net asset value per
share.................... $ 11.99 $ 6.86 $ 12.73 $ 12.73
Class B
Net asset value............ $ 107 $ 7,480 $ 193,426 $ (6) $ 201,007
Shares outstanding......... 9 1,090 15,197 (504) 15,792
Net asset value per
share.................... $ 11.99 $ 6.86 $ 12.73 $ 12.73
Class C
Net asset value............ $ 459 $ 5,003 $ 5,462
Shares outstanding......... 67 393 (31) 429
Net asset value per
share.................... $ 6.86 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $27,603 and $0 to be borne by the
Oregon Fund, the Michigan Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-11
<PAGE> 90
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Minnesota Fund and the National 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 Acquired Funds by the National Fund at net asset
value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON MINNESOTA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- --------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value................ $15,574 $23,399 $1,837,544 $ (42) $1,876,474
Shares outstanding............. 1,298 3,465 144,368 (1,705) 147,427
Net asset value per share...... $ 11.99 $ 6.75 $ 12.73 $ 12.73
Class B
Net asset value................ $ 107 $15,304 $ 193,426 $ (14) $ 208,823
Shares outstanding............. 9 2,266 15,197 (1,066) 16,406
Net asset value per share...... $ 11.99 $ 6.75 $ 12.73 $ 12.73
Class C
Net asset value................ $ 378 $ 5,003 $ 5,381
Shares outstanding............. 56 393 (26) 423
Net asset value per share...... $ 6.75 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $32,557 and $0 to be borne by the
Oregon Fund, the Minnesota Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-12
<PAGE> 91
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the North Carolina Fund and the National 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 Acquired Funds by the National Fund at net asset
value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value............ $15,574 $15,748 $1,837,544 $ (38) $1,868,827
Shares outstanding......... 1,298 2,205 144,368 (3,503) 146,826
Net asset value per
share.................... $ 11.99 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value............ $ 107 $13,284 $ 193,426 $ (13) $ 206,804
Shares outstanding......... 9 1,860 15,197 (1,868) 16,248
Net asset value per
share.................... $ 11.99 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value............ $ 553 $ 5,003 $ (1) $ 5,555
Shares outstanding......... 77 393 (76) 436
Net asset value per
share.................... $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $28,390 and $0 to be borne by the
Oregon Fund, the North Carolina Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-13
<PAGE> 92
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Michigan Fund, the Minnesota Fund, the North Carolina Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
MICHIGAN MINNESOTA NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
-------- --------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value.................. $30,514 $23,399 $15,748 $1,837,544 $ (55) $1,907,149
Shares outstanding............... 4,448 3,465 2,205 144,368 (4,650) 149,837
Net asset value per share........ $ 6.86 $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value.................. $ 7,480 $15,304 $13,284 $ 193,426 $ (32) $ 229,462
Shares outstanding............... 1,090 2,266 1,860 15,197 (2,386) 18,028
Net asset value per share........ $ 6.86 $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class
Net asset value.................. $ 459 $ 378 $ 553 $ 5,003 $ (1) $ 6,392
Shares outstanding............... 67 56 77 393 (91) 502
Net asset value per share........ $ 6.86 $ 6.75 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $27,603, $32,557, $28,390 and $0 to be borne
by the Michigan Fund, the Minnesota Fund, the North Carolina Fund and the
National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-14
<PAGE> 93
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Michigan Fund, the Minnesota Fund and the National 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 Acquired Funds by the National Fund at net asset
value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
MICHIGAN MINNESOTA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
-------- --------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value............ $30,514 $23,399 $1,837,544 $ (41) $1,891,415
Shares outstanding......... 4,448 3,465 144,368 (3,681) 148,601
Net asset value per
share.................... $ 6.86 $ 6.75 $ 12.73 $ 12.73
Class B
Net asset value............ $ 7,480 $15,304 $ 193,426 $ (20) $ 216,190
Shares outstanding......... 1,090 2,266 15,197 (1,568) 16,985
Net asset value per
share.................... $ 6.86 $ 6.75 $ 12.73 $ 12.73
Class C
Net asset value............ $ 459 $ 378 $ 5,003 $ (1) $ 5,839
Shares outstanding......... 67 56 393 (57) 459
Net asset value per
share.................... $ 6.86 $ 6.75 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $27,603, $32,557 and $0 to be borne by the
Michigan Fund, the Minnesota Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-15
<PAGE> 94
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Michigan Fund, the North Carolina Fund and the National 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 Acquired Funds by the National Fund at net asset
value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
MICHIGAN NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
-------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value............ $30,514 $15,748 $1,837,544 $ (36) $1,883,769
Shares outstanding......... 4,448 2,205 144,368 (3,022) 148,000
Net asset value per
share.................... $ 6.86 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value............ $ 7,480 $13,284 $ 193,426 $ (19) $ 214,171
Shares outstanding......... 1,090 1,860 15,197 (1,321) 16,827
Net asset value per
share.................... $ 6.86 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value............ $ 459 $ 553 $ 5,003 $ (1) $ 6,014
Shares outstanding......... 67 77 393 (65) 472
Net asset value per
share.................... $ 6.86 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $27,603, $28,390 and $0 to be borne by the
Michigan Fund, the North Carolina Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-16
<PAGE> 95
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Minnesota Fund, the North Carolina Fund and the National 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 Acquired Funds by the National Fund at net asset
value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
MINNESOTA NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
---------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Class A
Net asset value........... $23,399 $15,748 $1,837,544 $ (34) $1,876,656
Shares outstanding........ 3,465 2,205 144,368 (2,598) 147,441
Net asset value per
share................... $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value........... $15,304 $13,284 $ 193,426 $ (26) $ 221,988
Shares outstanding........ 2,266 1,860 15,197 (1,883) 17,441
Net asset value per
share................... $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value........... $ 378 $ 553 $ 5,003 $ (1) $ 5,933
Shares outstanding........ 56 77 393 (60) 466
Net asset value per
share................... $ 6.75 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $32,557, $28,390 and $0 to be borne by the
Minnesota Fund, the North Carolina Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-17
<PAGE> 96
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Florida Fund, the Minnesota Fund, the North Carolina Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
FLORIDA MINNESOTA NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- --------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value................... $23,216 $23,399 $15,748 $1,837,544 $ (48) $1,899,858
Shares outstanding................ 3,144 3,465 2,205 144,368 (3,918) 149,264
Net asset value per share......... $ 7.39 $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value................... $19,638 $15,304 $13,284 $ 193,426 $ (38) $ 241,614
Shares outstanding................ 2,659 2,266 1,860 15,197 (3,000) 18,983
Net asset value per share......... $ 7.39 $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value................... $ 379 $ 378 $ 553 $ 5,003 $ (1) $ 6,312
Shares outstanding................ 51 56 77 393 (82) 496
Net asset value per share......... $ 7.39 $ 6.75 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $26,292, $32,557, $28,390 and $0 to be borne
by the Florida Fund, the Minnesota Fund, the North Carolina Fund and the
National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-18
<PAGE> 97
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Michigan Fund, the North Carolina Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON MICHIGAN NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- -------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value.................... $15,574 $30,514 $15,748 $1,837,544 $ (59) $1,899,320
Shares outstanding................. 1,298 4,448 2,205 144,368 (3,099) 149,222
Net asset value per share.......... $ 11.99 $ 6.86 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value.................... $ 107 $ 7,480 $13,284 $ 193,426 $ (19) $ 214,278
Shares outstanding................. 9 1,090 1,860 15,197 (1,321) 16,835
Net asset value per share.......... $ 11.99 $ 6.86 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value.................... $ 459 $ 553 $ 5,003 $ (1) $ 6,014
Shares outstanding................. 67 77 393 (65) 472
Net asset value per share.......... $ 6.86 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $27,603, $28,390 and $0 to be borne
by the Oregon Fund, the Michigan Fund, the North Carolina Fund and the
National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-19
<PAGE> 98
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Minnesota Fund, the North Carolina Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON MINNESOTA NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- --------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value................... $15,574 $23,399 $15,748 $1,837,544 $ (57) $1,892,207
Shares outstanding................ 1,298 3,465 2,205 144,368 (2,674) 148,663
Net asset value per share......... $ 11.99 $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value................... $ 107 $15,304 $13,284 $ 193,426 $ (26) $ 222,095
Shares outstanding................ 9 2,266 1,860 15,197 (1,883) 17,449
Net asset value per share......... $ 11.99 $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value................... $ 378 $ 553 $ 5,003 $ (1) $ 5,933
Shares outstanding................ 56 77 393 (60) 466
Net asset value per share......... $ 6.75 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $32,557, $28,390 and $0 to be borne
by the Oregon Fund, the Minnesota Fund, the North Carolina Fund and the
National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-20
<PAGE> 99
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Florida Fund, the Minnesota Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON FLORIDA MINNESOTA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- ------- --------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value........................ $15,574 $23,216 $23,399 $1,837,544 $ (56) $1,899,676
Shares outstanding..................... 1,298 3,144 3,465 144,368 (3,026) 149,250
Net asset value per share.............. $ 11.99 $ 7.39 $ 6.75 $ 12.73 $ 12.73
Class B
Net asset value........................ $ 107 $19,638 $15,304 $ 193,426 $ (26) $ 228,449
Shares outstanding..................... 9 2,659 2,266 15,197 (2,183) 17,948
Net asset value per share.............. $ 11.99 $ 7.39 $ 6.75 $ 12.73 $ 12.73
Class C
Net asset value........................ $ 379 $ 378 $ 5,003 $ (1) $ 5,759
Shares outstanding..................... 51 56 393 (48) 452
Net asset value per share.............. $ 7.39 $ 6.75 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $26,292, $32,557 and $0 to be borne
by the Oregon Fund, the Florida Fund, the Minnesota Fund and the National
Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-21
<PAGE> 100
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Florida Fund, the North Carolina Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON FLORIDA NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- ------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value..................... $15,574 $23,216 $15,748 $1,837,544 $ (51) $1,892,030
Shares outstanding.................. 1,298 3,144 2,205 144,368 (2,367) 148,649
Net asset value per share........... $ 11.99 $ 7.39 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value..................... $ 107 $19,638 $13,284 $ 193,426 $ (25) $ 226,430
Shares outstanding.................. 9 2,659 1,860 15,197 (1,935) 17,790
Net asset value per share........... $ 11.99 $ 7.39 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value..................... $ 379 $ 553 $ 5,003 $ (1) $ 5,934
Shares outstanding.................. 51 77 393 (56) 466
Net asset value per share........... $ 7.39 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $26,292, $28,390 and $0 to be borne
by the Oregon Fund, the Florida Fund, the North Carolina Fund and the
National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-22
<PAGE> 101
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Michigan Fund, the Minnesota Fund and the National 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 Acquired Funds by the National
Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON MICHIGAN MINNESOTA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- -------- --------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value........................ $15,574 $30,514 $23,399 $1,837,544 $ (64) $1,906,966
Shares outstanding..................... 1,298 4,448 3,465 144,368 (3,758) 149,823
Net asset value per share.............. $ 11.99 $ 6.86 $ 6.75 $ 12.73 $ 12.73
Class B
Net asset value........................ $ 107 $ 7,480 $15,304 $ 193,426 $ (20) $ 216,297
Shares outstanding..................... 9 1,090 2,266 15,197 (1,569) 16,994
Net asset value per share.............. $ 11.99 $ 6.86 $ 6.75 $ 12.73 $ 12.73
Class C
Net asset value........................ $ 459 $ 378 $ 5,003 $ (1) $ 5,839
Shares outstanding..................... 67 56 393 (57) 459
Net asset value per share.............. $ 6.86 $ 6.75 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $27,603, $32,557 and $0 to be borne
by the Oregon Fund, the Michigan Fund, the Minnesota Fund and the National
Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-23
<PAGE> 102
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Michigan Fund, the Minnesota Fund, the North Carolina Fund and
the National 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 Acquired
Funds by the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
OREGON MICHIGAN MINNESOTA NORTH CAROLINA NATIONAL FUND PRO FORMA
FUND FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1)
------- -------- --------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Net asset value........... $15,574 $30,514 $23,399 $15,748 $1,837,544 $ (78)
Shares outstanding........ 1,298 4,448 3,465 2,205 144,368 (4,727)
Net asset value per
share................... $ 11.99 $ 6.86 $ 6.75 $ 7.14 $ 12.73
Class B
Net asset value........... $ 107 $ 7,480 $15,304 $13,284 $ 193,426 $ (32)
Shares outstanding........ 9 1,090 2,266 1,860 15,197 (2,386)
Net asset value per
share................... $ 11.99 $ 6.86 $ 6.75 $ 7.14 $ 12.73
Class C
Net asset value........... $ 459 $ 378 $ 553 $ 5,003 $ (1)
Shares outstanding........ 67 56 77 393 (91)
Net asset value per
share................... $ 6.86 $ 6.75 $ 7.14 $ 12.73
<CAPTION>
NATIONAL FUND
PRO FORMA
COMBINED(2)
-------------
<S> <C>
Class A
Net asset value........... $1,922,700
Shares outstanding........ 151,059
Net asset value per
share................... $ 12.73
Class B
Net asset value........... $ 229,569
Shares outstanding........ 18,036
Net asset value per
share................... $ 12.73
Class C
Net asset value........... $ 6,392
Shares outstanding........ 502
Net asset value per
share................... $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $27,603, $32,557, $28,390 and $0 to
be borne by the Oregon Fund, the Michigan Fund, the Minnesota Fund, the
North Carolina Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-24
<PAGE> 103
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Florida Fund, the Minnesota Fund, the North Carolina Fund and
the National 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 Acquired
Funds by the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON FLORIDA MINNESOTA NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- ------- --------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Net asset value........... $15,574 $23,216 $23,399 $15,748 $1,837,544 $ (70) $1,915,410
Shares outstanding........ 1,298 3,144 3,465 2,205 144,368 (3,995) 150,486
Net asset value per
share................... $ 11.99 $ 7.39 $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value........... $ 107 $19,638 $15,304 $13,284 $ 193,426 $ (38) $ 241,721
Shares outstanding........ 9 2,659 2,266 1,860 15,197 (3,000) 18,991
Net asset value per
share................... $ 11.99 $ 7.39 $ 6.75 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value........... $ 379 $ 378 $ 553 $ 5,003 $ (1) $ 6,312
Shares outstanding........ 51 56 77 393 (82) 496
Net asset value per
share................... $ 7.39 $ 6.75 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $26,292, $32,557, $28,390 and $0 to
be borne by the Oregon Fund, the Florida Fund, the Minnesota Fund, the North
Carolina Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-25
<PAGE> 104
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund, the Florida Fund, the Michigan Fund, the North Carolina Fund and
the National 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 Acquired
Funds by the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON FLORIDA MICHIGAN NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND FUND FUND FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- ------- -------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Net asset value........... $15,574 $23,216 $30,514 $15,748 $1,837,544 $ (73) $1,922,522
Shares outstanding........ 1,298 3,144 4,448 2,205 144,368 (4,419) 151,045
Net asset value per
share................... $ 11.99 $ 7.39 $ 6.86 $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value........... $ 107 $19,638 $ 7,480 $13,284 $ 193,426 $ (31) $ 233,904
Shares outstanding........ 9 2,659 1,090 1,860 15,197 (2,439) 18,377
Net asset value per
share................... $ 11.99 $ 7.39 $ 6.86 $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value........... $ 379 $ 459 $ 553 $ 5,003 $ (1) $ 6,393
Shares outstanding........ 51 67 77 393 (86) 502
Net asset value per
share................... $ 7.39 $ 6.86 $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810, $26,292, $27,603, $28,390 and $0 to
be borne by the Oregon Fund, the Florida Fund, the Michigan Fund, the North
Carolina Fund and the National Fund, respectively.
(2) Assumes the Acquisitions were consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of each Acquired
Fund on the date the Acquisitions take place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-26
<PAGE> 105
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Oregon Fund and the National 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 Oregon Fund by the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
OREGON NATIONAL FUND PRO FORMA PRO FORMA
FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Class A
Net asset value....................... $15,574 $1,837,544 $(23) $1,853,094
Shares outstanding.................... 1,298 144,368 (77) 145,590
Net asset value per share............. $ 11.99 $ 12.73 $ 12.73
Class B
Net asset value....................... $ 107 $ 193,426 $ 193,533
Shares outstanding.................... 9 15,197 (1) 15,205
Net asset value per share............. $ 11.99 $ 12.73 $ 12.73
Class C
Net asset value....................... $ 5,003 $ 5,003
Shares outstanding.................... 393 393
Net asset value per share............. $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $22,810 and $0 to be borne by the Oregon Fund
and the National Fund, respectively.
(2) Assumes the Acquisition was consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of the Oregon Fund
on the date the Acquisition takes place, and the foregoing should not be
relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-27
<PAGE> 106
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Florida Fund and the National 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 Florida Fund by the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
FLORIDA NATIONAL FUND PRO FORMA PRO FORMA
FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Class A
Net asset value....................... $23,216 $1,837,544 $ (14) $1,860,746
Shares outstanding.................... 3,144 144,368 (1,321) 146,191
Net asset value per share............. $ 7.39 $ 12.73 $ 12.73
Class B
Net asset value....................... $19,638 $ 193,426 $ (12) $ 213,052
Shares outstanding.................... 2,659 15,197 (1,117) 16,739
Net asset value per share............. $ 7.39 $ 12.73 $ 12.73
Class C
Net asset value....................... $ 379 $ 5,003 $ 5,382
Shares outstanding.................... 51 393 (22) 423
Net asset value per share............. $ 7.39 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $26,292 and $0 to be borne by the Florida
Fund and the National Fund, respectively.
(2) Assumes the Acquisition was consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of the Florida
Fund on the date the Acquisition takes place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-28
<PAGE> 107
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Michigan Fund and the National 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 Michigan Fund by the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
MICHIGAN NATIONAL FUND PRO FORMA PRO FORMA
FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
-------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Class A
Net asset value..................... $30,514 $1,837,544 $ (21) $1,868,036
Shares outstanding.................. 4,448 144,368 (2,053) 146,764
Net asset value per share........... $ 6.86 $ 12.73 $ 12.73
Class B
Net asset value..................... $ 7,480 $ 193,426 $ (6) $ 200,900
Shares outstanding.................. 1,090 15,197 (503) 15,784
Net asset value per share........... $ 6.86 $ 12.73 $ 12.73
Class C
Net asset value..................... $ 459 $ 5,003 $ 5,462
Shares outstanding.................. 67 393 (31) 429
Net asset value per share........... $ 6.86 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $27,603 and $0 to be borne by the Michigan
Fund and the National Fund, respectively.
(2) Assumes the Acquisition was consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of the Michigan
Fund on the date the Acquisition takes place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-29
<PAGE> 108
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
Minnesota Fund and the National 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 Minnesota Fund by the National Fund at net asset value as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
MINNESOTA NATIONAL FUND PRO FORMA PRO FORMA
FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
--------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Class A
Net asset value...................... $23,399 $1,837,544 $ (19) $1,860,923
Shares outstanding................... 3,465 144,368 (1,628) 146,205
Net asset value per share............ $ 6.75 $ 12.73 $ 12.73
Class B
Net asset value...................... $15,304 $ 193,426 $ (13) $ 208,717
Shares outstanding................... 2,266 15,197 (1,065) 16,398
Net asset value per share............ $ 6.75 $ 12.73 $ 12.73
Class C
Net asset value...................... $ 378 $ 5,003 $ 5,381
Shares outstanding................... 56 393 (26) 423
Net asset value per share............ $ 6.75 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $32,557 and $0 to be borne by the Minnesota
Fund and the National Fund, respectively.
(2) Assumes the Acquisition was consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of the Minnesota
Fund on the date the Acquisition takes place, and the foregoing should not
be relied upon to reflect the number of shares of the National Fund that
actually will be received on or after such date.
C-30
<PAGE> 109
CAPITALIZATION
(In Thousands)
The following table shows on an unaudited basis the capitalization of the
North Carolina Fund and the National 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 North Carolina Fund by the National Fund at net asset value
as of that date:
<TABLE>
<CAPTION>
NATIONAL FUND
NORTH CAROLINA NATIONAL FUND PRO FORMA PRO FORMA
FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
-------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Class A
Net asset value................... $15,748 $1,837,544 $ (15) $1,853,276
Shares outstanding................ 2,205 144,368 (969) 145,604
Net asset value per share......... $ 7.14 $ 12.73 $ 12.73
Class B
Net asset value................... $13,284 $ 193,426 $ (13) $ 206,697
Shares outstanding................ 1,860 15,197 (818) 16,239
Net asset value per share......... $ 7.14 $ 12.73 $ 12.73
Class C
Net asset value................... $ 553 $ 5,003 $ (1) $ 5,555
Shares outstanding................ 77 393 (34) 436
Net asset value per share......... $ 7.14 $ 12.73 $ 12.73
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $28,390 and $0 to be borne by the North
Carolina Fund and the National Fund, respectively.
(2) Assumes the Acquisition was consummated on October 31, 2000, and is for
information purposes only. No assurance can be given as to how many shares
of the National Fund will be received by the shareholders of the North
Carolina Fund on the date the Acquisition takes place, and the foregoing
should not be relied upon to reflect the number of shares of the National
Fund that actually will be received on or after such date.
C-31
<PAGE> 110
APPENDIX D
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AS OF NOVEMBER 30, 1999
LIBERTY TAX-EXEMPT FUND
HIGHLIGHTS
- RISING RATES MADE FOR A CHALLENGING YEAR IN THE BOND MARKET
During the 12-month period, short-, mid- and long-term interest rates rose
dramatically. These increases significantly affected bond performance in every
sector because bond prices move in the opposite direction of yields. Municipal
bonds were no exception, although their declines were mitigated somewhat by a
reduction in supply.
- MUNICIPALS OUTPERFORMED TREASURY BONDS DURING THE PERIOD
Municipal bonds were slightly undervalued at the start of the period, and they
gained value, relative to Treasury bonds, during the year. The yield on the
30-year AAA-rated general obligation (GO) bond -- a benchmark of municipal
bond market performance -- rose from 4.82% on November 30, 1998 to 5.73% on
November 30, 1999.
- INDEX PERFORMANCE REFLECTED THE DIFFICULT MARKET ENVIRONMENT
The declines in the Fund and the Lehman Brothers Municipal Bond Index reflect
the difficult conditions in the bond market during the past year.
12-MONTH CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED 11/30/1999
<TABLE>
<CAPTION>
WITHOUT WITH
SALES SALES
CHARGE CHARGE
------- ------
<S> <C> <C>
Class A.................................................... (3.87)% (8.43)%
Class B.................................................... (4.59)% (9.08)%
Class C (1)................................................ (4.45)% (5.34)%
</TABLE>
PORTFOLIO MANAGERS' REPORT
Fund performance affected by high-yield holdings
During the 12-month period, the Fund had a total return of negative 3.87%,
based on Class A shares without a sales charge. This placed the Fund in the
third quartile of its Lipper peer group -- the Lipper General Municipal Debt
Funds category -- which had an average total return of negative 3.51% for the
same period.(2) The Fund underperformed its peer group average primarily because
it had a larger-than-average percentage of higher yielding non-rated bonds.
These did not perform well when credit spreads -- the difference in yield
between higher- and lower-yielding bonds -- widened during the year. When credit
spreads widen, the yields on high-yield bonds go up more, causing high-yield
bonds to underperform the market. However, we believe that these are solid
credits, and if interest rates stabilize in the coming year -- as we believe
they will -- credit spreads should again narrow and the extra yield from our
non-rated holdings have the potential to benefit the Fund. Moreover, we are
encouraged by the three-and five-year performance of the Fund, in which it
ranked in the second quartile of its Lipper peer group.(2)
---------------
(1) Performance results reflect any voluntary waivers or reimbursements of Fund
expenses by the Advisor or its affiliates. Absent these waivers or
reimbursement arrangements, performance results would have been lower.
(2) Lipper, Inc., a widely respected data provider for the industry, calculates
an average total return for mutual funds with similar investment objectives
as the Fund. The average total return calculated for funds in the Lipper
General Municipal Debt Funds category was negative 3.51% for the 12 months
ended November 30, 1999. The Fund's Class A shares ranked in the third
quartile for one year (ranked 166 out of 264 funds), in the second quartile
for three years (ranked 66 out of 218 funds), in the second quartile for
five years (ranked 59 out of 171 funds), and in the third quartile for 10
years (ranked 54 out of 78 funds). Rankings do not include any sales
charges. Performance for different share classes will vary with fees
associated with each class. Past performance cannot guarantee future
results.
Because economic and market conditions change frequently, there can be no
assurance that the trends described in this report will continue or come to
pass.
D-1
<PAGE> 111
Municipal supply lower than usual
The supply of municipal bonds was down nearly 20% from January through
November from the same period in 1998, which helped stem the decline in
municipal bond prices generally. A reduction in supply is also typical in a
rising interest rate environment because it is more expensive for a municipality
to issue bonds at higher interest rates and because refinancings decline.
Increase of high-yield holdings reflects long-term strategy
During the period, there was an increase in "credit spreads" in the bond
market. This occurs when there is an increase in the yield of higher-yielding,
lower-quality bonds, as compared to the yield of lower-yielding, higher-quality
bonds. When this happens, as it did in 1999, higher-yielding bonds can offer
very good values and deliver competitive tax-exempt yields. As part of our
ongoing effort to seek above-average income for shareholders, we took advantage
of these values and increased our holdings of higher-yielding bonds. For
example, the health care and continuing care industries have been hard hit by
federal cutbacks of Medicare. We invested in select high-yield, non-rated health
care bonds that were attractively priced. We also found some non-rated
industrial revenue, or corporate-backed bonds that had attractive yields.
Looking for interest rate stability in 2000
Despite the continued expansion of the U.S. economy -- the duration of
which is nearing an all-time record -- and the tight labor market that has
existed for the past few years, inflation has been kept at bay because of
significant increases in productivity driven by technological advances. We
believe that this productivity rise, along with the Fed's rate increases (which
have a slowing effect on economic growth), can have a positive impact on bonds
over the long term by keeping inflation under control.
Our longer-term outlook is for the U.S. economy to slow down somewhat and
for interest rates to stabilize. We believe that the increases in both
short-term and long-term interest rates in the past year will begin to have an
effect on businesses as we go into next year. Productivity is still increasing,
and many companies do not have the ability to raise prices because of
competition from overseas. The efficiencies that companies and consumers have
derived from the Internet and technology continue to have a major impact on
productivity.
In the near-term, the economy looks as though it will remain fairly strong.
Whatever the economy does, however, we will continue to work on structuring the
portfolio in such a way as to seek solid returns in any environment, while
leaving some room to make adjustments as conditions change.
/s/ WILLIAM LORING
/s/ BRIAN HARTFORD
WILLIAM LORING and BRIAN HARTFORD are portfolio co-managers of Colonial
Tax-Exempt Fund and are senior vice presidents of Colonial.
The Fund involves certain risks such as credit risks associated with lower-rated
bonds and changes in interest rates. High-yield municipal bond investing carries
increased credit risks.
D-2
<PAGE> 112
PERFORMANCE INFORMATION
NATIONAL FUND INVESTMENT PERFORMANCE VS. LEHMAN BROTHERS MUNICIPAL BOND INDEX
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES 11/30/89 - 11/30/99
[LINE CHART]
<TABLE>
<CAPTION>
LEHMAN BROTHERS MUNICIPAL
FUND WITH SALES CHARGE FUND WITHOUT SALES CHARGE INDEX
---------------------- ------------------------- -------------------------
<S> <C> <C> <C>
1989 9525.00 10000.00 10000.00
1990 10187.00 10695.00 10770.00
1991 11220.00 11779.00 11875.00
1992 12260.00 12871.00 13066.00
1993 13462.00 14133.00 14515.00
1994 12506.00 13129.00 13753.00
1995 14927.00 15671.00 16352.00
1996 15596.00 16373.00 17314.00
1997 16712.00 17546.00 18555.00
1998 18086.00 18988.00 19995.00
1999 17386.00 18253.00 19781.00
</TABLE>
The Lehman Brothers Municipal Bond Index is an unmanaged index that tracks the
performance of the municipal bond market. Unlike mutual funds, indexes are not
investments and do not incur fees or expenses. It is not possible to invest
directly in an index.
CHANGE IN VALUE OF A $10,000 INVESTMENT IN ALL SHARE CLASSES
FROM 11/30/1989 TO 11/30/1999
<TABLE>
<CAPTION>
WITHOUT WITH
SALES SALES
CHARGE CHARGE
------- -------
<S> <C> <C>
Class A.................................................. $18,253 $17,386
Class B.................................................. $17,252 $17,252
Class C.................................................. $17,996 $17,996
</TABLE>
D-3
<PAGE> 113
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/99
<TABLE>
<CAPTION>
SHARE CLASS A B C
INCEPTION DATE 10/1/84 5/5/92 8/1/97
-------------- ----------------- ----------------- -----------------
WITHOUT WITH WITHOUT WITH WITHOUT WITH
SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
1 year................................ (3.87)% (8.43)% (4.59)% (9.08)% (4.45)% (5.34)%
5 years............................... 6.81 5.77 6.01 5.69 6.51 6.51
10 years.............................. 6.20 5.69 5.60 5.60 6.05 6.05
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/99
<TABLE>
<CAPTION>
SHARE CLASS A B C
----------- ----------------- ----------------- -----------------
WITHOUT WITH WITHOUT WITH WITHOUT WITH
SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
1 year................................ (2.95)% (7.56)% (3.67)% (8.21)% (3.53)% (4.44)%
5 years............................... 6.08 5.05 5.29 4.96 5.80 5.80
10 years.............................. 6.50 5.98 5.91 5.91 6.36 6.36
</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 4.75% charge for Class A shares and the maximum contingent deferred
sales charges (CDSC) 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.
Performance results reflect any voluntary waivers or reimbursement of Fund
expenses by the Advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Class B and C share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing Fund class) for
periods prior to its inception date. These Class A share returns are not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
Class A shares and the newer class shares. Had the expense differential been
reflected, the returns for the periods prior to the inception of Class B and
Class C shares would have been lower.
NET ASSET VALUE AS OF 11/30/1999
<TABLE>
<S> <C>
Class A............................................. $12.67
Class B............................................. $12.67
Class C............................................. $12.67
</TABLE>
DISTRIBUTIONS DECLARED PER SHARE FROM 12/1/1998 TO 11/30/1999
<TABLE>
<S> <C>
Class A............................................. $0.923
Class B............................................. $0.822
Class C............................................. $0.842
</TABLE>
A portion of the Fund's income may be subject to the alternative minimum tax.
The Fund may at times purchase tax-exempt securities at a discount. Some or all
of this discount may be included in the Fund's ordinary income, and is taxable
when distributed.
D-4
<PAGE> 114
SEC YIELDS ON 11/30/1999
<TABLE>
<S> <C>
Class A............................................... 4.78%
Class B............................................... 4.26%
Class C............................................... 4.41%
</TABLE>
The 30-day SEC yields reflect the portfolio's earning power net of expenses,
expressed as an annualized percentage of the public offering price per share at
the end of the period. If the Advisor or its affiliates had not waived certain
expenses, the SEC yield would have been 4.26% for Class C shares.
TAXABLE-EQUIVALENT SEC YIELDS ON 11/30/1999
<TABLE>
<S> <C>
Class A............................................... 7.91%
Class B............................................... 7.05%
Class C............................................... 7.30%
</TABLE>
Taxable-equivalent SEC yields are based on the maximum federal income tax rate
of 39.6%. This tax rate does not reflect the phase out of exemptions or the
reduction of otherwise allowable deductions which occur when Adjusted Gross
Income exceeds certain levels.
QUALITY BREAKDOWN AS OF 11/30/99
<TABLE>
<S> <C>
AAA................................................... 55.5%
AA.................................................... 10.9%
A..................................................... 7.6%
BBB................................................... 6.8%
BB.................................................... 1.0%
CC.................................................... 0.1%
Non-rated............................................. 17.3%
Cash equivalents...................................... 0.8%
</TABLE>
MATURITY BREAKDOWN AS OF 11/30/99
<TABLE>
<S> <C>
0-1 year.............................................. 0.3%
1-3 years............................................. 1.8%
3-5 years............................................. 3.7%
5-7 years............................................. 1.9%
7-10 years............................................ 3.0%
10-15 years........................................... 21.1%
15-20 years........................................... 23.2%
20-25 years........................................... 25.2%
25+ years............................................. 19.0%
Cash equivalents...................................... 0.8%
</TABLE>
Quality and maturity breakdowns are calculated as a percentage of total
investments, including short-term obligations. Ratings shown in the Quality
Breakdowns represent the highest rating assigned to a particular bond by one of
the following respected rating agencies: Standard & Poor's Corporation, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc.
Maturity breakdown is based on each security's effective maturity, which
reflects pre-refundings, mandatory puts and other conditions that affect a
bond's maturity.
Because the Fund is actively managed, there can be no guarantee the Fund will
continue to maintain these quality and maturity breakdowns in the future.
D-5
<PAGE> 115
LIBERTY FUNDS TRUST IV
LIBERTY TAX-EXEMPT FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 17, 2000
This Statement of Additional Information (the "SAI") relates to the
proposed Acquisition (the "Acquisition") of the Liberty Florida Tax-Exempt Fund
(the "Florida Fund"), the Liberty Michigan Tax-Exempt Fund (the "Michigan
Fund"), the Liberty Minnesota Tax-Exempt Fund (the "Minnesota Fund"), the
Liberty North Carolina Tax-Exempt Fund (the "North Carolina Fund"), all a series
of Liberty Funds Trust V, and the Liberty Oregon Tax-Free Fund (the "Oregon
Fund"), a series of Liberty Funds Trust III (together, the "Acquired Funds"), by
the Liberty Tax-Exempt Fund (the "Acquiring Fund"), a series of Liberty Funds
Trust IV.
This SAI contains information which may be of interest to shareholders but
which is not included in the Prospectus/Proxy Statement dated November 17, 2000
(the "Prospectus/Proxy Statement") of the Acquiring Fund which relates to the
Acquisition. As described in the Prospectus/Proxy Statement, the Acquisition
would involve the transfer of all the assets of the Acquired Funds in exchange
for shares of the Acquiring Fund and the assumption of all the liabilities of
each of the Acquired Funds. Each of the Acquired Funds would distribute the
Acquiring Fund shares it receives to its shareholders in complete liquidation of
the Acquired Funds.
This SAI is not a prospectus and should be read in conjunction with the
Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with
the Securities and Exchange Commission and is available upon request and without
charge by writing to your Fund at One Financial Center, Boston, Massachusetts
02111-2621, or by calling 1-800-426-3750.
Table of Contents
I. Additional Information about the Acquiring Fund................2
II. Additional Information about the Acquired Funds................2
III. Financial Statements...........................................2
<PAGE> 116
I. Additional Information about the Acquiring Fund.
Incorporated by reference to Post-Effective Amendment No. 59 to the
Registration Statement on Form N-1A (filed on March 17, 2000) of Liberty Funds
Trust IV (Registration Statement Nos. 2-62492 and 811-2865).
II. Additional Information about the Acquired Funds.
With respect to the Florida Fund, the Michigan Fund, the Minnesota Fund and
the North Carolina Fund, incorporated by reference to Post-Effective Amendment
No. 26 to the Registration Statement on Form N-1A (filed on May 30, 2000) of
Liberty Funds Trust V (Registration Statement Nos. 33-12109 and 811-5030).
With respect to the Oregon Fund, incorporated by reference to
Post-Effective Amendment No. 114 to the Registrant's Registration Statement on
Form N-1A (filed on February 28, 2000) (Registration Nos. 2-15184 and 811-881).
III. Financial Statements.
This SAI is accompanied by (i) the Semi-Annual Report for the six months
ended May 31, 2000 and the Annual Report for the year ended November 30, 1999 of
the Acquiring Fund; (ii) the Semi-Annual Report for the six-months ended July
31, 2000 and the Annual Reports for the year ended January 31, 2000 of the
Florida Fund, the Michigan Fund, the Minnesota Fund and the North Carolina Fund;
and (iii) the Semi-Annual Report for the six months ended April 30, 2000 and the
Annual Report for the year ended October 31, 1999 of the Oregon Fund, all of
which contain historical financial information regarding such Funds. Such
reports have been filed with the Securities and Exchange Commission and are
incorporated herein by reference.
-2-
<PAGE> 117
[Liberty Logo] LIBERTY
LIBERTY FUNDS SERVICES, INC.
LIBERTY NORTH CAROLINA TAX-EXEMPT FUND
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN AND, ABSENT DIRECTION, WILL BE VOTED FOR EACH ITEM BELOW. THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGEMENT AS TO ANY
OTHER MATTER. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING
ITEMS:
1. To approve or disapprove the Agreement and Plan of Reorganization with
respect to the acquisition of Liberty North Carolina Tax-Exempt Fund by
Liberty Tax-Exempt Fund (Item 4 of the Notice).
For Against Abstain
[ ] [ ] [ ]
2. To elect eleven Trustees (Item 6 of the Notice).
(01) Douglas A. Hacker
(02) Janet Langford Kelly
(03) Richard W. Lowry
(04) Salvatore Macera
(05) William E. Mayer
(06) Charles R. Nelson
(07) John J. Neuhauser
(08) Joseph R. Palombo
(09) Thomas E. Stitzel
(10) Thomas C. Theobald
(11) Anne-Lee Verville
For
All For All
Nominees Withheld Except
[ ] [ ] [ ]
Instruction: To withhold authority to vote for any individual nominee(s),
mark the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE AT LEFT [__]
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners
should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Date
--------------------------
--------------------- ------------------
Shareholder sign here Co-owner sign here
Detach Card
<PAGE> 118
[Liberty Logo] LIBERTY
LIBERTY FUNDS SERVICES, INC.
LIBERTY MINNESOTA TAX-EXEMPT FUND
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN AND, ABSENT DIRECTION, WILL BE VOTED FOR EACH ITEM BELOW. THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGEMENT AS TO ANY
OTHER MATTER. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING
ITEMS:
1. To approve or disapprove the Agreement and Plan of Reorganization with
respect to the acquisition of Liberty Minnesota Tax-Exempt Fund by
Liberty Tax-Exempt Fund (Item 4 of the Notice).
For Against Abstain
[ ] [ ] [ ]
2. To elect eleven Trustees (Item 6 of the Notice).
(01) Douglas A. Hacker
(02) Janet Langford Kelly
(03) Richard W. Lowry
(04) Salvatore Macera
(05) William E. Mayer
(06) Charles R. Nelson
(07) John J. Neuhauser
(08) Joseph R. Palombo
(09) Thomas E. Stitzel
(10) Thomas C. Theobald
(11) Anne-Lee Verville
For
All For All
Nominees Withheld Except
[ ] [ ] [ ]
Instruction: To withhold authority to vote for any individual nominee(s),
mark the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE AT LEFT [__]
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners
should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Date
--------------------------
--------------------- ------------------
Shareholder sign here Co-owner sign here
Detach Card
<PAGE> 119
[Liberty Logo] LIBERTY
LIBERTY FUNDS SERVICES, INC.
LIBERTY MICHIGAN TAX-EXEMPT FUND
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN AND, ABSENT DIRECTION, WILL BE VOTED FOR EACH ITEM BELOW. THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGEMENT AS TO ANY
OTHER MATTER. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING
ITEMS:
1. To approve or disapprove the Agreement and Plan of Reorganization with
respect to the acquisition of Liberty Michigan Tax-Exempt Fund by
Liberty Tax-Exempt Fund (Item 4 of the Notice).
For Against Abstain
[ ] [ ] [ ]
2. To elect eleven Trustees (Item 6 of the Notice).
(01) Douglas A. Hacker
(02) Janet Langford Kelly
(03) Richard W. Lowry
(04) Salvatore Macera
(05) William E. Mayer
(06) Charles R. Nelson
(07) John J. Neuhauser
(08) Joseph R. Palombo
(09) Thomas E. Stitzel
(10) Thomas C. Theobald
(11) Anne-Lee Verville
For
All For All
Nominees Withheld Except
[ ] [ ] [ ]
Instruction: To withhold authority to vote for any individual nominee(s),
mark the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE AT LEFT [__]
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners
should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Date
--------------------------
--------------------- ------------------
Shareholder sign here Co-owner sign here
Detach Card
<PAGE> 120
[Liberty Logo] LIBERTY
LIBERTY FUNDS SERVICES, INC.
LIBERTY FLORIDA TAX-EXEMPT FUND
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN AND, ABSENT DIRECTION, WILL BE VOTED FOR EACH ITEM BELOW. THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGEMENT AS TO ANY
OTHER MATTER. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING
ITEMS:
1. To approve or disapprove the Agreement and Plan of Reorganization with
respect to the acquisition of Liberty Florida Tax-Exempt Fund by
Liberty Tax-Exempt Fund (Item 4 of the Notice).
For Against Abstain
[ ] [ ] [ ]
2. To elect eleven Trustees (Item 6 of the Notice).
(01) Douglas A. Hacker
(02) Janet Langford Kelly
(03) Richard W. Lowry
(04) Salvatore Macera
(05) William E. Mayer
(06) Charles R. Nelson
(07) John J. Neuhauser
(08) Joseph R. Palombo
(09) Thomas E. Stitzel
(10 Thomas C. Theobald
(11) Anne-Lee Verville
For
All For All
Nominees Withheld Except
[ ] [ ] [ ]
Instruction: To withhold authority to vote for any individual nominee(s),
mark the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE AT LEFT [__]
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners
should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Date
--------------------------
--------------------- ------------------
Shareholder sign here Co-owner sign here
Detach Card
<PAGE> 121
[Liberty Logo] LIBERTY
LIBERTY FUNDS SERVICES, INC.
LIBERTY OREGON TAX-FREE FUND
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN AND, ABSENT DIRECTION, WILL BE VOTED FOR EACH ITEM BELOW. THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGEMENT AS TO ANY
OTHER MATTER. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING
ITEMS:
1. To approve or disapprove the Agreement and Plan of Reorganization with
respect to the acquisition of Liberty Oregon Tax-Free Fund by
Liberty Tax-Exempt Fund (Item 4 of the Notice).
For Against Abstain
[ ] [ ] [ ]
2. To elect eleven Trustees (Item 6 of the Notice).
(01) Douglas A. Hacker
(02) Janet Langford Kelly
(03) Richard W. Lowry
(04) Salvatore Macera
(05) William E. Mayer
(06) Charles R. Nelson
(07) John J. Neuhauser
(08) Joseph R. Palombo
(09) Thomas E. Stitzel
(10) Thomas C. Theobald
(11) Anne-Lee Verville
For
All For All
Nominees Withheld Except
[ ] [ ] [ ]
Instruction: To withhold authority to vote for any individual nominee(s),
mark the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE AT LEFT [__]
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. Please sign exactly as name or names appear hereon. Joint owners
should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Date
--------------------------
--------------------- ------------------
Shareholder sign here Co-owner sign here
Detach Card
<PAGE> 122
PLEASE VOTE PROMPTLY
*********************************
Your vote is important, no matter how many shares you own. Please vote on the
reverse side of this proxy card and sign in the space(s) provided. Return your
completed proxy card in the enclosed envelope today.
You may receive additional proxies for other accounts. These are not duplicates;
you should sign and return each proxy card in order for your votes to be
counted.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The signers of this
proxy hereby appoint William J. Ballou, Suzan M. Barron, Stephen E. Gibson,
Russell L. Kane, Pamela A. McGrath, and Vincent P. Pietropaolo each of them
proxies of the signers, with power of substitution to vote at the Special
Meeting of Shareholders to be held at Boston, Massachusetts, on Wednesday,
December 27, 2000, and at any adjournments, as specified herein, and in
accordance with their best judgement, on any other business that may properly
come before this meeting.
AFTER CAREFUL REVIEW, THE BOARD OF TRUSTEES UNANIMOUSLY HAS RECOMMENDED A VOTE
"FOR" ALL MATTERS.
<PAGE> 123
Two Convenient Ways to Vote Your Proxy
The enclosed proxy statement provides details on important issues affecting
your Liberty Funds. The Board of Trustees recommends that you vote for all
proposals.
We are offering two additional ways to vote: by telephone or fax.
These methods may be faster and more convenient than the traditional method of
mailing back your proxy card.
If you are voting by telephone or fax, you SHOULD NOT mail your proxy card.
Vote by Telephone:
* Read the proxy statement and have your proxy card available.
* When you are ready to vote, call toll free 1-877-518-9416
between 9:00 a.m. and 11:00 p.m. EST.
* Follow the instructions provided to cast your vote. A
representative will be available to answer questions.
Vote by Fax:
* Read the proxy statement.
* Complete the enclosed proxy card.
* Fax your proxy card to 1-800-733-1885.
YOUR PROXY VOTE IS IMPORTANT!
SHM-43/623D-1000 (11/00) 00/2027
