<PAGE> 1
LIBERTY MUTUAL FUNDS
STEIN ROE MUTUAL FUNDS
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111-2621
Dear Shareholder:
Your Fund will hold a special meeting on December 27, 2000 at 10:00 a.m.
Eastern Time, at the offices of Colonial Management Associates, Inc. You will be
asked to vote on the acquisition of your Fund and on the election of eleven
Trustees. A formal Notice of Special Meeting of Shareholders appears on the next
page, followed by the combined Prospectus/Proxy Statement which explains in more
detail the proposals to be considered. We hope that you can attend the Meeting
in person; however, we urge you in any event to vote your shares at your
earliest convenience.
Your Fund is part of one of several proposed acquisitions and liquidations
of funds in the Liberty and Stein Roe Fund groups proposed by Liberty Financial
Companies, Inc., the indirect parent of each of the investment advisors to the
Liberty and Stein Roe Funds. The overall purposes of these acquisitions and
liquidations include streamlining the product offerings of the Liberty and Stein
Roe Funds, potentially reducing fund expense ratios by creating larger funds and
permitting the Liberty Financial organization to concentrate its portfolio
management resources on a more focused group of portfolios. Please review the
enclosed Prospectus/Proxy Statement for a more detailed description of the
proposed acquisition of your Fund and the specific reasons it is being proposed.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU CAN
VOTE EASILY AND QUICKLY BY MAIL, BY FAX (NOT AVAILABLE FOR ALL SHAREHOLDERS;
REFER TO ENCLOSED PROXY INSERT), BY PHONE OR IN PERSON. A SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE. PLEASE HELP YOUR
FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
Your Fund is using Shareholder Communications Corporation ("SCC"), a
professional proxy solicitation firm, to assist shareholders in the voting
process. As the date of the special meeting approaches, if we have not yet
received your vote, you may receive a telephone call from SCC reminding you to
exercise your right to vote.
Please take a few moments to review the details of each proposal. If you
have any questions regarding the combined Prospectus/Proxy Statement, please
feel free to call the contact number listed in the enclosed Prospectus/Proxy
Statement.
We appreciate your participation and prompt response in these matters and
thank you for your continued support.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson, President
November 17, 2000
G-60/605D-1000
<PAGE> 2
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 27, 2000
LIBERTY FUNDS TRUST II
LIBERTY SHORT TERM GOVERNMENT FUND
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of the
Liberty Short Term Government Fund will be held at 10:00 a.m. Eastern Time on
Wednesday, December 27, 2000 at the offices of Colonial Management Associates,
Inc., One Financial Center, Boston, Massachusetts 02111-2621, for these
purposes:
1. To approve an Agreement and Plan of Reorganization providing for the
sale of all of the assets of the Liberty Short Term Government Fund to,
and the assumption of all of the liabilities of the Liberty Short Term
Government Fund by, the Liberty Intermediate Government Fund in
exchange for shares of the Liberty Intermediate Government Fund and the
distribution of such shares to the shareholders of the Liberty Short
Term Government Fund in complete liquidation of the Liberty Short Term
Government Fund.
2. To elect eleven Trustees.
3. To consider and act upon any other matters that properly come before
the meeting and any adjourned session of the meeting.
Shareholders of record at the close of business on September 29, 2000 are
entitled to notice of and to vote at the meeting and any adjourned session.
By order of the Board of Trustees,
William J. Ballou, Secretary
November 17, 2000
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. YOU
CAN VOTE EASILY AND QUICKLY BY PHONE, BY MAIL, BY FAX (NOT AVAILABLE FOR
ALL SHAREHOLDERS; REFER TO ENCLOSED PROXY INSERT) OR IN PERSON. PLEASE
HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY!
<PAGE> 3
COMBINED PROSPECTUS AND PROXY STATEMENT
NOVEMBER 17, 2000
ACQUISITION OF THE ASSETS AND LIABILITIES OF
LIBERTY SHORT TERM GOVERNMENT FUND
c/o Liberty Funds Trust II
One Financial Center
Boston, Massachusetts 02111-2621
1-800-426-3750
BY AND IN EXCHANGE FOR SHARES OF
LIBERTY INTERMEDIATE GOVERNMENT FUND
c/o Liberty Funds Trust II
One Financial Center
Boston, Massachusetts 02111-2621
1-800-426-3750
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS....................................... 3
PROPOSAL 1 -- Acquisition of the Liberty Short Term
Government Fund by the Liberty Intermediate
Government Fund............................... 7
Principal Investment Risks................................ 7
Information about the Acquisition......................... 8
PROPOSAL 2 -- Election of Trustees.......................... 14
GENERAL..................................................... 17
Voting Information........................................ 17
Appendix A -- Agreement and Plan of Reorganization.......... A-1
Appendix B -- Fund Information.............................. B-1
Appendix C -- Capitalization................................ C-1
</TABLE>
This combined Prospectus/Proxy Statement contains information you should
know before voting on the proposed acquisition of the Liberty Short Term
Government Fund (the "Short Term Fund") by the Liberty Intermediate Government
Fund (the "Intermediate Fund") or voting on the other proposals to be considered
at a Special Meeting of Shareholders of the Short Term Fund (the "Meeting"),
which will be held at 10:00 a.m. Eastern Time on December 27, 2000 at the
offices of Colonial Management Associates, Inc. ("Colonial"), One Financial
Center, Boston, Massachusetts 02111-2621. Please read this Prospectus/Proxy
Statement and keep it for future reference.
Proposal 1 in this Prospectus/Proxy Statement relates to the proposed
acquisition of the Short Term Fund by the Intermediate Fund (the "Acquisition").
If the Acquisition occurs, you will become a shareholder of the Intermediate
Fund. The Intermediate Fund seeks as high a level of current income and total
return as is consistent with prudent risk. If the Agreement and Plan of
Reorganization is approved by the shareholders of the Short Term Fund and the
Acquisition occurs, the Short Term Fund will transfer all of the assets and
liabilities attributable to each class of its shares to the Intermediate Fund in
exchange for shares of the same class of the Intermediate Fund (with the
exception of Class C shares of the Short Term Fund which will be exchanged for
Class A shares of the Intermediate Fund) with the same aggregate net asset value
as the assets and liabilities transferred. After that exchange, shares of each
class received by the Short Term Fund will be distributed pro rata to its
shareholders of the same class (with the exception that Short Term Fund Class C
shareholders will receive Class A shares of the Intermediate Fund).
1
<PAGE> 4
Proposal 2 in this Prospectus/Proxy Statement relates to the election of
Trustees of Liberty Funds Trust II ("Trust II"), of which the Short Term Fund is
a series.
Please review the enclosed Prospectus of the Intermediate Fund for your
class of shares and the Annual Report of the Intermediate Fund. Each of these
documents is incorporated in this Prospectus/Proxy Statement by reference. The
following documents have also been filed with the Securities and Exchange
Commission (the "SEC") and are incorporated in this Prospectus/Proxy Statement
by reference:
- The Prospectus of the Short Term Fund dated January 1, 2000, as
supplemented on October 23, 2000 and October 26, 2000.
- The Statement of Additional Information of the Short Term Fund dated
January 1, 2000, as supplemented on June 23, 2000, August 21, 2000,
August 23, 2000 and October 23, 2000.
- The Statement of Additional Information of the Intermediate Fund dated
January 1, 2000, as supplemented on June 23, 2000, August 21, 2000 and
August 23, 2000.
- The Report of Independent Accountants and financial statements included
in the Annual Report to Shareholders of the Short Term Fund dated August
31, 2000.
- The Statement of Additional Information of the Intermediate Fund dated
November 17, 2000 relating to the Acquisition.
The Short Term Fund has previously sent its Annual Report to its
shareholders. For a free copy of this Report or any of the documents listed
above, please call 1-800-426-3750 or write to the Short Term Fund at One
Financial Center, Boston, Massachusetts 02111-2621. You may also obtain many of
these documents by accessing our web site at www.libertyfunds.com. Our hearing
impaired shareholders may call Liberty Funds Services, Inc. at 1-800-528-6979 if
you have special TTD equipment. Text-only versions of all the Short Term Fund
and Intermediate Fund documents can be viewed online or downloaded from the
Edgar database on the SEC's internet site at www.sec.gov. You can review and
copy information about the Funds by visiting the following location, and you can
obtain copies, upon payment of a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the Public Reference
Room, U.S. Securities and Exchange Commission, Washington, DC 20549-0102.
Information on the operation of the Public Reference Room may be obtained by
calling 202-942-8090.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 5
QUESTIONS AND ANSWERS
THE FOLLOWING QUESTIONS AND ANSWERS PROVIDE AN OVERVIEW OF KEY FEATURES OF THE
ACQUISITION AND OF THE OTHER MATTERS TO BE CONSIDERED AT THE MEETING AND OF THE
INFORMATION CONTAINED IN THIS COMBINED PROSPECTUS/ PROXY STATEMENT. PLEASE
REVIEW THE FULL PROSPECTUS/PROXY STATEMENT PRIOR TO CASTING YOUR VOTE.
1. WHAT IS BEING PROPOSED?
First, the Trustees of Trust II are recommending in Proposal 1 that the
Intermediate Fund acquire the Short Term Fund. This means that the Intermediate
Fund would acquire all of the assets and liabilities of the Short Term Fund in
exchange for shares of the Intermediate Fund representing the aggregate net
asset value of the Short Term Fund's assets and liabilities. If Proposal 1 is
approved, you will receive shares of the Intermediate Fund with an aggregate net
asset value equal to the aggregate net asset value of your Short Term Fund
shares as of the business day before the closing of the Acquisition. The
Acquisition is currently scheduled to take place on or around January 22, 2001.
In addition, the Trustees of Trust II are recommending in Proposal 2 that you
vote in favor of eleven nominees for Trustees.
2. WHY IS THE ACQUISITION BEING PROPOSED?
The Trustees of Trust II recommend approval of the Acquisition. In reviewing the
Acquisition, the Trustees considered:
- that absent the Acquisition, Liberty Financial Companies, Inc. ("Liberty
Financial"), the indirect parent of the investment advisor to the Short Term
Fund, will recommend to the Trustees that the Fund be liquidated;
- that the Acquisition offers shareholders of the Short Term Fund an investment
in a larger fund with somewhat similar investment goals and strategies and
with an expected reduction in the fees and expenses payable by the Short Term
Fund, assuming that the Fund's investment advisor declined to continue the
current voluntary fee waiver or expense reimbursement in effect with respect
to the Fund;
- that the Short Term Fund has not achieved sufficient sales growth and is not
likely to do so in the near future; and
- the expected tax-free nature of the Acquisition as opposed to other
alternatives for the Short Term Fund and for shareholders.
Please review "Reasons for the Acquisition" in Proposal 1 of this
Prospectus/Proxy Statement for a full description of the factors considered by
the Trustees.
3. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE AND WHAT ARE
THEY ESTIMATED TO BE FOLLOWING THE ACQUISITION?
The following tables allow you to compare the sales charges and management fees
and expenses of the Short Term Fund and the Intermediate Fund and to analyze the
estimated expenses that Liberty Financial, the indirect parent of each Fund's
investment advisor, expects the combined fund to bear in the first year
following the Acquisition. The shareholder fees presented below for the
Intermediate 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 each Fund for
the fiscal year ended August 31, 2000. Continuing shareholders who purchase new
Class A or Class B shares of the Intermediate Fund after the Acquisition will
pay more in sales charges than shareholders of the Short Term Fund currently
pay.
3
<PAGE> 6
SHAREHOLDER FEES(1)
(paid directly from your investment)
<TABLE>
<CAPTION>
SHORT TERM FUND INTERMEDIATE FUND
--------------- -----------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load)
on purchases (%) (as a
percentage of the offering
price) 3.25 0.00 0.00 4.75 0.00 0.00 0.00
-------------------------------------------------------------------------------------------------------
Maximum deferred sales
charge (load) on redemptions
(%) (as a percentage of the
lesser of purchase price or
redemption price) 1.00(2) 4.00 1.00 1.00(2) 5.00 1.00 0.00
-------------------------------------------------------------------------------------------------------
Redemption fee (%) (as a
percentage of amount
redeemed, if applicable) (3) (3) (3) (3) (3) (3) (3)
</TABLE>
---------------
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial
sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES
(deducted directly from Fund assets)
<TABLE>
<CAPTION>
SHORT TERM FUND INTERMEDIATE FUND
--------------- -----------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C> <C> <C> <C>
Management fee(4)(%) 0.55 0.55 0.55 0.60 0.60 0.60 0.60
-------------------------------------------------------------------------------------------------------
Distribution and service
(12b-1) fees(5)(%) 0.20 0.85 0.40 0.25 1.00 1.00 0.00
-------------------------------------------------------------------------------------------------------
Other expenses(4)(%) 0.69 0.69 0.69 0.35 0.35 0.35 0.35
-------------------------------------------------------------------------------------------------------
Total annual fund operating
expenses(4)(5) (%) 1.44 2.09 1.64 1.20 1.95 1.95 0.95
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE FUND (PRO FORMA COMBINED)
--------------------------------------
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
Management fee (%) 0.60 0.60 0.60 0.60
------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00 0.00
------------------------------------------------------------------------------------------
Other expenses (%) 0.35 0.35 0.35 0.35
------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.20 1.95 1.95 0.95
</TABLE>
---------------
(4) The Short Term Fund's investment advisor has voluntarily agreed to waive
advisory fees and reimburse the Fund for certain expenses so that the total
annual fund operating expenses (exclusive of distribution and service fees,
brokerage commissions, interest, taxes and extraordinary expenses, if any)
will not exceed 0.60%. As a result, the actual management fee for each share
class would be 0.00%, other expenses for each share class would be 0.60% and
total annual fund operating expenses for Class A, B and C shares would be
0.80%, 1.45% and 1.00%, respectively. This arrangement may be modified or
terminated by the investment advisor at any time.
(5) The Intermediate Fund's distributor has voluntarily agreed to waive a
portion of the 12b-1 fee for Class C shares. As a result, the actual 12b-1
fee for Class C shares would be 0.85% and the total annual fund operating
expenses for Class C shares would be 1.75%. This arrangement may be modified
or terminated by the distributor at any time.
4
<PAGE> 7
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in the Short Term Fund
and the Intermediate 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>
SHORT TERM FUND
Class A $467 $765 $1,086 $1,991
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $212 $654 $1,123 $2,253
sold all your shares at end of period $612 $854 $1,123 $2,253
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $167 $517 $ 891 $1,942
sold all your shares at end of period $267 $517 $ 891 $1,942
--------------------------------------------------------------------------------------------------
INTERMEDIATE FUND
Class A $592 $839 $1,105 $1,864
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $198 $613 $1,054 $2,084
sold all your shares at end of period $698 $913 $1,254 $2,084
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $198 $613 $1,054 $2,279
sold all your shares at end of period $298 $613 $1,054 $2,279
--------------------------------------------------------------------------------------------------
Class Z $ 97 $304 $ 527 $1,171
--------------------------------------------------------------------------------------------------
INTERMEDIATE FUND
(pro forma combined)
Class A $592 $839 $1,105 $1,864
--------------------------------------------------------------------------------------------------
Class B: did not sell your shares $198 $613 $1,054 $2,084
sold all your shares at end of period $698 $913 $1,254 $2,084
--------------------------------------------------------------------------------------------------
Class C: did not sell your shares $198 $613 $1,054 $2,279
sold all your shares at end of period $298 $613 $1,054 $2,279
--------------------------------------------------------------------------------------------------
Class Z $ 97 $304 $ 527 $1,171
</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 Short
Term Fund are eliminated; and (3) expense ratios are based on pro forma combined
average net assets as of July 31, 2000.
5
<PAGE> 8
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE SHORT TERM FUND
AND THE INTERMEDIATE FUND COMPARE?
This table shows the investment goal and primary investment strategies of each
Fund:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
THE SHORT TERM FUND THE INTERMEDIATE FUND
-------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT GOAL: The Short Term Fund INVESTMENT GOAL: The Intermediate
seeks as high a level of current Fund seeks as high a level of
income as is consistent with very current income and total return as
low price volatility. is consistent with prudent risk.
-------------------------------------------------------------------------------
PRIMARY INVESTMENT STRATEGIES: PRIMARY INVESTMENT STRATEGIES:
The Short Term Fund seeks to achieve The Intermediate Fund seeks to
its goal as follows: achieve its goal as follows:
- The Fund seeks to achieve its goal - The Fund generally maintains an
of low volatility by maintaining an average weighted duration of
average weighted duration of less greater than 2 1/2 years and less
than 3 years. than 7 years.
- The Fund invests primarily in U.S. - The Fund invests primarily in U.S.
government securities, including government securities, including
U.S. treasuries and securities of U.S. treasuries and securities of
various U.S. government agencies. various U.S. government agencies.
- In selecting securities for the - In selecting securities for the
Fund, the Fund's investment advisor Fund, the Fund's investment advisor
considers a security's expected considers a security's expected
income together with its potential income together with its potential
to rise or fall in price. to rise or fall in price.
-------------------------------------------------------------------------------
</TABLE>
The following compares the primary investment strategies that each Fund uses to
achieve its investment goal:
- Both Funds invest primarily in U.S. government securities, including U.S.
treasuries and securities of various U.S. government agencies.
- Both Funds may invest in mortgage-backed securities, which represent
interests in pools of mortgages.
- The Intermediate Fund generally maintains an average weighted duration of
2 1/2 to 7 years, while the Short Term Fund maintains an average weighted
duration of less than 3 years. Duration measures the sensitivity of a
bond's price to changes in interest rates. Generally, the shorter a
fund's duration, the less its share price will change when there is a
change in interest rates.
The fundamental and non-fundamental investment policies of the Short Term Fund
and the Intermediate Fund are substantially similar.
5. WHAT CLASS OF SHARES WILL YOU RECEIVE IN THE INTERMEDIATE FUND IF THE
ACQUISITION OCCURS?
You will receive the same class of shares that you currently own in the Short
Term Fund, unless you own Class C shares of the Short Term Fund, in which case
you will receive Class A shares of the Intermediate Fund. The shares will have
the same exchange rights and will bear the same contingent deferred sales
charges ("CDSCs"), if applicable, unless you own Class C shares of the Short
Term Fund. If you own Short Term Fund Class C shares, the holding period for the
purposes of calculating the CDSC will carry over to the new shares of the
Intermediate Fund that you receive. The shares of the Intermediate Fund that you
receive will in each case have the same distribution, purchase and redemption
procedures as your current shares. As a result of the Acquisition, holders of
Class A shares of the Short Term Fund will receive Class A shares of the
6
<PAGE> 9
Intermediate Fund which bear a higher 12b-1 fee (0.25% for the Intermediate Fund
and 0.20% for the Short Term Fund).
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION?
The Acquisition is expected to be tax free to you for federal income tax
purposes. This means that no gain or loss will be recognized by the Short Term
Fund or its shareholders as a result of the Acquisition.
The cost basis and holding period of your Short Term Fund shares are expected to
carry over to your new shares in the Intermediate Fund.
PROPOSAL 1 -- ACQUISITION OF THE LIBERTY SHORT TERM GOVERNMENT FUND
BY THE LIBERTY INTERMEDIATE GOVERNMENT 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 Short Term Fund by the Intermediate Fund under the Agreement and Plan of
Reorganization.
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the Intermediate Fund, and how do
they compare with the Short Term Fund?
Because the Funds have somewhat similar goals and strategies, the principal
risks associated with each Fund are similar. Both Funds are subject to market
risk and interest rate risk. 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.
Because the Funds may invest in mortgage-backed securities, they are also
subject to structure risk and prepayment risk. Structure risk is the risk that
an event will occur (such as a security being prepaid or called) that alters the
security's cash flow. Prepayment risk is the possibility that, as interest rates
fall, homeowners are more likely to refinance their home mortgages. When
mortgages are refinanced, the principal on mortgage-backed securities is paid
earlier than expected and holders of such securities may have to reinvest the
proceeds at lower interest rates. In an environment of declining interest rates,
mortgage-backed securities may offer less potential for gain than other debt
securities. During periods of rising interest rates, mortgage-backed securities
have a high risk of declining in price because the declining prepayment rates
effectively increase the maturity of the security. In addition, the potential
impact of prepayment on the price of a mortgage-backed security may be difficult
to predict and result in greater volatility.
The Intermediate Fund generally maintains an average weighted duration of
2 1/2 to 7 years, while the Short Term Fund generally maintains an average
weighted duration of less than 3 years. Duration is a measure of the interest
rate risk of a bond or a portfolio of bonds. Compared to another bond or
portfolio, a bond or portfolio with a higher duration is expected to rise or
fall in value more as interest rates rise or fall. Because of its longer
duration, the Intermediate Fund's portfolio is generally subject to greater
interest rate sensitivity than the Short Term Fund's portfolio, and you will
therefore be subject to greater risk by becoming a shareholder of the
Intermediate Fund. For more information about the principal investment risks of
the Intermediate Fund, please see the enclosed Prospectus of the Intermediate
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.
7
<PAGE> 10
INFORMATION ABOUT THE ACQUISITION
Terms of the Agreement and Plan of Reorganization
If approved by the shareholders of the Short Term Fund, the Acquisition is
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:
- The Short Term Fund will transfer all of the assets and liabilities
attributable to each class of shares of the Short Term Fund to the
Intermediate Fund in exchange for shares of the same class (with the
exception of Class C shares of the Short Term Fund which will be
exchanged for Class A shares of the Intermediate Fund) of the
Intermediate Fund with an aggregate net asset value equal to the net
asset value of the transferred assets and liabilities.
- The Acquisition will occur on the next business day after the time
(currently scheduled to be 4:00 p.m. Eastern Time on January 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 Acquisition (the "Valuation
Date").
- The shares of each class of the Intermediate Fund received by the Short
Term Fund will be distributed to the shareholders of the same class of
the Short Term Fund, with the exception of the Short Term Fund's Class C
shares, pro rata in accordance with their percentage ownership of each
class of the Short Term Fund in full liquidation of the Short Term Fund.
- After the Acquisition, the Short Term Fund will be terminated, and its
affairs will be wound up in an orderly fashion.
- The Acquisition requires approval by the Short Term Fund's shareholders
and satisfaction of a number of other conditions; the Acquisition may be
terminated at any time with the approval of the Trustees of Trust II.
A shareholder who objects to the Acquisition will not be entitled under
Massachusetts law or the Declaration of Trust of Trust II (the "Declaration") to
demand payment for, or an appraisal of, his or her shares. However, shareholders
should be aware that the Acquisition as proposed is not expected to result in
recognition of gain or loss to shareholders for federal income tax purposes and
that, if the Acquisition is consummated, shareholders will be free to redeem the
shares which they receive in the transaction at their then-current net asset
value, plus any applicable CDSC. In addition, shares may be redeemed (at net
asset value plus any applicable CDSC) at any time prior to the consummation of
the Acquisition.
Shares You Will Receive
If the Acquisition occurs, you will receive shares in the Intermediate Fund
of the same class as the shares that you currently own in the Short Term Fund,
unless you own Class C shares of the Short Term Fund, in which case you will
receive Class A shares of the Intermediate Fund. In comparison to the shares you
currently own, the shares you receive will have the following characteristics:
- The shares you receive will have an aggregate net asset value equal to
the aggregate net asset value of your current shares as of the Valuation
Date.
- For Class A and Class B shareholders, your Intermediate Fund shares will,
if applicable, 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 Short Term Fund shares. However, if you purchase new Class
A or Class B shares of the Intermediate Fund after the Acquisition, you
will pay a higher sales charge than Class A or Class B shareholders of
the Short Term Fund currently pay. If you own Class C shares of the Short
Term Fund, the Class A shares of the Intermediate Fund that you receive
in exchange for your shares will bear the sales charges, CDSCs and
redemption charges described under Questions 3 and 5 of the "Questions
and Answers" section on pages 3-7 of this Prospectus/Proxy Statement.
8
<PAGE> 11
- 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, unless you
own Class C shares of the Short Term Fund, in which case you will have
the exchange options of a Class A shareholder of the Intermediate Fund as
described in that Fund's enclosed Prospectus.
- You will have the same voting rights as you currently have, but as a
shareholder of the Intermediate Fund.
Information concerning the capitalization of each of the Funds is contained
in Appendix C.
Reasons for the Acquisition
The Trustees of Trust II, 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 Intermediate
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 Short Term Fund to enter into the Acquisition:
- Absent the Acquisition, Liberty Financial indicated to the Trustees that
it will discontinue subsidizing the Short Term Fund's operations (through
fee waivers or expense reductions) and that it will recommend to the
Trustees that the Short Term Fund be liquidated. Liberty Financial
informed the Trustees that the Short Term Fund has not achieved
sufficient sales growth and is not likely to do so in the near future,
and, therefore, the Fund may not be able to provide a competitive
investment return in the absence of a subsidy.
- The Acquisition is intended to permit the Short Term Fund's shareholders
to exchange their investment for an investment in a larger fund with
somewhat similar investment goals and strategies to the Short Term Fund
without recognizing gain or loss for federal income tax purposes. By
contrast, if a Short Term Fund shareholder redeemed his or her shares to
invest in another fund, like the Intermediate Fund, the transaction would
likely be a taxable event for such shareholder. Similarly, if the Short
Term 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
Intermediate 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 Short Term Fund, the expense ratio of the Short Term Fund
will increase significantly if the Acquisition does not occur. If the
Acquisition does occur, then the expense ratio of the combined
Intermediate Fund is expected to be materially lower than the Short Term
Fund's expense ratio after Liberty Financial discontinues its subsidy.
(The Trustees did note that the Intermediate Fund has a higher expense
ratio than the subsidized expense ratio of the Short Term Fund).
Although, as explained below, it is not possible to predict future
expense ratios with certainty, information provided to the Trustees by
Liberty Financial
9
<PAGE> 12
indicated that, based on the assets of the Short Term and Intermediate
Funds on July 31, 2000 and the Funds' current expense structures
(assuming the Short Term Fund's voluntary expense limitation is
discontinued), the Intermediate Fund's annualized expense ratio
(excluding 12b-1 fees) immediately after the Acquisition would be about
0.20% lower than the Short Term Fund's current expense ratio (for
example, for Class A shares, a 1.20% expense ratio for the Intermediate
Fund, as compared to 1.40% for the Short Term Fund if the limitation were
discontinued and 0.60% if it continued). Note that the 12b-1 fees on
Class A, B and C shares of the Short Term Fund are 0.20%, 0.85%, and
0.40%, respectively. The 12b-1 fee on Class A, B and C shares of the
Intermediate Fund are 0.25%, 1.00%, and 1.00%, respectively. Also note
that Class C shareholders of the Short Term Fund will become Class A
shareholders of the Intermediate Fund.
In reviewing the Acquisition, the Trustees also considered the fact that
shareholders who purchased shares in a fund which invests in short-term
government bonds would be receiving shares in a fund which invests in
intermediate-term government bonds. The Trustees determined, despite this
consideration, that on balance the Acquisition is in the best interests of the
Short Term Fund's 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 Intermediate Fund will achieve any particular
level of performance after the Acquisition.
The Trustees further considered that while there is expected to be a
reduction in the annual fund operating expenses with respect to shareholders of
the Short Term Fund who continue to hold shares of the Intermediate Fund after
the Acquisition, continuing shareholders who purchase new Class A or Class B
shares of the Intermediate Fund after the Acquisition will pay more in sales
charges than shareholders of the Short Term Fund currently pay.
The projected post-Acquisition expense reductions presented above are based
on the Intermediate Fund's current expense structure and the projected
post-Acquisition assets of the combined Fund. The projected reductions are
further based upon numerous material assumptions, including that: (1) the
current contractual agreements will remain in place; and (2) certain duplicate
costs involved in operating the Short Term Fund are eliminated. Although these
projections represent good faith estimates, there can be no assurance that any
particular level of expenses or expense savings will be achieved, because
expenses depend on a variety of factors (including the future level of Fund
assets), many of which factors are beyond the control of the Intermediate Fund
or Liberty Financial.
Performance Information
The charts below show the percentage gain or loss in each calendar year for
the 10-year period ending December 31, 1999 or, if shorter, since inception, for
the Class A shares of the Short Term Fund and the Class A shares of the
Intermediate 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.
10
<PAGE> 13
SHORT TERM FUND
[BAR CHART]
<TABLE>
<CAPTION>
SHORT TERM FUND
---------------
<S> <C>
1993 3.94%
1994 0.83%
1995 9.70%
1996 5.31%
1997 6.80%
1998 5.95%
1999 1.80%
</TABLE>
The Fund's year-to-date total return through
September 30, 2000 was 4.42%.
For period shown in bar chart:
Best quarter: First quarter 1995, +3.48%
Worst quarter: Second quarter 1994, -0.30%
INTERMEDIATE FUND
[BAR CHART]
<TABLE>
<CAPTION>
INTERMEDIATE FUND
-----------------
<S> <C>
1990 9.68%
1991 11.10%
1992 5.04%
1993 5.66%
1994 -1.78%
1995 14.93%
1996 2.82%
1997 8.34%
1998 8.15%
1999 -2.16%
</TABLE>
The Fund's year-to-date total return through
September 30, 2000 was 5.48%.
For period shown in bar chart:
Best quarter: Third quarter 1998, +5.10%
Worst quarter: First quarter 1994, -1.91%
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.
11
<PAGE> 14
SHORT TERM FUND*
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND
<S> <C> <C> <C>
Class A (%) (1.51) 5.18 4.29
-----------------------------------------------------------------------------------------------
Class B (%) (2.73) 5.20 4.12(1)
-----------------------------------------------------------------------------------------------
Class C (%) 0.63 5.67(1) 4.62(1)
-----------------------------------------------------------------------------------------------
Lehman Index (%) 2.96 6.48 5.29(2)
-----------------------------------------------------------------------------------------------
Lipper Short Average (%) 2.45 5.65 4.62(2)
</TABLE>
INTERMEDIATE FUND+
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) (6.81) 5.23 5.53
-----------------------------------------------------------------------------------------------
Class B (%) (7.51) 5.14 5.45(3)
-----------------------------------------------------------------------------------------------
Class C (%) (3.67) 5.94(3) 5.89(3)
-----------------------------------------------------------------------------------------------
Class Z (%) 8.34(3) 6.34(3) 7.35(3)
-----------------------------------------------------------------------------------------------
Lehman Intermediate Index (%) 0.49 6.93 7.10
-----------------------------------------------------------------------------------------------
Lipper Intermediate Average (%) (1.67) 6.37 6.41
</TABLE>
---------------
* The Short Term Fund's return is compared to the Lehman Brothers U.S.
Government Bond (1-3 year) Index ("Lehman Index"), an unmanaged index that
tracks the performance of short-term U.S. government securities. Unlike the
Fund, indices are not investments and do not incur fees or expenses. It is
not possible to invest directly in indices. The Short Term Fund's return is
also compared to the average return of the funds included in the Lipper
Short U.S. Government Funds category average ("Lipper Short Average"). This
Lipper Short Average, which is calculated by Lipper, Inc., is composed of
funds with similar investment objectives to the Short Term Fund. Sales
charges are not reflected in the Lipper Short Average.
+ The Intermediate Fund's return is compared to the Lehman Brothers
Intermediate U.S. Government Bond Index ("Lehman Intermediate Index"), an
unmanaged index that tracks the performance of intermediate U.S. government
securities. Unlike the Fund, indices are not investments and do not incur
fees or expenses. It is not possible to invest directly in indices. The
Intermediate Fund's return is also compared to the average return of the
funds included in the Lipper Intermediate U.S. Government Funds category
average ("Lipper Intermediate Average"). This Lipper Intermediate Average,
which is calculated by Lipper, Inc., is composed of funds with similar
investment objectives to the Intermediate Fund. Sales charges are not
reflected in the Lipper Intermediate Average.
(1) Class B and Class C are newer classes of shares. Their performance
information includes returns of the Short Term 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 1,
1992, Class B shares were initially offered on February 1, 1993, and Class C
shares were initially offered on January 4, 1995.
(2) Performance information is from September 30, 1992.
(3) Class B, Class C and Class Z are newer classes of shares. Their performance
information includes returns of the Intermediate 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 for Class B and Class C shares and higher for Class Z
shares. Class A shares were initially offered on October 13, 1987, Class B
shares were initially offered on June 8, 1992, Class C shares were initially
offered on August 1, 1997, and Class Z shares were initially offered on
January 29, 1999.
12
<PAGE> 15
Federal Income Tax Consequences
The Acquisition is intended to be a tax-free reorganization. Ropes & Gray
has delivered to the Short Term Fund and the Intermediate Fund an opinion, and
the closing of the Acquisition will be conditioned on receipt of a letter from
Ropes & Gray confirming such opinion, to the effect that, on the basis of
existing law under specified sections of the Internal Revenue Code of 1986, as
amended (the "Code"), for federal income tax purposes:
- under Section 361 or Section 354 of the Code, respectively, no gain or
loss will be recognized by the Short Term Fund or the shareholders of the
Short Term Fund as a result of the Acquisition;
- under Section 358 of the Code, the tax basis of the Intermediate Fund
shares you receive will be the same, in the aggregate, as the aggregate
tax basis of your Short Term Fund shares;
- under Section 1223(1) of the Code, your holding period for the
Intermediate Fund shares you receive will include the holding period for
your Short Term Fund shares if you hold Short Term Fund shares as a
capital asset;
- under Section 1032 of the Code, no gain or loss will be recognized by the
Intermediate Fund as a result of the Acquisition;
- under Section 362(b) of the Code, the Intermediate Fund's tax basis in
the assets that the Intermediate Fund receives from the Short Term Fund
will be the same as the Short Term Fund's basis in such assets; and
- under Section 1223(2) of the Code, the Intermediate Fund's holding period
in such assets will include the Short Term Fund's holding period in such
assets.
The opinion is, and the confirmation letter will be, based on certain
factual certifications made by officers of Trust II. The opinion is not a
guarantee that the tax consequences of the Acquisition will be as described
above.
Prior to the closing of the Acquisition, the Short Term Fund and the
Intermediate Fund will each distribute to their shareholders all of their
respective investment company taxable income and net realized capital gains that
have not previously been distributed to shareholders. Such distributions will be
taxable to the shareholders of the respective Funds.
This description of the federal income tax consequences of the Acquisition
does not take into account your particular facts and circumstances. Consult your
own tax advisor about the effect of state, local, foreign, and other tax laws.
THE TRUSTEES OF TRUST II UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND
PLAN OF REORGANIZATION.
The Declaration establishing Trust II provides that any series of Trust II
(such as the Short Term Fund) may be terminated by a two-thirds vote of the
series' shares or by notice from the Trustees to the shareholders. The Trust
believes that, under this provision, no shareholder vote is required to approve
the Acquisition, although the provision could also be interpreted to require a
two-thirds vote, if the Acquisition is submitted for shareholder approval. The
Declaration also provides that it may be amended by the Trustees, upon majority
vote of the shareholders of the affected series. To eliminate any uncertainty
about whether any shareholder vote is required to approve the Acquisition, the
Trustees will consider any vote in favor of the Acquisition to be a vote in
favor of amending the Declaration to provide that the Short Term Fund may be
terminated by majority vote of the Short Term Fund's shares entitled to vote (or
by Trustee notice to shareholders), and will so amend the Declaration if a
majority of the Short Term Fund's shareholders entitled to vote on the proposal
vote in favor of such proposal.
13
<PAGE> 16
Required Vote for Proposal 1
Approval of the Agreement and Plan of Reorganization dated October 26, 2000
among Trust II on behalf of the Short Term Fund, Trust II on behalf of the
Intermediate Fund, and Liberty Financial will require the affirmative vote of a
majority of the shares of the Short Term Fund outstanding at the record date for
the Meeting.
PROPOSAL 2 -- ELECTION OF TRUSTEES
THE PROPOSAL
You are being asked to approve the election of four new members as well as
seven of the currently serving members of the Board of Trustees of Trust II, of
which the Short Term Fund is a series. All of the nominees listed below, except
for the proposed four new members (Ms. Kelly and Messrs. Hacker, Nelson and
Theobald), are currently members of the Board of Trustees of Trust II, as well
as nine Liberty closed-end funds and seven other Liberty open-end trusts (or, in
the case of Messrs. Lowry, Mayer and Neuhauser, eleven Liberty closed-end funds
and eight other Liberty open-end trusts (collectively, the "Liberty Mutual
Funds")), and have served in that capacity continuously since originally elected
or appointed. All of the currently serving members, other than Mr. Palombo, have
been previously elected by the shareholders of Trust II. The proposed four new
members currently serve on the Board of Trustees of two Stein Roe closed-end
funds and seven Stein Roe open-end trusts (collectively, the "Stein Roe Mutual
Funds"), and were recommended for election as Trustees of the Liberty Mutual
Funds by the Board of Trustees at meetings held on October 25 and 26, 2000. Each
of the nominees elected will serve as a Trustee of Trust II until the next
meeting of shareholders of Trust II called for the purpose of electing a Board
of Trustees, and until a successor is elected and qualified or until death,
retirement, resignation or removal.
Currently, two different boards of trustees are responsible for overseeing
substantially all of the Liberty and Stein Roe Mutual Funds. Liberty Financial
and Trust II's Trustees have agreed that shareholder interests can more
effectively be represented by a single board with responsibility for overseeing
substantially all of the Liberty and Stein Roe Mutual Funds. Creation of a
single, consolidated board should also provide certain administrative
efficiencies for Liberty Financial and potential future cost savings for both
the Liberty and Stein Roe Mutual Funds and Liberty Financial. The nominees
listed below will be the members of the single, consolidated Board of Trustees.
The persons named in the enclosed proxy card intend to vote at the Meeting in
favor of the election of the nominees named below as Trustees of Trust II (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 Officer New nominee
(43) of UAL, Inc. (airline) since July 1999; Senior Vice
President and Chief Financial Officer of UAL, Inc.
prior thereto.
Janet Langford Kelly Executive Vice President -- Corporate Development, New nominee
(41) General Counsel, and Secretary of Kellogg Company
(food, beverage and tobacco producer) since September
1999; Senior Vice President, Secretary and General
Counsel of Sara Lee Corporation (branded, packaged,
consumer-products manufacturer) prior thereto.
Richard W. Lowry Private Investor since 1987. (Formerly Chairman and 1995
(64) Chief Executive Officer of U.S. Plywood Corporation
(building products producer) from August 1985 to
August 1987.)
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
NOMINEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
Salvatore Macera Private Investor since 1981. (Formerly Executive Vice 1998
(69) President and Director of Itek Corporation
(electronics) from 1975 to 1981.)
William E. Mayer(2) Partner, Park Avenue Equity Partners (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, Boston 1985
(57) College, since August 1999; Dean, Boston College
School of Management, prior thereto.
Joseph R. Palombo(3) Trustee of the Stein Roe Mutual Funds since October 2000
(47) 2000; Executive Vice President and Director of
Colonial and Stein Roe & 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 Finance 1998
(64) 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
Trust II are not standing for reelection:
<TABLE>
<CAPTION>
TRUSTEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
Tom Bleasdale Retired (formerly Chairman of the Board and Chief 1987
(70) Executive Officer, Shore Bank & Trust Company
(banking services) from 1992 to 1993); Director,
Empire Co. (food distributor).
Lora S. Collins Attorney (formerly Attorney, Kramer Levin Naftalis & 1991
(65) Frankel LLP (law firm) from 1986 to 1996).
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
TRUSTEE NAME & AGE PRINCIPAL OCCUPATION(1) AND DIRECTORSHIPS TRUSTEE SINCE
------------------ ----------------------------------------- -------------
<S> <C> <C>
James E. Grinnell Private investor since November 1988. 1995
(72)
James L. Moody, Jr. Retired (formerly Chairman of the Board, Hannaford 1986
(70) 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
16
<PAGE> 19
Committee will consider candidates for trustee recommended by shareholders.
Written recommendations with supporting information should be directed to the
Committee in care of Trust II, Attention: Secretary, One Financial Center,
Boston, Massachusetts 02111-2621.
Record of Board and Committee Meetings. During the fiscal year ended
August 31, 2000, the Board of Trustees of Trust II (excluding the Liberty Money
Market 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 the most recently completed fiscal year, each of the current
Trustees attended more than 75% of the meetings of the Board of Trustees and the
committees of which such Trustee was a member.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE SHORT TERM FUND
VOTE FOR EACH NOMINEE IN PROPOSAL 2.
Required Vote for Proposal 2
A plurality of the votes cast at the Meeting for Trust II, if a quorum is
represented, is required for the election of each Trustee to the Board of
Trustees of Trust II. 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 II are soliciting proxies from the shareholders of
the Short Term Fund in connection with the Meeting, which has been called to be
held at 10:00 a.m. Eastern Time on December 27, 2000 at Colonial's offices, One
Financial Center, Boston, Massachusetts 02111-2621. The meeting notice, this
combined Prospectus/Proxy Statement and proxy cards and inserts are being mailed
to shareholders beginning on or about November 13, 2000.
Information About Proxies and the Conduct of the Meeting
Solicitation of Proxies. Proxies will be solicited primarily by mailing
this combined Prospectus/Proxy Statement and its enclosures, but proxies may
also be solicited through further mailings, telephone calls, personal interviews
or e-mail by officers of the Short Term 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 Meeting.
Shareholders who owned shares on the record date, September 29, 2000, are
entitled to vote at the Meeting. Shareholders are entitled to cast one vote for
each share owned on the record date. If you choose to vote by mail or by fax,
and you are an individual account owner, please sign exactly as your name
appears on the proxy card. Either owner of a joint account may sign the proxy
card, but the signer's name must exactly match the name that appears on the
card.
17
<PAGE> 20
Costs. The estimated costs of the Meeting, including the costs of
soliciting proxies, and the costs of the Acquisition to be borne by the Short
Term Fund and the Intermediate Fund are approximately $30,000 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 Short Term Fund.
Voting and Tabulation of Proxies. Shares represented by duly executed
proxies will be voted as instructed on the proxy card. If no instructions are
given, the proxy will be voted in favor of each Proposal. You can revoke your
proxy by sending a signed, written letter of revocation to the Secretary of the
Short Term Fund, by properly executing and submitting a later-dated proxy or by
attending the Meeting and voting in person.
Votes cast in person or by proxy at the Meeting will be counted by persons
appointed by the Short Term Fund as tellers for the Meeting (the "Tellers").
Thirty percent (30%) of the shares of the Short Term Fund outstanding on the
record date, present in person or represented by proxy, constitutes a quorum for
the transaction of business by the shareholders of the Short Term Fund at the
Meeting. Shareholders of the Short Term Fund vote together with the shareholders
of the other series of Trust II for the election of Trustees; thirty percent
(30%) of the outstanding shares of Trust II constitutes a quorum for voting on
the election of Trustees. In determining whether a quorum is present, the
Tellers will count shares represented by proxies that reflect abstentions and
"broker non-votes" as shares that are present and entitled to vote. Since these
shares will be counted as present, but not as voting in favor of any proposal,
these shares will have the same effect as if they cast votes against Proposal 1
and will have no effect on the outcome of Proposal 2. "Broker non-votes" are
shares held by brokers or nominees as to which (i) the broker or nominee does
not have discretionary voting power and (ii) the broker or nominee has not
received instructions from the beneficial owner or other person who is entitled
to instruct how the shares will be voted.
Advisor's and Underwriter's Addresses. The address of each Fund's
investment advisor, Colonial Management Associates, Inc., is One Financial
Center, Boston, Massachusetts 02111-2621. The address of each Fund's principal
underwriter, Liberty Funds Distributor, Inc., is One Financial Center, Boston,
Massachusetts 02111-2621.
Information About Liberty Financial. On November 1, 2000, Liberty
Financial announced that it had retained CS First Boston to help it explore
strategic alternatives, including the possible sale of Liberty Financial.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists for the Short Term Fund and Trust II the total
number of shares outstanding as of September 29, 2000 for each class of the
shares of the Fund and Trust II entitled to vote at the Meeting. It also lists
for the Intermediate Fund the total number of shares outstanding as of September
29, 2000 for each class of the Fund's shares. It also identifies holders of more
than 5% or 25% of any class of shares of each Fund, and contains information
about the executive officers and Trustees of Trust II and their shareholdings in
the Funds and Trust II.
Adjournments; Other Business. If the Short Term Fund or Trust II, as
applicable, has not received enough votes by the time of the Meeting to approve
any Proposal, the persons named as proxies may propose that the Meeting be
adjourned one or more times to permit further solicitation of proxies. Any
adjournment requires the affirmative vote of a majority of the total number of
shares of the Short Term Fund or Trust II, as applicable, that are present in
person or by proxy on the question when the adjournment is being voted on. The
persons named as proxies will vote in favor of any such adjournment all proxies
that they are entitled to vote in favor of the relevant Proposal (or in favor of
any nominee, in the case of Proposal 2). They will vote against any such
adjournment any proxy that directs them to vote against the Proposal (or against
all nominees, in the case of Proposal 2). They will not vote any proxy that
directs them to abstain from voting on the Proposal in question.
The Meeting has been called to transact any business that properly comes
before it. The only business that management of the Short Term Fund intends to
present or knows that others will present is Proposal 1 and Proposal 2. If any
other matters properly come before the Meeting, and on all matters incidental to
the conduct of the Meeting, the persons named as proxies intend to vote the
proxies in accordance with their
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<PAGE> 21
judgment, unless the Secretary of the Short Term Fund has previously received
written contrary instructions from the shareholder entitled to vote the shares.
Shareholder Proposals at Future Meetings. Trust II, of which the Short
Term Fund is a series, does not hold annual or other regular meetings of
shareholders. Shareholder proposals to be presented at any future meeting of
shareholders of the Fund or Trust II must be received by the Short Term Fund or
Trust II in writing a reasonable amount of time before the Trust solicits
proxies for that meeting in order to be considered for inclusion in the proxy
materials for that meeting. Shareholder proposals should be sent to the Short
Term Fund, care of Trust II, Attention: Secretary, One Financial Center, Boston,
Massachusetts 02111-2621.
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<PAGE> 22
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 26, 2000 is
by and among Liberty Funds Trust II (the "Trust"), a Massachusetts business
trust established under a Declaration of Trust dated February 14, 1980, as
amended, on behalf of Liberty Short Term Government Fund (the "Acquired Fund"),
a series of the Trust, Liberty Funds Trust II (the "Acquiring Trust"), a
Massachusetts business trust established under a Declaration of Trust dated
February 14, 1980, as amended, on behalf of Liberty Intermediate Government 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 and B shares of beneficial
interest of the Acquiring Fund ("Acquiring Shares") and the assumption by the
Acquiring Fund of the liabilities of the Acquired Fund (other than certain
expenses of the reorganization contemplated hereby) and the distribution of such
Acquiring Shares to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund, all upon the terms and conditions set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES
AND ACQUIRING SHARES AND LIQUIDATION OF ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein,
(a) The Trust, on behalf of the Acquired Fund, will transfer and deliver
to the Acquiring Fund, and the Acquiring Fund will acquire, all the
assets of the Acquired Fund as set forth in paragraph 1.2;
(b) The Acquiring Fund will assume all of the Acquired Fund's
liabilities and obligations of any kind whatsoever, whether
absolute, accrued, contingent or otherwise in existence on the
Closing Date (as defined in paragraph 1.2 hereof) (the
"Obligations"), except that expenses of reorganization contemplated
hereby to be paid by the Acquired Fund pursuant to paragraphs 1.5
and 9.2 shall not be assumed or paid by the Acquiring Fund; and
(c) The Acquiring Fund will issue and deliver to the Acquired Fund in
exchange for such assets the number of Acquiring Shares (including
fractional shares, if any) determined by dividing the net asset
value of the Acquired Fund, computed in the manner and as of the
time and date set forth in paragraph 2.1, by the net asset value of
one Acquiring Share, computed in the manner and as of the time and
date set forth in paragraph 2.2. Such transactions shall take place
at the closing provided for in paragraph 3.1 (the "Closing").
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all cash, securities, dividends and interest
receivable, receivables for shares sold and all other assets which are
owned by the Acquired Fund on the closing date provided in paragraph
3.1 (the "Closing Date") and any deferred expenses, other than
unamortized organizational expenses, shown as an asset on the books of
the Acquired Fund on the Closing Date.
1.3 As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to its shareholders of record
("Acquired Fund Shareholders"), determined as of the close of business
on the Valuation Date (as defined in paragraph 2.1), the Acquiring
Shares received by the Acquired Fund pursuant to
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paragraph 1.1. Such liquidation and distribution will be accomplished
by the transfer of the Acquiring Shares then credited to the account of
the Acquired Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the Acquired
Fund Shareholders and representing the respective pro rata number of
Acquiring Shares due such shareholders. The Acquiring Fund shall not be
obligated to issue certificates representing Acquiring Shares in
connection with such exchange.
1.4 With respect to Acquiring Shares distributable pursuant to paragraph
1.3 to an Acquired Fund Shareholder holding a certificate or
certificates for shares of the Acquired Fund, if any, on the Valuation
Date, the Acquiring Trust will not permit such shareholder to receive
Acquiring Share certificates therefor, exchange such Acquiring Shares
for shares of other investment companies, effect an account transfer of
such Acquiring Shares, or pledge or redeem such Acquiring Shares until
the Acquiring Trust has been notified by the Acquired Fund or its agent
that such Acquired Fund Shareholder has surrendered all his or her
outstanding certificates for Acquired Fund shares or, in the event of
lost certificates, posted adequate bond.
1.5 [RESERVED]
1.6 As promptly as possible after the Closing Date, the Acquired Fund shall
be terminated pursuant to the provisions of the laws of the
Commonwealth of Massachusetts, and, after the Closing Date, the
Acquired Fund shall not conduct any business except in connection with
its liquidation.
2. VALUATION.
2.1 For the purpose of paragraph 1, the value of the Acquired Fund's assets
to be acquired by the Acquiring Fund hereunder shall be the net asset
value computed as of the close of regular trading on the New York Stock
Exchange on the business day next preceding the Closing (such time and
date being herein called the "Valuation Date") using the valuation
procedures set forth in the Declaration of Trust of the Acquiring Trust
and the then current prospectus or statement of additional information
of the Acquiring Fund, after deduction for the expenses of the
reorganization contemplated hereby to be paid by the Acquired Fund
pursuant to paragraphs 1.5, and shall be certified by the Acquired
Fund.
2.2 For the purpose of paragraph 2.1, the net asset value of an Acquiring
Share shall be the net asset value per share computed as of the close
of regular trading on the New York Stock Exchange on the Valuation
Date, using the valuation procedures set forth in the Declaration of
Trust of the Acquiring Trust and the then current prospectus or
prospectuses and the statement or statements of additional information
of the Acquiring Fund (collectively, as from time to time amended and
supplemented, the "Acquiring Fund Prospectus").
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be on January 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
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Rule 17f-5, as the case may be, under the Investment Company Act of
1940 (the "1940 Act") and accompanied by all necessary federal and
state stock transfer stamps or a check for the appropriate purchase
price thereof. The cash delivered shall be in the form of currency or
certified or official bank checks, payable to the order of "The Chase
Manhattan Bank, custodian for Acquiring Fund."
3.3 In the event that on the Valuation Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere
shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquired Fund or the Acquiring Fund is impracticable, the
Closing Date shall be postponed until the first business day after the
day when trading shall have been fully resumed and reporting shall have
been restored; provided that if trading shall not be fully resumed and
reporting restored within three business days of the Valuation Date,
this Agreement may be terminated by either of the Trust or the
Acquiring Trust upon the giving of written notice to the other party.
3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver
to the Acquiring Fund or its designated agent a list of the names and
addresses of the Acquired Fund Shareholders and the number of
outstanding shares of beneficial interest of the Acquired Fund owned by
each Acquired Fund Shareholder, all as of the close of business on the
Valuation Date, certified by the Secretary or Assistant Secretary of
the Trust. The Acquiring Trust will provide to the Acquired Fund
evidence satisfactory to the Acquired Fund that the Acquiring Shares
issuable pursuant to paragraph 1.1 have been credited to the Acquired
Fund's account on the books of the Acquiring Fund. On the Liquidation
Date, the Acquiring Trust will provide to the Acquired Fund evidence
satisfactory to the Acquired Fund that such Acquiring Shares have been
credited pro rata to open accounts in the names of the Acquired Fund
shareholders as provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other such bills of
sale, instruments of assumption of liabilities, checks, assignments,
stock certificates, receipts or other documents as such other party or
its counsel may reasonably request in connection with the transfer of
assets, assumption of liabilities and liquidation contemplated by
paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Trust, on behalf of the Acquired Fund, represents and warrants the
following to the Acquiring Trust and to the Acquiring Fund as of the
date hereof and agrees to confirm the continuing accuracy and
completeness in all material respects of the following on the Closing
Date:
(a) The Trust is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Massachusetts;
(b) The Trust is a duly registered investment company classified as a
management company of the open-end type and its registration with
the Securities and Exchange Commission as an investment company
under the 1940 Act is in full force and effect, and the Acquired
Fund is a separate series thereof duly designated in accordance
with the applicable provisions of the Declaration of Trust of the
Trust and the 1940 Act;
(c) The Trust is not in violation in any material respect of any
provision of its Declaration of Trust or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust is a party or by which the Acquired
Fund is bound, and the execution, delivery and performance of this
Agreement will not result in any such violation;
(d) The Trust has no material contracts or other commitments (other
than this Agreement and such other contracts as may be entered into
in the ordinary course of its business) which if terminated may
result in material liability to the Acquired Fund or under which
(whether or not terminated) any material payments for periods
subsequent to the Closing Date will be due from the Acquired Fund;
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(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or
threatened against the Acquired Fund, any of its properties or
assets, or any person whom the Acquired Fund may be obligated to
indemnify in connection with such litigation, proceeding or
investigation. The Acquired Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions contemplated hereby;
(f) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the
schedule of investments as at and for the two years ended August
31, 1999 of the Acquired Fund, audited by PricewaterhouseCoopers
LLP and the statement of assets, the statement of changes in net
assets and the schedule of investments for the six months ended
February 29, 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
February 29, 2000;
(g) Since February 29, 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-
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assessable by the Acquired Fund and will have been issued in
compliance with all applicable registration or qualification
requirements of federal and state securities laws. No options,
warrants or other rights to subscribe for or purchase, or
securities convertible into, any shares of beneficial interest of
the Acquired Fund are outstanding and none will be outstanding on
the Closing Date (except that Class B shares of the Acquired Fund
convert automatically into Class A shares, as set forth in the
Acquired Fund Prospectus);
(k) The Acquired Fund's investment operations from inception to the
date hereof have been in compliance in all material respects with
the investment policies and investment restrictions set forth in
its prospectus and statement of additional information as in effect
from time to time, except as previously disclosed in writing to the
Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has been
duly authorized by the Trustees of the Trust, and, upon approval
thereof by the required majority of the shareholders of the
Acquired Fund, this Agreement will constitute the valid and
binding obligation of the Acquired Fund enforceable in accordance
with its terms except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable
principles;
(m) The Acquiring Shares to be issued to the Acquired Fund pursuant to
paragraph 1 will not be acquired for the purpose of making any
distribution thereof other than to the Acquired Fund Shareholders
as provided in paragraph 1.3;
(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
February 29, 2000 referred to in Section 4.1(f) hereof, as
supplemented with such changes in the portfolio as the Acquired
Fund shall make, and changes resulting from stock dividends, stock
split-ups, mergers and similar corporate actions through the
Closing Date;
(q) At the Closing Date, the Acquired Fund will have sold such of its
assets, if any, as are necessary to assure that, after giving
effect to the acquisition of the assets of the Acquired Fund
pursuant to this Agreement, the Acquiring Fund will remain a
"diversified company" within the meaning of Section 5(b)(1) of the
1940 Act and in compliance with such other
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mandatory investment restrictions as are set forth in the Acquiring
Fund Prospectus, as amended through the Closing Date; and
(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 August 31, 1999 of the Acquiring Fund, audited
by PricewaterhouseCoopers LLP, and the statement of assets, the
statement of changes in net assets and the schedule of investments
for the six months ended February 29, 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
February 29, 2000;
(h) Since February 29, 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
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purposes of this subparagraph (h), changes in portfolio
securities, changes in the market value of portfolio securities or
net redemptions shall be deemed to be in the ordinary course of
business;
(i) By the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law to have been filed by such
date (giving effect to extensions) shall have been filed, and all
federal and other taxes shown to be due on said returns and
reports shall have been paid so far as due, or provision shall
have been made for the payment thereof, and to the best of the
Acquiring Fund's knowledge no such return is currently under audit
and no assessment has been asserted with respect to such returns;
(j) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as
a regulated investment company;
(k) The authorized capital of the Acquiring Trust consists of an
unlimited number of shares of beneficial interest, no par value,
of such number of different series as the Board of Trustees may
authorize from time to time. The outstanding shares of beneficial
interest in the Acquiring Fund are, and at the Closing Date will
be, divided into Class A shares, Class B shares, Class C shares
and Class Z shares each having the characteristics described in
the Acquiring Fund Prospectus. All 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 and Class B 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.
A-8
<PAGE> 30
6.2 The Trust shall have received a favorable opinion from Ropes & Gray,
counsel to the Acquiring Trust for the transactions contemplated
hereby, dated the Closing Date and, in a form satisfactory to the
Trust, to the following effect:
(a) The Acquiring Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and has
power to own all of its properties and assets and to carry on its
business as presently conducted, and the Acquiring Fund is a
separate series thereof duly constituted in accordance with the
applicable provisions of the 1940 Act and the Declaration of Trust
and By-laws of the Acquiring Trust; (b) this Agreement has been duly
authorized, executed and delivered on behalf of the Acquiring Fund
and, assuming the Prospectus and Registration Statement referred to
in paragraph 5.3 complies with applicable federal securities laws
and assuming the due authorization, execution and delivery of this
Agreement by the Trust on behalf of the Acquired Fund, is the valid
and binding obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights
generally and other equitable principles; (c) the Acquiring Fund has
the power to assume the liabilities to be assumed by it hereunder
and upon consummation of the transactions contemplated hereby the
Acquiring Fund will have duly assumed such liabilities; (d) the
Acquiring Shares to be issued for transfer to the shareholders of
the Acquired Fund as provided by this Agreement are duly authorized
and upon such transfer and delivery will be validly issued and
outstanding and fully paid and nonassessable Class A shares and
Class B shares of beneficial interest in the Acquiring Fund, and no
shareholder of the Acquiring Fund has any preemptive right of
subscription or purchase in respect thereof; (e) the execution and
delivery of this Agreement did not, and the performance by the
Acquiring Trust and the Acquiring Fund of their respective
obligations hereunder will not, violate the Acquiring Trust's
Declaration of Trust or By-laws, or any provision of any agreement
known to such counsel to which the Acquiring Trust or the Acquiring
Fund is a party or by which either of them is bound or, to the
knowledge of such counsel, result in the acceleration of any
obligation or the imposition of any penalty under any agreement,
judgment, or decree to which the Acquiring Trust or the Acquiring
Fund is a party or by which either of them is bound; (f) to the
knowledge of such counsel, no consent, approval, authorization or
order of any court or governmental authority is required for the
consummation by the Acquiring Trust or the Acquiring Fund of the
transactions contemplated by this Agreement except such as may be
required under state securities or "Blue Sky" laws or such as have
been obtained; (g) except as previously disclosed, pursuant to
section 4.2(f) above, such counsel does not know of any legal or
governmental proceedings relating to the Acquiring Trust or the
Acquiring Fund existing on or before the date of mailing of the
Prospectus referred to in paragraph 5.3 or the Closing Date required
to be described in the Registration Statement referred to in
paragraph 5.3 which are not described as required; (h) the Acquiring
Trust is registered with the Securities and Exchange Commission as
an investment company under the 1940 Act; and (i) to the best
knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Acquiring Trust or
the Acquiring Fund or any of their properties or assets and neither
the Acquiring Trust nor the Acquiring Fund is a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its
business.
A-9
<PAGE> 31
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, to the following further conditions:
7.1 The Trust, on behalf of the Acquired Fund, shall have delivered to the
Acquiring Trust a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquiring Trust and dated the Closing
Date, to the effect that the representations and warranties of the
Acquired Fund made in this Agreement are true and correct at and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and that the Trust and the Acquired
Fund have complied with all the covenants and agreements and satisfied
all of the conditions on its part to be performed or satisfied under
this Agreement at or prior to the Closing Date.
7.2 The Acquiring Trust shall have received a favorable opinion from Ropes
& Gray, counsel to the Trust, dated the Closing Date and in a form
satisfactory to the Acquiring Trust, to the following effect:
(a) The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts and has
corporate power to own all of its properties and assets and to carry
on its business as presently conducted, and the Acquired Fund is a
separate series thereof duly constituted in accordance with the
applicable provisions of the 1940 Act and the Declaration of Trust
of the Trust; (b) this Agreement has been duly authorized, executed
and delivered on behalf of the Acquired Fund and, assuming the Proxy
Statement referred to in paragraph 5.3 complies with applicable
federal securities laws and assuming the due authorization,
execution and delivery of this Agreement by the Acquiring Trust on
behalf of the Acquiring Fund, is the valid and binding obligation of
the Acquired Fund enforceable against the Acquired Fund in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles; (c) the Acquired Fund has the power to sell,
assign, transfer and deliver the assets to be transferred by it
hereunder, and, upon consummation of the transactions contemplated
hereby, the Acquired Fund will have duly transferred such assets to
the Acquiring Fund; (d) the execution and delivery of this Agreement
did not, and the performance by the Trust and the Acquired Fund of
their respective obligations hereunder will not, violate the Trust's
Declaration of Trust or By-laws, or any provision of any agreement
known to such counsel to which the Trust or the Acquired Fund is a
party or by which either of them is bound or, to the knowledge of
such counsel, result in the acceleration of any obligation or the
imposition of any penalty under any agreement, judgment, or decree
to which the Trust or the Acquired Fund is a party or by which
either of them is bound; (e) to the knowledge of such counsel, no
consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Trust
or the Acquired Fund of the transactions contemplated by this
Agreement, except such as may be required under state securities or
"Blue Sky" laws or such as have been obtained; (f) such counsel does
not know of any legal or governmental proceedings relating to the
Trust or the Acquired Fund existing on or before the date of mailing
of the Prospectus referred to in paragraph 5.3 or the Closing Date
required to be described in the Registration Statement referred to
in paragraph 5.3 which are not described as required; (g) the Trust
is registered with the Securities and Exchange Commission as an
investment company under the 1940 Act; and (h) to the best knowledge
of such counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or threatened as to the Trust or the Acquired Fund
or any of its properties or assets and neither the Trust nor the
Acquired Fund is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body, which
materially and adversely affects its business.
A-10
<PAGE> 32
7.3 [RESERVED]
7.4 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous dividends,
shall have the effect of distributing all of the Acquired Fund's
investment company taxable income for its taxable years ending on or
after August 31, 2000 and on or prior to the Closing Date (computed
without regard to any deduction for dividends paid), and all of its net
capital gains realized in each of its taxable years ending on or after
August 31, 2000 and on or prior to the Closing Date.
7.5 The Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer of the Trust, as to the adjusted tax basis in the hands of
the Acquired Fund of the securities delivered to the Acquiring Fund
pursuant to this Agreement.
7.6 The custodian of the Acquired Fund shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the
Acquired Fund held by such custodian as of the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE
ACQUIRING FUND AND THE ACQUIRED FUND.
The respective obligations of the Trust and the Acquiring Trust hereunder
are each subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the vote of the required majority of the holders of the
outstanding shares of the Acquired Fund of record on the record date
for the meeting of its shareholders referred to in paragraph 5.2.
8.2 On the Closing Date no action, suit or other preceding shall be pending
before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated hereby.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including
those of the Securities and Exchange Commission and of state Blue Sky
and securities authorities) deemed necessary by the Trust or the
Acquiring Trust to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except
where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties
of the Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement referred to in paragraph 5.3 shall have
become effective under the 1933 Act and no stop order suspending the
effectiveness thereof shall have been issued and, to the best knowledge
of the parties hereto, no investigation or proceeding for that purpose
shall have been instituted or be pending, threatened or contemplated
under the 1933 Act.
8.5 The Trust shall have received a favorable opinion of Ropes & Gray
satisfactory to the Trust and the Acquiring Trust shall have received a
favorable opinion of Ropes & Gray satisfactory to the Acquiring Trust,
each substantially to the effect that, for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of the assets of the Acquired
Fund in exchange for the Acquiring Fund's assumption of the
Obligations of the Acquired Fund and issuance of the Acquiring
Shares, followed by the distribution by the Acquired Fund of such
the Acquiring Shares to the shareholders of the Acquired Fund in
exchange for their shares of the Acquired Fund, all as provided in
paragraph 1 hereof, will constitute a reorganization within the
meaning of Section 368(a) of the Code, and the Acquired Fund and the
Acquiring Fund will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund (i) upon the
transfer of its assets to the Acquiring Fund in exchange for the
Acquiring Shares or (ii) upon the distribution of the Acquiring
Shares to the shareholders of the Acquired Fund as contemplated in
paragraph 1 hereof;
A-11
<PAGE> 33
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the
assumption of the Obligations and issuance of the Acquiring Shares
as contemplated in paragraph 1 hereof;
(d) The tax basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be the same as the basis of those assets in the
hands of the Acquired Fund immediately prior to the transfer, and
the holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will include the period during which those
assets were held by the Acquired Fund;
(e) The shareholders of the Acquired Fund will recognize no gain or loss
upon the exchange of their shares of the Acquired Fund for the
Acquiring Shares;
(f) The tax basis of the Acquiring Shares to be received by each
shareholder of the Acquired Fund will be the same in the aggregate
as the aggregate tax basis of the shares of the Acquired Fund
surrendered in exchange therefor;
(g) The holding period of the Acquiring Shares to be received by each
shareholder of the Acquired Fund will include the period during
which the shares of the Acquired Fund surrendered in exchange
therefor were held by such shareholder, provided such shares of the
Acquired Fund were held as a capital asset on the date of the
exchange; and
(h) The Acquiring Fund will succeed to and take into account the items
of Acquired Fund described in Section 381(c) of the Code, subject to
the conditions and limitations specified in Sections 381, 382, 383
and 384 of the Code and the regulations thereunder.
8.6 At any time prior to the Closing, any of the foregoing conditions of
this Agreement may be waived jointly by the Board of Trustees of the
Trust and the Board of Trustees of the Acquiring Trust if, in their
judgment, such waiver will not have a material adverse effect on the
interests of the shareholders of the Acquired Fund and the Acquiring
Fund.
9. BROKERAGE FEES AND EXPENSES.
9.1 The Trust, on behalf of the Acquired Fund, and the Acquiring Trust, on
behalf of the Acquiring Fund, each represents and warrants to the other
that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 The Acquiring Trust, on behalf of the Acquiring Fund, shall pay all
fees paid to governmental authorities for the registration or
qualification of the Acquiring Shares. All of the other out-of-pocket
expenses (other than tabulation costs which will be borne in their
entirety by Liberty Financial) of the transactions contemplated by this
Agreement shall be borne as follows: (a) as to expenses allocable to
the Trust, on behalf of the Acquired Fund, seventy-five percent (75%)
of such expenses shall be borne by the Trust, on behalf of the Acquired
Fund, and twenty-five percent (25%) of such expenses shall be borne by
Liberty Financial; and (b) as to expenses allocable to the Acquiring
Trust, on behalf of the Acquiring Fund, all such expenses shall be
borne by Liberty Financial. The foregoing sentence shall be subject,
however, to any undertaking by Liberty Financial to Liberty Funds Trust
I, II, III, IV, V, VI, VII and IX (or any of their series)
(collectively, the "Liberty Trusts") to limit the aggregate expenses
(other than fees paid to governmental authorities for the registration
or qualification of shares of the Liberty Trusts) of the transactions
contemplated by this Agreement and other transactions involving the
Liberty Trusts.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 The Trust on behalf of the Acquired Fund and the Acquiring Trust on
behalf of the Acquiring Fund agree that neither party has made any
representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
A-12
<PAGE> 34
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in
connection herewith shall not survive the consummation of the
transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5,
1.6, 5.4, 9, 10, 13 and 14.
11. TERMINATION.
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and the Trust. In addition, either the Acquiring Trust
or the Trust may at its option terminate this Agreement at or prior to
the Closing Date because:
(a) Of a material breach by the other of any representation, warranty,
covenant or agreement contained herein to be performed by the other
party at or prior to the Closing Date;
(b) A condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears
that it will not or cannot be met; or
(c) If the transactions contemplated by this Agreement have not been
substantially completed by May 31, 2001 this Agreement shall
automatically terminate on that date unless a later date is agreed
to by both the Trust and the Acquiring Trust.
11.2 If for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to any other party for any
damages resulting therefrom, including without limitation
consequential damages.
12. AMENDMENTS.
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the Trust
on behalf of the Acquired Fund and the Acquiring Trust on behalf of the
Acquiring Fund; provided, however, that following the shareholders' meeting
called by the Acquired Fund pursuant to paragraph 5.2 no such amendment may have
the effect of changing the provisions for determining the number of the
Acquiring Shares to be issued to shareholders of the Acquired Fund under this
Agreement to the detriment of such shareholders without their further approval.
13. NOTICES.
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to: Liberty Funds Trust II, One
Financial Center, Boston, Massachusetts 02111, Attention: Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
NON-RECOURSE.
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of The Commonwealth of Massachusetts,
without giving effect to any choice or conflicts of law rule or
provision that would result in the application of the domestic
substantive laws of any other jurisdiction.
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,
A-13
<PAGE> 35
other than the parties hereto and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
14.5 A copy of the Declaration of Trust of the Trust and Acquiring Trust is
on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that no trustee, officer,
agent or employee of either the Trust or the Acquiring Trust shall
have any personal liability under this Agreement, and that this
Agreement is binding only upon the assets and properties of the
Acquired Fund and the Acquiring Fund.
A-14
<PAGE> 36
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as a sealed instrument by its President or Vice President and its
corporate seal to be affixed thereto and attested by its Secretary or Assistant
Secretary.
LIBERTY FUNDS TRUST II,
on behalf of Liberty Short Term
Government Fund
By:
------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
LIBERTY FUNDS TRUST II,
on behalf of Liberty Intermediate
Government Fund
By:
------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
A-15
<PAGE> 37
Solely for purposes of Section 9.2 of
the Agreement:
LIBERTY FINANCIAL COMPANIES, INC.
By:
------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ATTEST:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
A-16
<PAGE> 38
APPENDIX B
FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE SHORT TERM FUND AND TRUST II AND
SHARES OUTSTANDING OF THE INTERMEDIATE FUND
For each class of the Short Term Fund's shares and Trust II's shares
entitled to vote at the Meeting, and for each class of the Intermediate Fund's
shares, the number of shares outstanding as of September 29, 2000 was as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OUTSTANDING AND
FUND OR TRUST CLASS ENTITLED TO VOTE
------------- ----- ----------------
<S> <C> <C>
SHORT TERM FUND.............................. A 1,102,216
B 819,067
C 390,705
TRUST II..................................... 431,833,211
INTERMEDIATE FUND............................ A 76,405,556
B 26,876,142
C 307,789
Z 966,002
</TABLE>
OWNERSHIP OF SHARES
As of September 29, 2000, Trust II believes that the Trustees and officers
of the Trust, as a group, owned less than one percent of each class of shares of
each Fund and of the Trust as a whole. As of September 29, 2000, the following
shareholders of record owned 5% or more of the outstanding shares of the noted
class of shares of the noted Fund:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OF CLASS SHARES OF CLASS
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER OWNED OWNED
-------------- ------------------------------- --------------- ---------------
<S> <C> <C> <C>
SHORT TERM FUND
CLASS A............ Enele Co 78,263.066 7.10%
FBO #20 6051
c/o Copper Mountain Trust
601 SW Second Avenue, Ste. 1800
Portland, Oregon 97204
CLASS B............ Merrill Lynch Pierce Fenner & 49,110.799 6.00%
Smith
For the Sole Benefit of its
Customers
Attn: Fund Administration #97AX6
4800 Deer Lake Drive E. 3rd Floor
Jacksonville, FL 32246-6484
CLASS C............ Merrill Lynch Pierce Fenner & 24,494.715 6.27%
Smith
For the Sole Benefit of its
Customers
Attn: Fund Administration #97AX6
4800 Deer Lake Drive E. 3rd Floor
Jacksonville, FL 32246-6484
USB Piper Jaffray Custodian 28,235.759 7.23%
222 So 9th Street
Minneapolis, MN 55402
</TABLE>
B-1
<PAGE> 39
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OF CLASS SHARES OF CLASS
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER OWNED OWNED
-------------- ------------------------------- --------------- ---------------
<S> <C> <C> <C>
INTERMEDIATE FUND
CLASS B............ Merrill Lynch Pierce Fenner & 1,950,512.625 7.26%
Smith
For the Sole Benefit of its
Customers
Attn: Fund Administration #97E96
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Merrill Lynch Pierce Fenner & 38,210.617 12.45%
Smith
For the Sole Benefit of its
Customers
Attn: Fund Administration #97E96
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Cynthia D. Frankel 17,236.089 5.60%
P.O. Box 25003
Asheville, NC 28813
The Reese Family Partnership 16,307.041 5.30%
17317 Wood Road
Bow, WA 98232
CLASS Z............ Colonial Counselor Income 333,593.438 34.53%
Portfolio
c/o Christie McCullough
245 Summer Street
Boston, MA 02111
Colonial Counselor Balanced 632,244.524 65.45%
Portfolio
c/o Christie McCullough
245 Summer Street
Boston, MA 02111
</TABLE>
OWNERSHIP OF SHARES UPON CONSUMMATION OF ACQUISITION
As of September 29, 2000, the shareholders of record that owned 5% or more
of the outstanding shares of the noted class of shares of the noted Fund would
own the following percentage of the Intermediate 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 ACQUISITIONS
-------------- ------------------------------- --------------------------
<S> <C> <C>
SHORT TERM FUND
CLASS A............ Enele Co 0.16%
FBO #20 6051
c/o Copper Mountain Trust
601 SW Second Avenue, Ste. 1800
Portland, OR 97204
</TABLE>
B-2
<PAGE> 40
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES OF CLASS OWNED UPON
CONSUMMATION OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER ACQUISITIONS
-------------- ------------------------------- --------------------------
<S> <C> <C>
CLASS B............ Merrill Lynch Pierce Fenner & Smith 0.27%
For the Sole Benefit of its Customers
Attn: Fund Administration #97AX6
4800 Deer Lake Drive E. 3rd Floor
Jacksonville, FL 32246-6484
CLASS C............ Merrill Lynch Pierce Fenner & Smith 0.05%
For the Sole Benefit of its Customers
Attn: Fund Administration #97AX6
4800 Deer Lake Drive E. 3rd Floor
Jacksonville, FL 32246-6484
USB Piper Jaffray Custodian 0.06%
222 So. 9th Street
Minneapolis, MN 55402
INTERMEDIATE FUND
CLASS B............ Merrill Lynch Pierce Fenner & Smith 6.94%
For the Sole Benefit of its Customers
Attn: Fund Administration #97E96
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
CLASS C............ Merrill Lynch Pierce Fenner & Smith 4.20%
For the Sole Benefit of its Customers
Attn: Fund Administration #97E96
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
Cynthia D. Frankel 1.90%
P.O. Box 25003
Asheville, NC 28813
The Reese Family Partnership 1.79%
17317 Wood Road
Bow, WA 98232
CLASS Z............ Colonial Counselor Income 34.53%
Portfolio
c/o Christie McCullough
245 Summer Street
Boston, MA 02111
Colonial Counselor Balanced 65.45%
Portfolio
c/o Christie McCullough
245 Summer Street
Boston, MA 02111
</TABLE>
B-3
<PAGE> 41
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.)
</TABLE>
B-4
<PAGE> 42
<TABLE>
<CAPTION>
YEAR OF
ELECTION
EXECUTIVE OFFICER AS EXECUTIVE
NAME & AGE OFFICE AND PRINCIPAL OCCUPATION* OFFICER
----------------- -------------------------------- ------------
<S> <C> <C>
William J. Ballou.................... Assistant Secretary of the Stein Roe 2000
(35) Mutual Funds since May 2000;
Secretary of the Liberty Mutual Funds
since October 2000 (formerly
Assistant Secretary of the Liberty
Mutual Funds from October 1997 to
October 2000); Vice President,
Assistant Secretary and Counsel of
Colonial since October 1997; Vice
President and Counsel since April
2000, and Assistant Secretary since
December 1998 of LFG; Associate
Counsel, Massachusetts Financial
Services Company (financial services
provider) prior thereto.
Kevin M. Carome...................... Executive Vice President of the 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-5
<PAGE> 43
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>
SHORT TERM FUND INTERMEDIATE FUND
TRUSTEE 8/31/00 8/31/00
------- --------------- -----------------
<S> <C> <C>
Mr. Bleasdale........................................ $617(2) $3,484(3)
Ms. Collins.......................................... 560 3,162
Mr. Grinnell......................................... 589 3,327
Mr. Lowry............................................ 576 3,253
Mr. Macera........................................... 564 3,182
Mr. Mayer............................................ 583 3,296
Mr. Moody............................................ 587(4) 3,312(5)
Mr. Neuhauser........................................ 591 3,333
Mr. Stitzel.......................................... 564 3,183
Ms. Verville......................................... 568(6) 3,206(7)
</TABLE>
The following table sets forth the total compensation paid to each Trustee
by the Liberty Mutual Funds for the calendar year ended December 31, 1999.
<TABLE>
<CAPTION>
TRUSTEE TOTAL COMPENSATION
------- ------------------
<S> <C>
Mr. Bleasdale............................................. $103,000(8)
Ms. Collins............................................... 96,000
Mr. Grinnell.............................................. 100,000
Mr. Lowry................................................. 97,000
Mr. Macera................................................ 95,000
Mr. Mayer................................................. 101,000
Mr. Moody................................................. 91,000(9)
Mr. Neuhauser............................................. 101,252
Mr. Stitzel............................................... 95,000
Ms. Verville.............................................. 96,000(10)
</TABLE>
For the calendar year ended December 31, 1999, certain of the Trustees
received the following compensation in their capacities as Trustees or Directors
of the Liberty All-Star Equity Fund, the Liberty All-Star Growth Fund, Inc. and
Liberty Funds Trust IX (together, the "Liberty All-Star Funds"):
<TABLE>
<CAPTION>
TRUSTEE TOTAL COMPENSATION(11)
------- ----------------------
<S> <C>
Mr. Grinnell........................................... $25,000
Mr. Lowry.............................................. 25,000
Mr. Mayer.............................................. 25,000
Mr. Neuhauser.......................................... 25,000
</TABLE>
---------------
(1) The Liberty Mutual Funds do not currently provide pension or retirement
plan benefits to the Trustees.
(2) Includes $306 payable in later years as deferred compensation.
(3) Includes $1,752 payable in later years as deferred compensation.
(4) Total compensation of $587 for the fiscal year ended August 31, 2000 will
be payable in later years as deferred compensation.
(5) Total compensation of $3,312 for the fiscal year ended August 31, 2000 will
be payable in later years as deferred compensation.
(6) Total compensation of $568 for the fiscal year ended August 31, 2000 will
be payable in later years as deferred compensation.
(7) Total compensation of $3,206 for the fiscal year ended August 31, 2000 will
be payable in later years as deferred compensation.
(8) Includes $52,000 payable in later years as deferred compensation.
(9) Total compensation of $91,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(10) Total compensation of $96,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(11) The Liberty All-Star Funds are advised by Liberty Asset Management Company
("LAMCO"). LAMCO is an indirect wholly-owned subsidiary of Liberty
Financial.
B-6
<PAGE> 44
APPENDIX C
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of the
Short Term Fund and the Intermediate 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 Short Term Fund by the Intermediate Fund at net asset value
as of that date (all amounts shown in thousands except per share information):
<TABLE>
<CAPTION>
INTERMEDIATE
INTERMEDIATE FUND
SHORT TERM FUND PRO FORMA PRO FORMA
FUND (ACQUIRING FUND) ADJUSTMENTS(1) COMBINED(2)
---------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Class A
Net asset value........................ $ 10,548 $ 489,678 $(14) $504,488
Shares outstanding..................... 1,091 77,730 818 80,081
Net asset value per share.............. $ 9.67 $ 6.30 $ 6.30
Class B
Net asset value........................ $ 7,770 $ 151,650 $(10) $159,410
Shares outstanding..................... 804 24,072 428 25,304
Net asset value per share.............. $ 9.67 $ 6.30 $ 6.30
Class C
Net asset value........................ $ 4,276 $ 1,941 $ (6) $ 1,941
Shares outstanding..................... 442(3) 308 0 308
Net asset value per share.............. $ 9.67 $ 6.30 $ 6.30
Class Z
Net asset value........................ $ 6,116 $ 6,116
Shares outstanding..................... 971 0 971
Net asset value per share.............. $ 6.30 $ 6.30
</TABLE>
---------------
(1) Adjustments reflect estimated one time proxy, accounting, legal and other
costs of the reorganization of $29,854 and $0 to be borne by the Short Term
Fund and the Intermediate 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 Intermediate Fund will be received by the shareholders of the Short
Term Fund on the date the Acquisition takes place, and the foregoing should
not be relied upon to reflect the number of shares of the Intermediate Fund
that actually will be received on or after such date.
(3) Class C shareholders of the Short Term Fund will receive Class A shares of
the Intermediate Fund.
C-1
<PAGE> 45
LIBERTY FUNDS TRUST II
LIBERTY INTERMEDIATE GOVERNMENT 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 Short Term Government
Fund (the "Acquired Fund"), a series of Liberty Funds Trust II, by the Liberty
Intermediate government Fund (the "Acquiring Fund"), a series of Liberty Funds
Trust II.
This SAI contains information which may be of interest to shareholders
but which is not included in the Prospectus/Proxy Statement dated November 17,
2000 (the "Prospectus/Proxy Statement") of the Acquiring Fund which relates to
the Acquisition. As described in the Prospectus/Proxy Statement, the Acquisition
would involve the transfer of all the assets of the Acquired Fund in exchange
for shares of the Acquiring Fund and the assumption of all the liabilities of
the Acquired Fund. The Acquired Fund would distribute the Acquiring Fund shares
it receives to its shareholders in complete liquidation of the Acquired Fund.
This SAI is not a prospectus and should be read in conjunction with the
Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed with
the Securities and Exchange Commission and is available upon request and without
charge by writing to your Fund at One Financial Center, Boston, Massachusetts
02111-2621, or by calling 1-800-426-3750.
Table of Contents
<TABLE>
<S> <C> <C>
I. Additional Information about the Acquiring Fund and the Acquired Fund.. 2
II. Financial Statements................................................... 2
</TABLE>
<PAGE> 46
I. Additional Information about the Acquiring Fund and the Acquired Fund.
Incorporated by reference to Post-Effective Amendment No. 44 to the
Registrant's Registration Statement Form N-1A (filed on December 22, 1999)
(Registration Nos. 2-66976 and 811-3009).
II. Financial Statements.
This SAI is accompanied by the Annual Reports for the year ended August
31, 2000 of the Acquiring Fund and Acquired Fund, which contain historical
financial information regarding such Funds. Such reports have been filed with
the Securities and Exchange Commission and are incorporated herein by reference.
-2-
<PAGE> 47
[Liberty Logo] LIBERTY
LIBERTY FUNDS SERVICES, INC.
LIBERTY SHORT-TERM GOVERNMENT 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 Short-Term Government Fund
by Liberty Intermediate Government Fund (Item 1 of the Notice).
For Against Abstain
[ ] [ ] [ ]
2. To elect eleven Trustees (Item 2 of the Notice).
(01) Douglas A. Hacker
(02) Janet Langford Kelly
(03) Richard W. Lowry
(04) Salvatore Macera
(05) William E. Mayer
(06) Charles R. Nelson
(07) John J. Neuhauser
(08) Joseph R. Palombo
(09) Thomas E. Stitzel
(10) Thomas C. Theobald
(11) Anne-Lee Verville
For
All For All
Nominees Withheld Except
[ ] [ ] [ ]
Instruction: To withhold authority to vote for any individual
nominee(s), mark the "For All Except" box and strike a line through the
name(s) of the nominee(s). Your shares will be voted for the remaining
nominee(s).
MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE. Please sign exactly as name or names appear hereon.
Joint owners should each sign personally. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Date_________________
_________________________ ________________________
Shareholder sign here Co-owner sign here
Detach Card
<PAGE> 48
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> 49
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
