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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
THE CRABBE HUSON FUNDS AND THE CRABBE HUSON SPECIAL FUND, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: Set forth the amount on which the
filing fee is calculated and state how it was determined.
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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August 17, 1998
YOUR PROXY IS ENCLOSED
Dear Fellow Shareholder:
Enclosed is notice of a special meeting of Crabbe Huson Funds shareholders.
The meeting is being called for the purpose of voting on the reorganization of
each fund into a business trust that will have services provided under contracts
with affiliates of Liberty Financial Companies, Inc. Following the
reorganization, your fund will continue to be operated with substantially the
same investment policies and objectives. The Board of Trustees of your fund has
approved the reorganization and recommends that shareholders vote in its favor.
The Board has recommended the transaction for several reasons. Liberty
Financial is an integrated company that offers its investors a wide array of
brand-name financial products, many of which become immediately available to you
as a Crabbe Huson Funds shareholder. Liberty Financial maintains a significant
presence in the mutual fund industry. The Board of your fund believes that
Liberty has the tools necessary to help broaden the distribution of the funds to
new investors, translating into new efficiencies, cost savings and economies of
scale for the funds' investors.
At the close of the transaction, the Crabbe Huson Group will become an
independent operating subsidiary of Liberty Financial, and will continue to act
as investment adviser to the funds. The firm will remain headquartered in
Portland, Oregon, where I will serve as president and chief investment officer.
My co-founder, Dick Huson, will retire from active involvement in the firm. Dick
and I will become substantial holders of stock in Liberty Financial, and a
significant portion of the cash proceeds from the transaction will be invested
in Crabbe Huson Funds.
I encourage you to review the enclosed materials for all the details. You
should know that, if approved, the proposed reorganization will not affect the
value of your account or result in your paying any sales charge.
The Board believes this transaction is worthy of your confidence and urges
you to vote your proxy IN FAVOR of the funds' reorganization. Please complete
the enclosed proxy and return it as soon as possible in the envelope provided.
TO ENSURE THAT ALL YOUR VOTES ARE COUNTED, YOU MUST VOTE, SIGN, AND RETURN EACH
PROXY CARD YOU RECEIVE.
If you have any questions regarding the reorganization, you may contact D.F.
King & Co., our proxy solicitor, at (800) 848-3374 or our Investor Services
Center at (888) 256-2436. Representatives are available every business day from
6:30 a.m. to 5 p.m., Pacific time.
Best regards,
James E. Crabbe
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THE CRABBE HUSON SPECIAL FUND, INC. (THE "SPECIAL FUND")
CRABBE HUSON SMALL CAP FUND (THE "SMALL CAP FUND")
CRABBE HUSON REAL ESTATE INVESTMENT FUND (THE "REAL ESTATE INVESTMENT FUND")
CRABBE HUSON EQUITY FUND (THE "EQUITY FUND")
CRABBE HUSON ASSET ALLOCATION FUND (THE "ASSET ALLOCATION FUND")
CRABBE HUSON OREGON TAX-FREE FUND (THE "OREGON TAX-FREE FUND")
CRABBE HUSON INCOME FUND (THE "INCOME FUND")
(COLLECTIVELY, THE "FUNDS")
121 S.W. MORRISON, SUITE 1425
PORTLAND, OREGON 97204
NOTICE OF JOINT SPECIAL MEETING
A special meeting of the shareholders of The Crabbe Huson Special Fund,
Inc., Crabbe Huson Small Cap Fund, Crabbe Huson Real Estate Investment Fund,
Crabbe Huson Equity Fund, Inc., Crabbe Huson Asset Allocation Fund, Crabbe Huson
Oregon Tax-Free Fund and Crabbe Huson Income Fund (individually, a "Fund" and,
collectively, the "Funds") will be held jointly at 3:00 p.m. Pacific Time, on
September 30, 1998 at The Benson Hotel, 309 S.W. Broadway, Portland, Oregon for
the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization for
each Fund. Under each Agreement and Plan of Reorganization, (i) all of the
assets and liabilities of each Fund would be transferred to a new series of
Colonial Trust III, a Massachusetts business trust (the "Trust"); (ii)
shareholders of each Fund would receive an equal amount of shares in the
corresponding series of the Trust in exchange for their shares of the Fund; and
(iii) each Fund would then be liquidated and dissolved.
(2) To transact any other business that may properly be presented at the
meeting or any adjournment of the meeting.
All shareholders are invited to attend the meeting. Shareholders of record
at the close of business on August 4, 1998, the record date fixed by the Board
of Directors of the Special Fund and the Boards of Trustees of the other Funds,
are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
of the Special Fund and the
Board of Trustees of each other Fund
August 18, 1998 Craig P. Stuvland, SECRETARY
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YOUR VOTE IS IMPORTANT
PLEASE RETURN YOUR PROXY CARD
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WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. A SHAREHOLDER WHO
COMPLETES AND RETURNS THE PROXY CARD AND SUBSEQUENTLY ATTENDS THE MEETING MAY
ELECT TO VOTE IN PERSON, SINCE A PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED.
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THE CRABBE HUSON SPECIAL FUND, INC. (THE "SPECIAL FUND")
CRABBE HUSON SMALL CAP FUND (THE "SMALL CAP FUND")
CRABBE HUSON REAL ESTATE INVESTMENT FUND (THE "REAL ESTATE INVESTMENT FUND")
CRABBE HUSON EQUITY FUND (THE "EQUITY FUND")
CRABBE HUSON ASSET ALLOCATION FUND (THE "ASSET ALLOCATION FUND")
CRABBE HUSON OREGON TAX-FREE FUND (THE "OREGON TAX-FREE FUND")
CRABBE HUSON INCOME FUND (THE "INCOME FUND")
(COLLECTIVELY, THE "FUNDS")
121 S.W. MORRISON, SUITE 1425
PORTLAND, OREGON 97204
JOINT PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of the Special
Fund and the Board of Trustees of each of the Small Cap Fund, the Real Estate
Investment Fund, the Equity Fund, the Asset Allocation Fund, the Oregon Tax-Free
Fund and the Income Fund for use at the joint special meeting of shareholders to
be held at The Benson Hotel, 309 S.W. Broadway, Portland, Oregon at 3:00 p.m.,
Pacific Time, on September 30, 1998 and at any adjournment thereof. The Funds
expect to mail this proxy statement and the proxy card to shareholders on or
about August 18, 1998.
A holder of record of common stock of the Funds at the close of business on
August 4, 1998 (the "Record Date") will be entitled to vote at the joint special
meeting in person or by proxy. Shares represented at the meeting by duly
executed proxies will be voted in accordance with the instructions contained in
such proxies. If no instruction is given with respect to a particular matter,
shares will be voted in accordance with the recommendation of the
Trustees/Directors. Proxies may be revoked at any time before they are exercised
by a written revocation received by the Secretary of the Funds, by properly
executing a later dated proxy card or by attending the meeting and voting in
person.
If you are a shareholder of more than one Fund, you will receive this proxy
statement and a separate proxy card for each Fund. Please complete, sign and
return all proxy cards promptly in the postage prepaid envelope. In the
alternative, you may vote by fax through D.F. King & Co., our proxy solicitor.
To vote by fax, complete and sign the proxy card and fax BOTH SIDES to D.F. King
at (212) 269-2796. PLEASE VOTE, SIGN AND RETURN EACH
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PROXY CARD YOU RECEIVE TO ENSURE THAT ALL YOUR VOTES ARE COUNTED.
If you have any questions or would like more information about the matters
discussed in this proxy statement, please call our proxy solicitor, D.F. King &
Co., toll-free at 1-800-848-3374 or our investor service center at (888)
256-2436.
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INTRODUCTION
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The Crabbe Huson Group, Inc. (the "Crabbe Huson Group"), LFC Acquisition Corp.
(the "Acquisition Corp."), Liberty Financial Companies, Inc. ("Liberty") and
certain shareholders of the Crabbe Huson Group have entered into an agreement,
dated as of June 10, 1998 (the "Purchase Agreement"), providing for the sale of
substantially all of the assets of the Crabbe Huson Group's mutual fund advisory
business to Acquisition Corp. (the "Acquisition"). Under the Purchase Agreement,
Acquisition Corp. would be renamed "The Crabbe Huson Group, Inc." and would
continue to provide investment advisory services to each Fund, following the
same investment strategies and objectives currently in place. Various Liberty
affiliates would provide the administrative services for each Fund. In addition,
the Funds would enter into new agreements with affiliates of Liberty for the
provision of distribution, transfer agency and other services.
The Purchase Agreement contemplates a reorganization of the Funds (the
"Reorganization"). The Reorganization would result, in substance, in each Fund
becoming a series of Colonial Trust III (the "Trust"), an investment company
organized as a Massachusetts business trust.
At a joint special meeting of the Board of Directors of the Special Fund and
the Board of Trustees of the other Funds held on July 17, 1998, the
Directors/Trustees of each Fund, including the disinterested Directors/Trustees,
unanimously approved the Reorganization and determined to recommend to the
shareholders of each Fund that they approve an Agreement and Plan of
Reorganization for each Fund (the "Plans").
This proxy statement seeks the approval or disapproval of the Reorganization
by the shareholders of each of the Funds. It is a condition to the obligations
of the Crabbe Huson Group, Acquisition Corp. and Liberty to complete the
Acquisition (which condition may be waived) that the shareholders of each Fund
approve the Reorganization. If shareholder approval of the Reorganization of a
Fund is not obtained, the existing investment advisory contracts and
distribution plans for that Fund would remain in effect and the current
directors/trustees of that Fund would continue to serve until further notice.
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The Directors/Trustees believe that the new arrangements are in the best
interests of the shareholders of the Funds and recommend that the shareholders
of each Fund vote "FOR" the Reorganization.
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THE ACQUISITION
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BACKGROUND
The Crabbe Huson Group began discussions in the spring of 1998 regarding the
sale of the Crabbe Huson Group's investment advisory business, including its
mutual fund management business, to Liberty or one of its affiliates. The Crabbe
Huson Group's principal goal in considering the possible sale of its investment
advisory business was to find a way to focus on its core business of investment
management, while assuring that high quality shareholder servicing and other
administrative functions were maintained. A secondary goal was to achieve
liquidity in order to permit Dick Huson, one of the Crabbe Huson Group's
principal shareholders, to withdraw his equity from the Crabbe Huson Group.
Discussions culminated in the execution of the Purchase Agreement on June 10,
1998.
Liberty is a publicly traded, diversified asset management organization
headquartered in Boston, Massachusetts. Through its affiliates, it provides
fixed, indexed and variable annuities, mutual funds, private wealth management
and institutional money management services. At the end of its last fiscal year,
it had assets under management in excess of $51 billion. Affiliates of Liberty,
including Colonial Management Associates, Inc. ("Colonial"), Stein Roe & Farnham
Incorporated and Newport Pacific Management, Inc., act as investment advisors to
more than 75 mutual funds.
The Crabbe Huson Group and Liberty believe that the proposed transaction
will result in an allocation of resources between them that should benefit the
shareholders of the Funds. Liberty has the size and resources to provide
efficient administration, shareholder servicing and legal support to mutual
funds, and effective promotion and sales of mutual fund shares. Liberty believes
that, by utilizing its management, distribution, compliance and legal resources,
it can enhance the quality of shareholder services, introduce operational
efficiencies and create an opportunity to achieve economies of scale.
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Current primary class shareholders of the Funds will have expanded investment
options because they will be allowed to exchange their shares in the New Crabbe
Huson Funds for shares of 35 other mutual funds managed by Liberty affiliates at
net asset value; that is, without an initial sales charge. The parties to the
Purchase Agreement believe that the management and distribution strength of
Liberty and its affiliates will allow the the Crabbe Huson Group to concentrate
on portfolio management for the Funds, which it will continue to perform
following the Acquisition.
SUMMARY OF THE PURCHASE AGREEMENT
The Purchase Agreement provides that, upon the closing of the Acquisition,
the Crabbe Huson Group will transfer to Acquisition Corp. substantially all of
its assets, including the ownership of the name "Crabbe Huson." Acquisition
Corp. will assume certain of the Crabbe Huson Group's contractual obligations
and will pay Crabbe Huson Group a purchase price of $96 million (subject to
adjustment in the event of changes in excess of 10 percent in Crabbe Huson's
annualized advisory fee revenues between June 10, 1998 and the closing), 10
percent of which is payable in shares of common stock of Liberty and the balance
of which is payable in cash. Additional purchase price amounts, up to a maximum
of $51.5 million in the aggregate, will be payable to the Crabbe Huson Group if
Acquisition Corp. meets certain earnings targets during the five years following
closing. Ten percent of any such additional contingent purchase price payments
would likewise be payable in shares of Liberty common stock and the balance in
cash.
Acquisition Corp. will enter into an employment contract with James Crabbe
and certain other key employees of the Crabbe Huson Group. Mr. Crabbe will agree
to remain an employee of Acquisition Corp. for a period of five years. The
Purchase Agreement provides that Mr. Crabbe will invest substantial sums in the
New Crabbe Huson Funds (or other funds sponsored by Liberty) following closing
of the Acquisition, and will maintain the investment for approximately five
years following the closing.
Acquisition Corp. has agreed to implement and fund a transition incentive
compensation plan providing for incentive compensation to employees of
Acquisition Corp. of up to a maximum of $12.5 million in the aggregate, based on
Acquisition Corp.'s earnings during the five years following closing. The
closing of the Acquisition is presently scheduled for September 30, 1998
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(immediately following the conclusion of the joint special shareholders meeting)
subject to satisfaction of conditions to closing that include, among other
things, the execution of an employment agreement with Mr. Crabbe. The Purchase
Agreement may be terminated at any time prior to the closing by the mutual
written consent of the parties, or if the conditions to closing have not been
satisfied or waived by December 31, 1998.
Liberty has agreed to bear the cost of preparing, printing and mailing the
proxy materials for the meeting of the shareholders of the Funds.
COMPLIANCE WITH SECTION 15(f) OF THE INVESTMENT COMPANY ACT OF 1940
Section 15(f) of the Investment Company Act of 1940 (the "1940 Act")
provides that an investment adviser to a registered investment company may
receive any amount or benefit in connection with a sale of an interest in such
adviser which results in an assignment of an investment advisory contract if two
conditions are satisfied. The first condition is that, for a period of three
years after such assignment, at least 75% of the board of directors of the
investment company not be "interested persons" (as defined in the 1940 Act) of
the new investment adviser or its predecessor. The second condition is that no
"unfair burden" be imposed on the investment company as a result of the
assignment or any express or implied terms, conditions or undertakings
applicable thereto. An "unfair burden" on an investment company exists if,
during the two-year period after any such transaction occurs, the investment
adviser or its predecessor or successor, or any interested person of such
adviser, predecessor or successor, receives or is entitled to receive any
compensation from any person in connection with the purchase or sale of
securities or other property from or on behalf of the investment company, or
from the investment company or its shareholders, other than for bona fide
underwriting, investment advisory or other services.
Acquisition Corp. has agreed to assure, to the extent within its control,
that both conditions of Section 15(f) are satisfied. The current Board of
Trustees of the Trust consists of nine individuals, none of whom are "interested
persons" of the Crabbe Huson Group and one of whom is an interested person of
Acquisition Corp. The Board of Trustees of the Trust has nominated four
additional persons to the Board of Trustees, subject to the approval of the
existing shareholders of the Trust. None of the additional nominees are
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interested persons of the Crabbe Huson Group and one of the additional nominees
is an interested person of Acquisition Corp.
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THE REORGANIZATION
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PROCEDURE FOR REORGANIZATION
If approved by the shareholders of the Funds, the Reorganization of the
Special Fund, the Real Estate Investment Fund, the Oregon Tax-Free Fund and the
Income Fund will occur as follows:
- The Special Fund, the Real Estate Investment Fund, the Oregon Tax-Free
Fund and the Income Fund will transfer all of their portfolio securities
and other assets to the New Crabbe Huson Funds.
- The New Crabbe Huson Funds, in exchange for those Funds' assets, will
assume all the liabilities of those Funds.
- The New Crabbe Huson Funds will issue to each such Fund a number of full
and fractional Class A shares of beneficial interest in the corresponding
series of the New Crabbe Huson Funds equal to the number of shares of that
Fund then outstanding.
- Each such Fund will distribute to its shareholders a number of full and
fractional Class A shares of the corresponding series of the New Crabbe
Huson Funds equal to the number of full and fractional Fund shares held by
that shareholder.
- Each such Fund will dissolve and terminate.
If approved by the shareholders of the Funds, the Reorganization of the
Equity Fund, the Small Cap Fund and the Asset Allocation Fund will occur as
follows:
- The Equity Fund, the Small Cap Fund and the Asset Allocation Fund will
transfer all of their portfolio securities and other assets to the New
Crabbe Huson Funds.
- The New Crabbe Huson Funds, in exchange for those Funds' assets, will
assume all the liabilities of those Funds.
- The New Crabbe Huson Funds will issue to each such Fund (a) a number of
full and fractional Class A shares of beneficial interest in the
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corresponding series of the New Crabbe Huson Funds equal to the number of
shares of the primary class of that Fund then outstanding, and (b) a
number of full and fractional Class I shares of beneficial interest in the
corresponding series of the New Crabbe Huson Funds equal to the number of
shares of the institutional class of that Fund then outstanding.
- Each such Fund will distribute to its primary class shareholders a number
of full and fractional Class A shares of the corresponding series of the
New Crabbe Huson Funds equal to the number of full and fractional Fund
shares held by that shareholder.
- Each such Fund will distribute to its institutional class shareholders a
number of full and fractional Class I shares of the corresponding series
of the New Crabbe Huson Funds equal to the number of full and fractional
Fund shares held by that shareholder.
- Each such Fund will dissolve and terminate.
On consummation of the Reorganization, an open account will be established
on the records of the New Crabbe Huson Funds in the name of each shareholder of
the Funds representing a number of Class A shares or Class I shares,
respectively, of the series of the New Crabbe Huson Funds equal to the number of
shares of the corresponding series of the Fund owned of record by the
shareholder at the closing date. Certificates representing the New Crabbe Huson
Fund shares will not be physically issued.
As promptly as practicable after the consummation of the Reorganization, the
Funds will be terminated pursuant to the laws of the State of Delaware or
Oregon, as applicable, and after the closing date, the Funds will not conduct
any business except in connection with their liquidation. The Funds have been
advised by Liberty that, following the Reorganization, the Trust will offer
shares of all of the New Crabbe Huson Funds to new investors. New investors in
the New Crabbe Huson Funds (other than the Income Fund) will have the choice of
three classes of shares, as follows:
- CLASS A SHARES will be offered at net asset value plus an initial sales
charge of up to 5.75% (for the Special Fund, Small Cap Fund, Real Estate
Investment Fund and Equity Fund) and up to 4.75% (for the Asset Allocation
Fund and the Oregon Tax-Free Fund) of the offering price. Purchases of $1
million to $5 million will not be subject to an initial sales charge, but
will be subject to a 1% contingent deferred sales charge on redemptions
within 18 months. Class A shares will be subject to a service fee of 0.25%
per annum of average net assets.
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- CLASS B SHARES will be offered at net asset value, without an initial
sales charge, subject to a distribution fee of 0.75% per annum of average
net assets for eight years (at which time the shares will convert
automatically to Class A shares), a service fee of 0.25% per annum of
average net assets, and a contingent deferred sales charge if redeemed
within six years after purchase. The amount of the contingent deferred
sales charge of the redemption price is 5% if the shares are redeemed in
the first year after their purchase and declines to zero after the sixth
year.
- CLASS C SHARES will be offered at net asset value, without an initial
sales charge, subject to a distribution fee of 0.75% per annum of average
net assets, a service fee of 0.25% per annum of average net assets, and a
1% contingent deferred sales charge if redeemed within one year of
purchase.
The Class A shares that will be issued to the shareholders of the Funds
pursuant to the Reorganization will be subject to an asset-based service fee of
up to 0.25% per annum, but shares held by such shareholders will not be subject
to any sales charge, either upon issuance or on redemption. Dividends and
distributions payable on Class A shares to those shareholders of the Funds who
elect to have such dividends and distributions reinvested would be reinvested
without sales charge in additional Class A shares. The Fund shareholders will be
permitted, so long as they were primary class Fund shareholders on the date of
the Reorganization and remain Class A shareholders of the New Crabbe Huson
Funds, to purchase additional Class A shares of any of the New Crabbe Huson
Funds (other than the Income Fund) at net asset value without a sales charge.
Class I shares of the Small Cap Fund, the Equity Fund, the Income Fund and
the Asset Allocation Fund will be offered to new investors at net asset value,
without an initial sales charge or a service or distribution fee. The minimum
investment in Class I shares will be $1,000,000. Additional investments in Class
I shares must be in amounts of at least $15,000.
The Class I shares of the New Crabbe Huson Funds that will be issued to the
shareholders of the institutional classes of the Equity Fund, the Small Cap Fund
and the Asset Allocation Fund will not be subject to any asset-based service or
distribution fee and will not be subject to any sales charge, either upon
issuance or on redemption. Dividends and distributions payable on Class I shares
to those shareholders of the Funds who elect to have such dividends and
distributions reinvested would be reinvested without sales charge in additional
Class I shares. The Fund shareholders will be permitted, so long as they were
institutional class Fund shareholders on the date of the
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Reorganization and remain Class I shareholders of the New Crabbe Huson Funds, to
exchange their Class I shares for other Class I shares issued by the other New
Crabbe Huson Funds (other than the Income Fund). They will not be permitted to
exchange their Class I shares for Class A shares in the New Crabbe Huson Funds
or for shares in other funds managed by Liberty affiliates.
After shareholder approval of the Reorganization but prior to the issuance
of the Class A and Class I shares of the New Crabbe Huson Funds to the
shareholders of the Funds, one Class A share of each New Crabbe Huson Fund and
one Class I share of the New Crabbe Huson Equity, Small Cap and Asset Allocation
Funds will be issued to the corresponding Fund. As the sole Class A or Class I
shareholder of the New Crabbe Huson Funds, the corresponding Fund will approve
such New Crabbe Huson Fund's Investment Management Agreement with Acquisition
Corp. (see APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT below) and will elect the
current Trustees of the Trust as Trustees of the New Crabbe Huson Funds. If the
Plans are approved by shareholders, it is expected that the Reorganization will
be made effective at 4:00 p.m., Boston time, on or about October 16, 1998 or at
such later time and date as the parties may mutually agree (the "Closing Date").
At any time before the Reorganization is effective, the Trust and the Funds may
agree to terminate the Reorganization, and, if the Reorganization has not been
made effective by December 31, 1998, the Plans will automatically terminate on
that date unless a later date is agreed to by both the Trust and the Funds.
The form of the Plans is attached as Exhibit A.
REASONS FOR REORGANIZATION
The following factors were among those considered by the Boards of
Trustees/Directors in approving the proposed Reorganization:
- The investment management services which have produced the Funds'
performance to date will be continued following the Reorganization.
- Shareholders of primary class shares of the Funds will have exchange
privileges, without initial or deferred sales charges, into 35 other open-
end Colonial Funds covering a broad range of investment objectives and
policies.
- Colonial's sales and marketing capabilities should increase the potential
for growth of the New Crabbe Huson Funds, enabling the New Crabbe Huson
Funds to enjoy the possibility of economies of scale resulting
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from the spreading of their fixed costs and expenses over a larger asset
base. The New Crabbe Huson Funds, other than the Income Fund, will be
marketed alongside the other Colonial funds through more than 25,000
investment executives associated with broker-dealers with whom the
Colonial funds distributor has selling agreements and approximately 180
investment executives employed by the bank group of Liberty Securities
Corporation, a subsidiary of Liberty.
APPROVAL OF INVESTMENT MANAGEMENT AGREEMENTS
By voting in favor of the Plans, shareholders of the Funds will be
authorizing each Fund, as sole shareholder of the corresponding series of the
New Crabbe Huson Funds prior to the Reorganization, to vote such shares of the
New Crabbe Huson Fund in favor of approval of an Investment Management Agreement
with Acquisition Corp. for such series of the New Crabbe Huson Funds. The form
of new Investment Management Agreement is attached as Exhibit B.
Under these agreements, Acquisition Corp. will provide a number of
administrative functions to the New Crabbe Huson Funds that are currently
provided to the Funds by outside vendors. As compensation for the additional
services, 0.05 percent per annum will be added to the investment management fee
rate.
While the new Investment Management Agreements are different in form and
shorter than the existing investment management agreements between the Funds,
they are substantially the same in effect. The existing investment management
agreements make provision for the allocation of expenses and fees among the
Funds. Since a separate Investment Management Agreement will be entered into
with each of the New Crabbe Huson Funds, the new Investment Management
Agreements do not contain such a provision. The existing investment management
agreements contain an indemnity by the Funds in favor of the Crabbe Huson Group.
No such indemnity inures to the benefit of Acquisition Corp. under the new
Investment Management Agreements. There are also changes reflecting matters such
as the name, organizational form, and address of the parties, the date and
periods of the agreement, and other non-material changes. The initial term of
the new Investment Advisory Agreements would be for two years following the
closing of the Reorganization, and from year to year thereafter if renewed in
accordance with Section 15 of the 1940 Act.
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Colonial and Acquisition Corp. have agreed to waive collection of
management, administrative and transfer agency fees payable by the New Crabbe
Huson Funds during the two years following the approval of the Investment
Management Agreements, but only to the extent required to ensure that the total
operating expenses of each New Crabbe Huson Fund, as a percentage of net assets
of such New Crabbe Huson Fund (not including service and distribution fees
imposed under Rule 12b-1), do not exceed the total annualized operating expenses
of the corresponding series of the Funds for the six month period ending April
30, 1998.
SHAREHOLDER FEES
Current shareholders of the Funds will not incur any sales charges on
additional purchases or reinvestments in the New Crabbe Huson Funds. Purchasers
that are not shareholders of the Funds as of the date of the Acquisition will
incur sale charges. See "The Reorganization".
The following table reflects the anticipated effect of the Reorganization on
the operating expenses of the Funds, based on their expenses for the six months
ended April 30, 1998 and giving effect to the fee waiver agreements referred to
above. The Funds' expenses for the full year ended October 31, 1998 may be
different.
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<PAGE>
COMPARATIVE FEE AND EXPENSE TABLE FOR THE FUNDS
(FOR THE SEMI-ANNUAL PERIOD ENDED APRIL 30, 1998, ANNUALIZED AND UNAUDITED)
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
INCOME FUND
<TABLE>
<CAPTION>
CURRENT PROPOSED DIFFERENCE
------------- ----------- -----------
<S> <C> <C> <C>
Average Assets @4/30/98 3,816,978
Adviser's Fee (a) 0.75% 0.80% 0.05%
12b-1 Fees 0.25% 0.25% 0.00%
Total Other 1.45% 1.56% 0.11%
Total Fund Operating Expenses (b) 2.45% 2.61% 0.16%
(a) Under the proposed fee and expense structure, the New Crabbe Huson Funds'
administration fee is included in the adviser's fee. Thus, under the proposed fee
structure, the adviser's fee is increased by 0.05% and there is no administrative fee.
(b) Total Fund Operating Expense (after
reimbursement or waiver) 0.80% 0.80% 0.00%
</TABLE>
OREGON TAX-FREE FUND
<TABLE>
<CAPTION>
CURRENT PROPOSED DIFFERENCE
------------- ----------- -----------
<S> <C> <C> <C>
Average Assets @4/30/98 26,412,599
Adviser's Fee (a) 0.50% 0.55% 0.05%
12b-1 Fees 0.25% 0.25% 0.00%
Total Other 0.34% 0.33% (0.01%)
Total Fund Operating Expenses (b) 1.09% 1.13% 0.04%
(a) Under the proposed fee and expense structure, the New Crabbe Huson Funds'
administration fee is included in the adviser's fee. Thus, under the proposed fee
structure, the adviser's fee is increased by 0.05% and there is no administrative fee.
(b) Total Fund Operating Expense (after
reimbursement or waiver) 0.98% 0.98% 0.00%
</TABLE>
15
<PAGE>
SPECIAL FUND
<TABLE>
<CAPTION>
CURRENT PROPOSED DIFFERENCE
------------- ----------- -----------
<S> <C> <C> <C>
Average Assets @4/30/98 328,848,798
Adviser's Fee (a) 0.90% 0.95% 0.05%
12b-1 Fees 0.25% 0.25% 0.00%
Total Other 0.60% 0.51% (0.09%)
Total Fund Operating Expenses (b) 1.75% 1.71% (0.04%)
(a) Under the proposed fee and expense structure, the New Crabbe Huson Funds'
administration fee is included in the adviser's fee. Thus, under the proposed fee
structure, the adviser's fee is increased by 0.05% and there is no administrative fee.
(b) Total Fund Operating Expense (after
reimbursement or waiver) 1.50% 1.50% 0.00%
</TABLE>
ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
PRIMARY CLASS INSTITUTIONAL CLASS
------------------------------------ ------------------------------------
CURRENT PROPOSED DIFFERENCE CURRENT PROPOSED DIFFERENCE
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Average Assets @4/30/98 95,031,109 33,399,117
Adviser's Fee (a) 0.97% 1.02% 0.05% 0.97% 1.02% 0.05%
12b-1 Fees 0.25% 0.25% 0.00% 0.00% 0.00% 0.00%
Total Other 0.29% 0.44% 0.15% 0.26% 0.18% (0.08%)
Total Fund Operating
Expenses (b) 1.51% 1.71% 0.20% 1.23% 1.20% (0.03%)
(a) Under the proposed fee and expense structure, the New Crabbe Huson Funds' administration fee
is included in the adviser's fee. Thus, under the proposed fee structure, the adviser's fee is
increased by 0.05% and there is no administrative fee.
(b) Total Fund
Operating Expense
(after reimbursement
or waiver) 1.38% 1.38% 0.00% 1.00% 1.00% 0.00%
</TABLE>
16
<PAGE>
EQUITY FUND
<TABLE>
<CAPTION>
PRIMARY CLASS INSTITUTIONAL CLASS
------------------------------------ ------------------------------------
CURRENT PROPOSED DIFFERENCE CURRENT PROPOSED DIFFERENCE
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Average Assets @4/30/98 384,299,008 28,260,599
Adviser's Fee (a) 0.89% 0.94% 0.05% 0.89% 0.94% 0.05%
12b-1 Fees 0.25% 0.25% 0.00% 0.00% 0.00% 0.00%
Total Other 0.24% 0.34% 0.10% 0.24% 0.10% (0.14%)
Total Fund Operating
Expenses (b) 1.38% 1.53% 0.15% 1.13% 1.04% (0.09%)
(a) Under the proposed fee and expense structure, the New Crabbe Huson Funds' administration fee
is included in the adviser's fee. Thus, under the proposed fee structure, the adviser's fee is
increased by 0.05% and there is no administrative fee.
(b) Total Fund
Operating Expense
(after reimbursement
or waiver) 1.36% 1.36% 0.00% 1.00% 1.00% 0.00%
</TABLE>
REAL ESTATE INVESTMENT FUND
<TABLE>
<CAPTION>
CURRENT PROPOSED DIFFERENCE
------------- ----------- -----------
<S> <C> <C> <C>
Average Assets @4/30/98 30,821,780
Adviser's Fee (a) 1.00% 1.05% 0.05%
12b-1 Fees 0.25% 0.25% 0.00%
Total Other 0.48% 0.53% 0.05%
Total Fund Operating Expenses (b) 1.73% 1.83% 0.10%
(a) Under the proposed fee and expense structure, the New Crabbe Huson Funds'
administration fee is included in the adviser's fee. Thus, under the proposed fee
structure, the adviser's fee is increased by 0.05% and there is no administrative fee.
(b) Total Fund Operating Expense (after
reimbursement or waiver) 1.50% 1.50% 0.00%
</TABLE>
17
<PAGE>
SMALL CAP FUND
<TABLE>
<CAPTION>
PRIMARY CLASS INSTITUTIONAL CLASS
------------------------------------ ------------------------------------
CURRENT PROPOSED DIFFERENCE CURRENT PROPOSED DIFFERENCE
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Average Assets @4/30/98 38,881,666 93,233,078
Adviser's Fee (a) 0.96% 1.01% 0.05% 0.96% 1.01% 0.05%
12b-1 Fees 0.25% 0.25% 0.00% 0.00% 0.00% 0.00%
Total Other 0.38% 0.37% (0.01%) 0.18% 0.08% (0.10%)
Total Fund Operating
Expenses (b) 1.59% 1.63% 0.04% 1.14% 1.09% (0.05%)
(a) Under the proposed fee and expense structure, the New Crabbe Huson Funds' administration fee
is included in the adviser's fee. Thus, under the proposed fee structure, the adviser's fee is
increased by 0.05% and there is no administration fee.
(b) Total Fund
Operating Expense
(after reimbursement
or waiver) 1.50% 1.50% 0.00% 1.00% 1.00% 0.00%
</TABLE>
The purpose of the table is to assist shareholders in understanding the
various costs and expenses associated with an investment in shares of the New
Crabbe Huson Funds. The example above should not be considered a representation
of future expenses of the Funds or the New Crabbe Huson Funds. Actual expenses
may vary from year to year and may be higher or lower than those shown above.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund's shares and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the Funds'
18
<PAGE>
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be(1):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Special Fund $ 179 $ 556 $ 956 $ 2,076
Small Cap (Primary) 163 506 872 1,901
Small Cap (Institutional) 117 364 631 1,392
Real Estate 176 546 941 2,048
Equity (Primary) 141 440 760 1,666
Equity (Institutional) 116 361 625 1,380
Asset Allocation (Primary) 154 478 826 1,808
Asset Allocation (Institutional) 126 391 677 1,494
Oregon Tax-Free 111 347 602 1,334
Income 248 765 1,308 2,792
</TABLE>
- ------------------------
(1) This Example does not reflect fee waivers and expense reimbursements
that have been given historically by the Funds' advisor, and that Acquisition
Corp. has agreed will be in effect for two years after the acquisition.
It is anticipated that the Acquisition will be completed on September 30,
1998, approximately two weeks prior to the scheduled closing date for the
Reorganization. Upon completion of the Acquisition, the current investment
management agreement between the Funds and the Crabbe Huson Group may terminate
by its express terms and as required by Section 15(a) of the 1940 Act. If the
Acquisition is completed as anticipated, the Funds will enter into an interim
investment management agreement with Acquisition Corp. with the same terms and
in the same form as the proposed investment management agreement between
Acquisition Corp. and the New Crabbe Huson Funds (except that such interim
agreement would terminate upon completion of the Reorganization). By voting in
favor of the Plans, shareholders of the Funds will be approving such interim
investment management agreement.
It is possible that shareholders will not have approved the Reorganizations
prior to the consummation of the Acquisition. The Funds, Crabbe Huson Group and
Acquisition Corp. intend to file with the Securities and Exchange Commission an
application for an exemption from Section 15(a) of the 1940 Act permitting each
of the Funds to enter into an interim investment management agreement, as
described above, following the consummation of the
19
<PAGE>
Acquisition, even if the Fund's shareholders have not yet approved the
Reorganization by that time. If such exemptive relief is not granted, the
closing of the Acquisition may be delayed until the required shareholder
approvals are obtained.
OTHER AGREEMENTS
The New Crabbe Huson Funds will enter into a pricing and bookkeeping
agreement with Colonial, a distributor's contract with Liberty Funds
Distributor, Inc., another subsidiary of Liberty, and a transfer agency
agreement with Colonial Investors Service Center, Inc., also a subsidiary of
Liberty, in each case on terms and conditions and in the form approved by the
Board of Trustees of the Trust.
The fee payable to Colonial Investors Service Center, Inc. under the
transfer agency agreement will be at the annual rate of 0.23% of the average
daily net assets of the Class A shares of the Special, Small Cap, Real Estate
Investment and Equity Funds, and 0.17% of the average daily net assets of the
Class A shares of the Asset Allocation, Oregon Tax-Free and Income Funds.
Administration and transfer agency fees are subject to waiver as described in
APPROVAL OF INVESTMENT MANAGEMENT AGREEMENTS above.
The distributor's contract with Liberty Funds Distributor, Inc. will contain
a 12b-1 plan providing for the payment by the New Crabbe Huson Funds of annual,
asset-based service and distribution fees. The amount of the fee payable
annually with respect to the Class A shares to be received by Fund shareholders
will be 0.25% of average daily net assets. The continuance of the 12b-1 plan
must be approved annually by the trustees of the Trust, including a majority of
the disinterested trustees.
The Funds currently maintain a 12b-1 plan that is substantially similar to
the 12b-1 plan for the Class A shares of the New Crabbe Huson Funds. Both 12b-1
plans assess an annual fee of 0.25% of average daily net assets. The Funds'
current 12b-1 plan provides that fees paid may be used to reimburse the
distributor for actual expenses incurred in providing shareholder services. Fees
in excess of actual expenses may not be assessed. The 12b-1 plan for the Class A
shares of the New Crabbe Huson Funds will provide that if fees exceed the actual
expenses, they may be retained by the distributor as additional compensation.
20
<PAGE>
COMPARISON OF EXISTING FUNDS AND NEW CRABBE HUSON FUNDS
The Trust has been established under Massachusetts law as a trust with
transferable shares of beneficial interest, commonly known as a Massachusetts
business trust, pursuant to a Declaration of Trust (the "Colonial Declaration of
Trust"). All of the Funds other than the Special Fund are series of a trust
established under Delaware law pursuant to a Declaration of Trust (the "Crabbe
Huson Declaration of Trust"). The Special Fund is a corporation organized under
Oregon law.
Certain differences between the Colonial Declaration of Trust, the Crabbe
Huson Declaration of Trust and the articles and bylaws of the Special Fund are
described below. These differences should not have any significant effect on the
management or operations of the Funds. The operations of the New Crabbe Huson
Funds would continue to be subject to the provisions of the 1940 Act and rules
and regulations of the Securities and Exchange Commission thereunder. Subject to
the provisions of the applicable declaration of trust, the business of the Funds
(other than the Special Fund) is, and the business of the New Crabbe Huson Funds
will be, managed by a Board of Trustees who have all powers necessary or
convenient to carry out that responsibility. The responsibilities, powers and
fiduciary duties of the trustees are and will be substantially the same as those
of the Directors of the Special Fund.
Beneficial interests in the Funds (other than the Special Fund) are, and
beneficial interests in the New Crabbe Huson Funds will be, represented by
transferable shares without par value. The Colonial Declaration of Trust and the
Crabbe Huson Declaration of Trust permit the trustees to create an unlimited
number of series and classes and, with respect to each series or class, to issue
an unlimited number of shares. Each share of each series represents an equal
proportionate interest in the trust with each other, none having priority or
preference over another. As an Oregon business corporation, the Special Fund is
authorized to issue only the number of shares specified in its Articles of
Incorporation, which may be amended by shareholder approval.
The Colonial Declaration of Trust and the Crabbe Huson Declaration of Trust
provide that shareholders shall have power to vote only on the following
matters: (i) the election of trustees; (ii) the approval of any contract for
investment advisory or management services; (iii) the termination of the trust;
(iv) any sale, lease or exchange of all or substantially all of the property and
assets of the trust or any merger or consolidation of the trust with any other
21
<PAGE>
trust or corporation; (v) an amendment of the declaration of trust; (vi) to the
same extent as the shareholders of a business corporation as to whether or not a
court action, proceeding or claim should not be brought or maintained as a
derivative or as a class action on behalf of the trust or its shareholders; and
(vii) with respect to such additional matters relating to the trust as may be
required by the applicable declaration of trust, any bylaws adopted by the
trustees or any registration statement of the trust filed with the Securities
and Exchange Commission (or any successor agency) or any state, or as the
trustees may consider necessary or desirable. Shareholders of the Special Fund
have the right to vote on any matter properly submitted to the shareholders for
a vote.
The Funds operate, and the New Crabbe Huson Funds will operate, as a
diversified open-end investment company registered with the Securities and
Exchange Commission under the 1940 Act (except for the Oregon Tax-Free Fund,
which is and will be a non-diversified investment company). Shareholders of the
Funds therefore have, and shareholders of the New Crabbe Huson Funds will have,
the power to vote at special meetings for, among other things, changes in
fundamental investment policies and restrictions of the funds; ratification of
the selection by the board of trustees of the auditors for the funds; and such
additional matters as may be required by law. If, at any time, less than a
majority of the directors/trustees holding office have been elected by
shareholders, the directors/trustees then in office are required, under the 1940
Act, to call a shareholders' meeting for the purpose of electing new
directors/trustees.
Directors/trustees of the Funds may be removed by a vote of a majority of
the Funds' outstanding shares. Trustees of the New Crabbe Huson Funds may be
removed by a vote of two-thirds of the Trust's outstanding shares.
Like shares of the Special Fund, each whole share of the New Crabbe Huson
Funds will be entitled to one vote, with each fraction being entitled to a
proportionate fractional vote. Under the Crabbe Huson Declaration of Trust, each
share of the Funds (other than the Special Fund) is entitled to one vote for
each dollar of net asset value attributable to that share, with each fraction of
a dollar being entitled to a proportionate fractional vote. The Funds do not
permit, and the New Crabbe Huson Funds will not permit, cumulative voting for
directors/trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust may,
under certain circumstances, be held personally liable as partners for its
22
<PAGE>
obligations. However, the Colonial Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the trust and
provides for indemnification and reimbursement of expenses out of the trust
property for any shareholder held personally liable for the obligations of the
trust. The Colonial Declaration of Trust also provides that it shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the trust, its shareholders, trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of shareholders incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the trust itself was unable to meet its obligations. Under
Delaware law and the Crabbe Huson Declaration of Trust, and under Oregon law and
the Special Fund's articles and bylaws, the Funds' shareholders currently have
no personal liability for its acts or obligations, except to the extent of any
improper dividend payments received by them.
The Colonial Declaration of Trust contains substantially the same provisions
regarding indemnification of Trustees and officers as are presently provided to
trustees/directors and officers of the Funds under the Crabbe Huson Declaration
of Trust and Delaware and Oregon law.
Shareholders of the Funds may obtain copies of the Colonial Declaration of
Trust, the Crabbe Huson Declaration of Trust and the articles and bylaws of the
Special Fund without charge on written request to the Secretary of the Funds.
CHANGE IN FUNDAMENTAL INVESTMENT POLICIES.
The Funds have been advised by Liberty that following the Reorganization,
each series of the New Crabbe Huson Funds will continue to operate with the same
investment objectives and policies as the corresponding series of the existing
Funds, except as described below. However, only those investment policies of the
New Crabbe Huson Funds that are required by the 1940 Act to be fundamental
(i.e., changeable only with shareholder approval) will be designated as
fundamental. All of the other policies of the New Crabbe Huson Funds will be
classified as non-fundamental. Following the Reorganization, the non-fundamental
policies of the New Crabbe Huson Funds and the investment objectives of the New
Crabbe Huson Funds may be changed with the approval of the Trustees of the
Trust, and with notice to the shareholders of the New Crabbe Huson Funds, but no
shareholder approval will be required. The
23
<PAGE>
investment policies (fundamental and non-fundamental) of the New Crabbe Huson
Funds are set forth in Exhibit C.
FEDERAL TAX CONSEQUENCES
It is anticipated that the Reorganization will be tax-free for federal tax
purposes. It is a condition to the consummation of the Reorganization that the
Funds and the Trust receive an opinion of Ropes & Gray substantially to the
effect that for federal income tax purposes: (i) no gain or loss will be
recognized by any Fund upon the transfer of its assets to the corresponding New
Crabbe Huson Fund in exchange for shares of such New Crabbe Huson Fund and the
assumption by such New Crabbe Huson Fund of the liabilities of the Fund; (ii)
the basis in the hands of the New Crabbe Huson Fund of the assets of the
corresponding Fund transferred to the New Crabbe Huson Fund will be the same as
the basis of such assets in the hands of the corresponding Fund immediately
prior to the transfer; (iii) the holding periods of the assets of any Fund in
the hands of the corresponding New Crabbe Huson Fund will include the periods
during which such assets were held by the Fund; (iv) no gain or loss will be
recognized by any New Crabbe Huson Fund upon the receipt of the assets of the
corresponding Fund in exchange for shares of such New Crabbe Huson Fund and the
assumption by the New Crabbe Huson Fund of the liabilities of the corresponding
Fund; (v) no gain or loss will be recognized by the shareholders of any Fund
upon the exchange of their shares in such Fund for shares of the corresponding
New Crabbe Huson Fund; (vi) the basis of the shares a Fund shareholder receives
in connection with the transaction will be the same as the basis of his or her
Fund shares exchanged therefor; and (vii) a Fund shareholder's holding period
for his or her shares in the corresponding New Crabbe Huson Fund will be
determined by including the holding period for which he or she held the Fund
shares exchanged therefor, provided that he or she held such Fund shares as
capital assets.
WAIVER OF INVESTMENT RESTRICTIONS
The Funds have a fundamental investment restriction, which may not be
changed without shareholder approval, under which it may not own more than 10%
of the outstanding voting securities of any one issuer. Such restriction would
prohibit the purchase by the Funds of the initial shares of the New Crabbe Huson
Funds, which is necessary to complete the Reorganization (see PROCEDURES FOR
REORGANIZATION above). Accordingly, a vote for the Reorganization will be deemed
also a vote to waive the above-described restriction and
24
<PAGE>
authorize the Funds to acquire all of the voting shares of the New Crabbe Huson
Funds to the extent (and only to the extent) necessary to carry out the
Reorganization. The waiver of the investment restriction will be effective only
for the purpose of completing the Reorganization and will have no effect
thereafter.
DISSENTER'S RIGHTS
The staff of the Securities and Exchange Commission has taken the position
in Investment Company Act Release 8752 (April 10, 1975) that adherence to
appraisal rights statutes such as that of Oregon by registered investment
companies issuing redeemable securities would constitute a violation of Rule
22c-1 under the 1940 Act. Rule 22c-1 precludes open-end investment companies
from redeeming securities otherwise than at a price based upon the net asset
value next computed after receipt of a tender of such security for redemption.
In this connection, the staff has also taken the position in Release No. 8752
that pursuant to Section 50 of the 1940 Act, Rule 22c-1 supersedes appraisal
right statutes. While the Funds are not aware of any judicial decision which has
dealt with this issue, they intend to adhere to the position of the staff of the
Securities and Exchange Commission and will not honor the request of any
shareholder of the Special Fund for appraisal rights.
BOARD OF TRUSTEES
The current Board of Trustees of the Trust is comprised of Robert J.
Birnbaum, Tom Bleasdale, Lora S. Collins, James E. Grinnell, Richard W. Lowry,
William E. Mayer, James L. Moody, John J. Neuhauser, and Robert L. Sullivan.
Their backgrounds and qualifications are described in Exhibit D. The Board of
Trustees of the Trust has nominated four additional persons to the Board of
Trustees, subject to approval of the current shareholders of the Trust.
25
<PAGE>
THE TRUST'S AUDITORS
The Trust has selected KPMG Peat Marwick as its independent auditors, who
would be responsible for the audit of the New Crabbe Huson Funds.
------------------------
OTHER MATTERS
------------------------
The Board of Directors of the Special Fund and the Board of Trustees of the
other Funds know of no other business to be brought before the meeting. However,
if any other matters properly come before the meeting, it is the intention of
the Boards of Trustees/Directors that proxies that do not contain specific
instructions to the contrary will be voted on such matters in accordance with
the judgment of the persons designated therein as proxies.
------------------------
SHAREHOLDER PROPOSALS
------------------------
Neither the Trust nor the Funds are required to hold annual shareholder
meetings. Proposals of shareholders which are intended to be presented at future
special meetings of the shareholders of the Trust (or, if the Reorganization is
not consummated, of the Funds) must be received by the Secretary of the Trust
(or the Funds) a reasonable time prior to the solicitation of proxies relating
to such future meeting.
------------------------
ANNUAL REPORTS
------------------------
The Funds' annual report to shareholders for its fiscal year ended October
31, 1997, and its semi-annual report for the period ended April 30, 1998
containing financial statements for the Funds' fiscal year and semi-annual
period then ended, have been mailed to shareholders. Any shareholder who desires
an additional copy may obtain it upon request by writing to the Funds or calling
1-800-638-3148.
26
<PAGE>
------------------------
VOTING AND SOLICITATION
------------------------
VOTING, QUORUM
Each share of the Special Fund is entitled to one vote on each matter
submitted to a vote of the shareholders of that Fund at the meeting.
Shareholders of the other Funds shall be entitled to one vote for each dollar of
net asset value standing in the name of the shareholder on the books of the
applicable Fund on the record date. Shareholders of each Fund vote as a separate
class.
Approval of the Reorganization by the Special Fund requires the affirmative
vote of two-thirds of the shares of the Special Fund outstanding on the record
date. Approval of the Reorganization by the other Funds requires the affirmative
vote of the lesser of (i) 67% or more of the shares of each Fund present in
person at the meeting or represented by proxy, if holders of more than 50% of
the shares of such Fund outstanding on the record date are present, in person or
by proxy, or (ii) 50% of the outstanding shares of each Fund on the record date.
A quorum for the transaction of business is constituted with respect to each
Fund by the presence in person or by proxy of the holders of not less than a
majority of the outstanding shares of that Fund entitled to vote at the meeting.
If, by the time scheduled for the meeting, a quorum of shareholders of each Fund
is not present or if a quorum of such Fund's shareholders is present but
sufficient votes in favor of the proposal described in this proxy statement are
not received, the persons named as proxies may propose one or more adjournments
of the meeting to permit further solicitation of proxies from shareholders of
the Funds. Any such adjournment will require the affirmative vote of a majority
of the shares of each Fund, present in person or represented by proxy at the
session of the meeting to be adjourned. The persons named as proxies will vote
in favor of any such adjournment if they determine that such adjournment and
additional solicitation are reasonable and in the interests of the Funds'
shareholders. The meeting may be adjourned without further notice, to a date not
more than 120 days after the original record date.
In tallying shareholder votes, abstentions and broker non-votes (i.e.
proxies sent in by brokers and other nominees which cannot be voted
27
<PAGE>
because instructions have not been received from the beneficial owners) will be
counted for purposes of determining whether a quorum is present for purposes of
convening the meeting. Abstentions and broker non-votes will be considered to be
both present and issued and outstanding. Abstentions and broker non-votes will,
however, be considered to be votes against the Reorganization.
If the accompanying form or forms of proxy are properly executed and
returned in time to be voted at the meeting, the shares convened thereby will be
voted in accordance with the instructions thereon by the shareholder. Executed
proxies that are unmarked will be voted for each proposal submitted to a vote of
the shareholders. Any proxy may be revoked at any time prior to its exercise by
providing written notice of revocation to the Funds, by delivering a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
SOLICITATION OF PROXIES
In addition to the solicitation of proxies by mail or expedited delivery
service, the Trustees/Directors of the Funds and employees and agents of the
Crabbe Huson Group may solicit proxies in person or by telephone. The Funds will
request each bank or broker holding shares for others in its name or custody, or
in the names of one or more nominees, to forward copies of the proxy materials
to the persons for whom it holds such shares and to request authorization to
execute the proxies. Upon request, such banks, brokers, and nominees will be
reimbursed for their out-of-pocket expenses in connection therewith. D. F. King
has been retained to aid in the overall organization of this proxy solicitation,
including the proxy production, mailing, and vote processing. It is anticipated
that the costs of such solicitation shall be approximately $100,000. The cost of
preparing, assembling, mailing, and transmitting proxy materials and of
soliciting proxies on behalf of the Board of Trustees/ Directors will be borne
by Liberty.
28
<PAGE>
------------------------
PRINCIPAL SHAREHOLDERS
------------------------
As of August 4, 1998, the number of shares of common stock of each Fund
outstanding and entitled to vote are as set forth opposite the Fund's name
below:
<TABLE>
<S> <C>
The Crabbe Huson Special Fund, Inc. 15,229,976.423
Crabbe Huson Small Cap Fund 10,059,260.301
Crabbe Huson Real Estate Investment Fund 2,046,344.281
Crabbe Huson Equity Fund 18,480,913.467
Crabbe Huson Asset Allocation Fund 8,640,191.481
Crabbe Huson Oregon Tax-Free Fund 2,056,277.226
Crabbe Huson Income Fund 522,160.284
</TABLE>
As of July 21, 1998, the following are the record owners or are known by the
Funds to own beneficially five percent or more of a Fund, as determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934:
29
<PAGE>
THE CRABBE HUSON SPECIAL FUND, INC.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
Charles Schwab & Co Inc. Special 4,007,500.41 24.92%
Custody A/C
For Benft Cust
101 Montgomery Street
San Francisco, Ca 94104-4122
National Financial Services Corp 924,049.89 5.75%
Attn Mutual Funds
200 Liberty Street, 5th Floor
One World Financial Center
New York, NY 10281-5500
Craig Stuvland, Officer and Director 1,936.413 .01%
James Crabbe, Officer and Director 3,775.614 .02%
R. P. Wollenberg, Director 14,749.160 .09%
Bob Smith, Director 1,006.830 .01%
Officers and Directors as a Group 21,468.017 .13%
</TABLE>
30
<PAGE>
CRABBE HUSON SMALL CAP FUND
(PRIMARY CLASS)
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
Hamill & Co. FPB El Paso Electric Co. 305,169.53 12.17%
55 02001 1971100
Mutual Fund Unit 16-Beb-09
PO Box 2558
Houston, TX 77252-8009
Enele & Co Dividend Reinvest 270,276.29 10.78%
1211 SW 5th Ave., Ste 1900
Portland, OR 972044-3719
C/o Delene Powell Dain Rauscher Inc. 177,405.71 7.07%
FBO OR Freeze Dry PSP/Tax Fed Svgs
Hashkenasy W. Impey & P. Unverzagt
Ttees
PO Box 1048
Albany, OR 97321
Charles Schwab & Co., Inc. 166,635.06 6.64%
Special Custody A/C
For Benft Cust
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Gary L. Capps, Director 5,380.20 .21%
Craig Stuvland, Officer and Director 8,384.723 .33%
Directors as a Group 13,764.923 .54%
</TABLE>
31
<PAGE>
CRABBE HUSON SMALL CAP FUND
(INSTITUTIONAL CLASS)
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
Enele & Co. Dividend Reinvest 1,875,618.34 24.67%
1211 SW 5th Ave., Suite 1900
Portland, OR 97204-3719
AAAA Retirement Fund For Member 1,335,149.55 17.56%
Agencies
Wendy E. Jones Ttee Donald S. Lewis
Ttee
201 Mc Cullough Dr., Suite 100
Charlotte, NC 28262-4345
M&I Trust Co. Tennessee/Crabbe Huson 586,479.91 7.71%
1000 N Water St., 14th Floor
Milwaukee, WI 53202-6648
Union Colony Bank Ttee 507,855.68 6.68%
Weld County Pension Trust
PO Box 1647
Greeley, CO 80632-1647
Owensboro Mercy Health System, Inc. 499,804.95 6.57%
A/C #3402814000
Greg Carlson & William O. PriceTtee
PO Box 160
Westerville, OH 43086-0160
Charles Schwab & Co., Inc. 397,987.32 5.23%
Special Custody A/C
For Benft Cust
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
32
<PAGE>
CRABBE HUSON REAL ESTATE INVESTMENT FUND
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 657,300.01 32.04%
Special Custody A/C
For Benft Cust
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Enele & co. Dividend Reinvest 495,538.20 24.16%
1211 SW 5th Ave., Suite 1900
Portland, OR 97204-3719
R. P. Wollenberg, Director 2,679.312 .13%
William W. Wyatt, Jr., Director 1,488.366 .07%
Gary L. Capps, Director 2,451.52 .12%
Richard Huson, Officer and Director 613.194 .03%
Officers and Directors as a Group 7,232.392 .35%
</TABLE>
33
<PAGE>
CRABBE HUSON EQUITY FUND
(PRIMARY CLASS)
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 5,057,329.26 29.22%
Special Custody A/C
For Benft Cust
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Boston Safe Deposit & Tr Co, Ttee 1,065,256.23 6.15%
FBO Virginia Power Employee Savings
Plan Trust
1 Cabot Rd
Medford MA 02155-5141
National Financial Services Corp 911,543.92 5.27%
FPB Our Customers
Attn Mutual Funds
200 Liberty Street, 5th Floor
One World Financial Center
New York, NY 10281-5500
R. P. Wollenberg, Director 7,772.847 .04%
Gary L. Capps, Director 5,622.24 .03%
Richard Huson, Officer and Director 6,588.37 .04%
Craig Stuvland, Officer and Director 5,403.55 .03%
Officers and Directors as a Group 25,387.007 .14%
</TABLE>
34
<PAGE>
CRABBE HUSON EQUITY FUND
(INSTITUTIONAL CLASS)
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
IBEW Local 76 Retirement Trust 1,109,270.09 66.36%
c/o Employee Benefit Administrators
Leroy T. Hare, Ttee
3400 188th St, West
Lynwood, WA 98037-4747
Tulsa & Company 167,671.49 10.03%
PO Box 3688
Tulsa, OK 74101-3688
Enele & Co. Dividend Reinvest 123,346.22 7.38%
1211 SW 5th Ave., Suite 1900
Portland, OR 97204-3719
Northern Trust Co. as Trustee 101,438.62 6.07%
FBO Brazos Electric Power Pension Plan
PO Box 92956
Chicago, IL 60675-2956
</TABLE>
35
<PAGE>
CRABBE HUSON ASSET ALLOCATION FUND
(PRIMARY CLASS)
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 379,315.17 5.85%
Special Custody A/C
For Benft Cust
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Gary L. Capps, Director 40,544.62 .63%
Richard Huson, Officer and Director 1,604.54 .02%
Craig Stuvland, Officer and Director 13,458.89 .21%
Officers and Directors as a Group 55,608.05 .86%
</TABLE>
36
<PAGE>
CRABBE HUSON ASSET ALLOCATION FUND
(INSTITUTIONAL CLASS)
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
IBEW Local 76 Retirement Trust 1,065,840.02 44.49%
c/o Employee Benefit Administrators
Leroy T. Hare Ttee
3400 188th St West
Lynwood, WA 98037-4747
Klamath Medical Clinic, PC Profit 332,469.28 13.88%
Sharing Plan
Randal A. Machado, MC, Ttee
James F. Novak, MD, Ttee
1905 Main St.
Klamath Falls, OR 97601-2649
Enele & Co. Dividend Reinvest 240,994.78 10.06%
1211 SW 5th Ave., Suite 1900
Portland, OR 97204-3719
Thomas E. Klump, Ttee 140,801.80 5.88%
Thomas E. Klump, MC, PC Profit Sharing
Plan & Trust
4720 Sunset Ridge Dr.
Klamath Falls, OR 97601-9310
</TABLE>
CRABBE HUSON OREGON TAX-FREE FUND
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
None
</TABLE>
37
<PAGE>
CRABBE HUSON INCOME FUND
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
IBAK & Co. 98,627.83 16.92%
PO Box 1700
102 South Clinton
Iowa City, IA 52240-4024
Charles Schwab & Co., Inc. Special 69,853.91 11.98%
Custody
A/C for Benft Cust
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Enele & Co. Dividend Reinvest 55,782.42 9.57%
1211 SW 5th Suite 1900
Portland, OR 97204-3719
State Street Bank & Trust Co. Cust for 35,228.21 6.04%
the
Rollover IRA of Wallace E. Smith Jr.
2042 Summit Dr.
Lake Oswego, OR 97034-3624
</TABLE>
38
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION made this day of August, 1998
by and between Crabbe Huson Funds (the "Crabbe Huson Trust"), a Delaware
business trust, on behalf of [name of Crabbe Huson fund,] a series of the Crabbe
Huson Trust (the "Crabbe Huson Fund"), and Colonial Trust III (the "Colonial
Trust"), a Massachusetts business trust, on behalf of [name of Crabbe Huson
fund,] a series of the Colonial Trust (the "New Crabbe Huson fund").
WHEREAS, the parties hereto intend to provide for the reorganization of the
Crabbe Huson Fund through the acquisition by the New Crabbe Huson Fund of all of
the assets, subject to all of the liabilities, of the Crabbe Huson Fund in
exchange for shares of beneficial interest, without par value, of the New Crabbe
Huson Fund (the "New Crabbe Huson Fund Shares"), the distribution to
shareholders of the Crabbe Huson Fund of such New Crabbe Huson Fund Shares, and
the liquidation of the Crabbe Huson Fund, all pursuant to the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION. (a) The Crabbe Huson Trust, on
behalf of the Crabbe Huson Fund, shall assign, sell, convey, transfer and
deliver to the New Crabbe Huson Fund at the closing provided for in Section 2
(hereinafter called the "Closing") all of the then existing assets of the Crabbe
Huson Fund of every kind and nature. In consideration therefor, the Colonial
Trust, on behalf of the New Crabbe Huson Fund, shall at the Closing (i) assume
all of the Crabbe Huson Fund's liabilities then existing, whether absolute,
accrued, contingent or otherwise, and (ii) deliver to the Crabbe Huson Fund (A)
a number of full and fractional Class A New Crabbe Huson Fund Shares (as defined
in Paragraph 3(i) below) equal to the number of full and fractional Primary
Class shares of the Crabbe Huson Fund ("Retail Crabbe Huson Fund Shares") then
outstanding which are held by holders of Retail Crabbe Huson Fund Shares
("Retail Crabbe Huson Fund Shareholders"), and (B) a number of full and
fractional Class I New Crabbe Huson Fund
39
<PAGE>
Shares (as defined in paragraph 3(i) below) equal to the number of full and
fractional Institutional Class shares of the Crabbe Huson Fund ("Institutional
Crabbe Huson Fund Shares") then outstanding which are held by holders of
Institutional Crabbe Huson Fund Shares ("Institutional Crabbe Huson Fund
Shareholders") other than the Retail Crabbe Huson Fund Shareholders. The
respective numbers of Retail Crabbe Huson Fund Shares and Institutional Crabbe
Huson Fund Shares issued and outstanding and the respective numbers of Class A
and Class I New Crabbe Huson Fund Shares to be issued to the Crabbe Huson Fund
shall be determined by the transfer agent of the Crabbe Huson Fund (the
"Transfer Agent"), as of the close of business on the New York Stock Exchange on
the Closing Date (as defined in Section 2 hereof). The determination of the
Transfer Agent shall be conclusive and binding on the Crabbe Huson Fund, the New
Crabbe Huson Fund and their respective shareholders.
(b) Upon consummation of the transactions described in paragraph (a) of this
Section 1, the Crabbe Huson Trust, on behalf of the Crabbe Huson Fund, shall
distribute, in complete liquidation of the Crabbe Huson Fund, (A) pro rata to
the Retail Crabbe Huson Fund Shareholders of record as of the Closing Date the
Class A New Crabbe Huson Fund Shares received by the Crabbe Huson Fund, and (B)
pro rata to the Institutional Crabbe Huson Fund Shareholders of record as of the
Closing Date the Class I New Crabbe Huson Fund Shares received by the Crabbe
Huson Fund. Such distribution shall be accomplished by the establishment, at the
expense of the New Crabbe Huson Fund, (A) of an open account on the records of
the New Crabbe Huson Fund in the name of each Retail Crabbe Huson Fund
Shareholder representing a number of Class A New Crabbe Huson Fund Shares equal
to the number of shares of the Crabbe Huson Fund owned of record by such
shareholder at the Closing Date, and (B) of an open account on the records of
the Crabbe Huson Fund in the name of each Institutional Crabbe Huson Fund
Shareholder representing a number of Class I Fund Shares equal to the number of
shares of the Crabbe Huson Fund owned of record by such shareholder at the
Closing Date. Certificates, if any, for shares of the Crabbe Huson Fund issued
prior to the reorganization and held by Retail Crabbe Huson Fund Shareholders
and Institutional Crabbe Huson Fund Shareholders shall represent the same number
of outstanding Class A or Class I New Crabbe Huson Fund Shares, respectively,
following the reorganization. In the interest of economy and convenience,
certificates representing the Crabbe Huson Fund Shares will not be physically
issued.
40
<PAGE>
(c) As promptly as practicable after the Closing Date, the Crabbe Huson Fund
shall be terminated pursuant to the provisions of the laws of the State of
Delaware, and, after the Closing Date, the Crabbe Huson Fund shall not conduct
any business except in connection with its liquidation.
2. CLOSING AND CLOSING DATE. The Closing shall occur at the offices of the
Colonial Trust, One Financial Center, 12th floor, Boston, Massachusetts 02111 at
[ ] Boston time on the first business day after the required approval by the
shareholders of the Crabbe Huson Fund specified in Section 3(c) hereof and the
fulfillment (to the extent not waived) of the other conditions precedent set
forth in Section 3, or at such later time and date as the parties may mutually
agree (the "Closing Date"). All acts taking place at the Closing shall be deemed
to take place simultaneously as of the close of business on the Closing Date
unless otherwise provided.
3. CONDITIONS PRECEDENT. The obligation of the Crabbe Huson Trust and the
Colonial Trust to effect the transactions contemplated hereunder shall be
subject to the satisfaction of each of the following conditions:
(a) the Crabbe Huson Trust and the Colonial Trust shall have received an
opinion of Ropes & Gray substantially to the effect that for federal income tax
purposes: (i) no gain or loss will be recognized by the Crabbe Huson Fund upon
(a) the exchange of any of its assets solely for New Crabbe Huson Fund Shares
and the assumption by the New Crabbe Huson Fund of any of the liabilities of the
Crabbe Huson Fund or (b) upon the distribution to the Retail Crabbe Huson Fund
Shareholders or the Institutional Crabbe Huson Fund Shareholders of the Class A
and Class I New Crabbe Huson Fund Shares, respectively; (ii) the tax basis of
all of the assets of the Crabbe Huson Fund received by the New Crabbe Huson Fund
will be, in each instance, the same as the tax basis of such assets in the hands
of the Crabbe Huson Fund immediately prior to the transfer; (iii) the New Crabbe
Huson Fund's holding period in all of the assets acquired from the Crabbe Huson
Fund will include, in each instance, the periods during which such assets were
held by the Crabbe Huson Fund; (iv) no gain or loss will be recognized by the
New Crabbe Huson Fund upon the receipt of any of the assets of the Crabbe Huson
Fund solely in exchange for New Crabbe Huson Fund Shares and the assumption by
the New Crabbe Huson Fund of any of the liabilities of the Crabbe Huson Fund;
(v) no gain or loss will be recognized by the shareholders of the Crabbe Huson
Fund upon the receipt of the New Crabbe Huson Fund Shares solely in exchange for
their shares in the Crabbe Huson Fund as part of the transaction; (vi) the basis
41
<PAGE>
of the New Crabbe Huson Fund Shares received by the shareholders of the Crabbe
Huson Fund will be, in each instance, the same as the basis of the shares of the
Crabbe Huson Fund exchanged therefor; and (vii) the holding period of the New
Crabbe Huson Fund Shares received by the shareholders of the Crabbe Huson Fund
will include, in each instance, the holding period of the shares of the Crabbe
Huson Fund exchanged therefor, provided that at the time of the exchange the
shares of the Crabbe Huson Fund were held as capital assets; and as to such
other matters as the Crabbe Huson Trust and the Colonial Trust may reasonably
request;
(b) This Agreement and Plan of Reorganization and the reorganization
contemplated hereby shall have been approved by the Board of Trustees of the
Crabbe Huson Trust and by the Board of Trustees of the Colonial Trust, and shall
have been recommended for approval to the shareholders of the Crabbe Huson Fund
by the Board of Trustees of the Crabbe Huson Trust;
(c) This Agreement and Plan of Reorganization and the reorganization
contemplated hereby shall have been adopted and approved by the affirmative vote
of the holders of a majority of the outstanding shares of the Crabbe Huson Fund,
as defined in the Investment Company Act of 1940 (the "1940 Act") [or two-thirds
of the outstanding shares for the Special Fund];
(d) The Colonial Trust on behalf of the New Crabbe Huson Fund shall have
entered into an Investment Management Agreement with Acquisition Corp., and such
Agreement shall have been approved by the Board of Trustees of the Colonial
Trust and, to the extent required by law, by the Board of Trustees of the
Colonial Trust who are not "interested persons" of the Colonial Trust as defined
in the 1940 Act (the "Independent Trustees"), as well as by the shareholders of
the New Crabbe Huson Fund (it being understood that the Crabbe Huson Fund, as
sole shareholder of the New Crabbe Huson Fund prior to the consummation of the
reorganization, hereby agrees and is authorized to vote for such approval);
(e) The Colonial Trust, on behalf of the New Crabbe Huson Fund, shall have
entered into a Distributor's Contract, including distribution plans (the "Rule
12b-1 Plans") adopted for Class A, B and C [no B and C share classes for Income
Fund] shares of the New Crabbe Huson Fund pursuant to Rule 12b-1 of the rules
and regulations under the 1940 Act, with Liberty Funds Distributor, Inc., and
such Contract (including the Plans) shall have been approved by the Board of
Trustees of the Colonial Trust and, to the extent required by law, by the
Independent Trustees of the Colonial Trust;
42
<PAGE>
(f) The Colonial Trust, on behalf of the New Crabbe Huson Fund, shall have
entered into a Transfer Agency Agreement with Colonial Investors Service Center,
Inc., and such Agreement shall have been approved by the Board of Trustees of
the Colonial Trust and, to the extent required by law, by the Independent
Trustees of the Colonial Trust;
(g) The Class A New Crabbe Huson Fund Shares shall have been
designated by the Board of Trustees of the Colonial Trust as a separate class of
shares of beneficial interest in the New Crabbe Huson Fund which shall be
subject to an asset-based service charge under the Rule 12b-1 Plan for such
Class A shares of up to 0.25% per annum and shall not be subject to any deferred
sales charge on redemption, and additional Class A shares may be purchased by
Retail Crabbe Huson Fund Shareholders without a sales charge [Income Fund to be
closed to new and existing shareholders]; the Class I New Crabbe Huson Fund
Shares shall have been designated by the Board of Trustees of the Colonial Trust
as a separate class of shares of beneficial interest in the New Crabbe Huson
Fund which shall not be subject to any asset-based service charge or
distribution fee under Rule 12b-1 of the rules and regulations under the 1940
Act and shall not be subject to any deferred sales charge on redemption, and
additional Class I shares may be purchased by the Institutional Crabbe Huson
Fund Shareholders without a sales charge [Income Fund to be closed to new and
existing shareholders]; and
(h) The transactions contemplated by the Asset Acquisition Agreement dated
June 10, 1998 among The Crabbe Huson Group, Inc., James E. Crabbe, Richard F.
Huson, Liberty Financial Companies, Inc. and LFC Acquisition Corp. shall have
been consummated.
At any time prior to the Closing, any of the foregoing conditions other than
that set forth in (l) above may be waived jointly by the Board of Trustees of
the Crabbe Huson Trust and the Board of Trustees of the Colonial Trust if, in
their judgment, such waiver will not have a material adverse effect on the
interests of the shareholders of the Crabbe Huson Fund and the New Crabbe Huson
Fund. If the transactions contemplated by this Agreement and Plan of
Reorganization have not been substantially completed by December 31, 1998, this
Agreement and Plan of Reorganization shall automatically terminate on that date
unless a later date is agreed to by both the Crabbe Huson Trust and the Colonial
Trust acting by their respective Boards of Trustees.
4. AMENDMENT. This Agreement may be amended at any time by the joint
action of the Board of Trustees of the Crabbe Huson Trust and the Board
43
<PAGE>
of Trustees of the Colonial Trust, notwithstanding approval thereof by the
shareholders of the Crabbe Huson Fund, provided that no amendment shall have a
material adverse effect on the interests of the shareholders of the Crabbe Huson
Fund or the New Crabbe Huson Fund.
5. TERMINATION. The Board of Trustees of the Crabbe Huson Trust and the
Board of Trustees of the Colonial Trust may jointly terminate this Agreement and
abandon the reorganization contemplated hereby, notwithstanding approval thereof
by the shareholders of the Crabbe Huson Fund, at any time prior to the Closing,
if circumstances should develop that, in their judgment, make proceeding with
the Agreement inadvisable.
6. NO BROKER'S OR FINDER'S FEE. The Crabbe Huson Trust and the Colonial
Trust each represent that there is no person who has dealt with it who by reason
of such dealings is entitled to any broker's, finder's or other similar fee or
commission from the Crabbe Huson Trust or the Colonial Trust arising out of the
transactions contemplated by this Agreement and Plan of Reorganization.
7. NO SURVIVAL OF COVENANTS AND AGREEMENTS. The covenants and agreements
of the parties contained herein shall not survive the Closing Date, except for
the provisions of Section 1(c).
8. RELIANCE. All covenants and agreements made under this Agreement and
Plan of Reorganization shall be deemed to have been material and relied upon by
each of the parties notwithstanding any investigation made by such party or on
its behalf.
9. NOTICES. All notices required or permitted under this Agreement and
Plan of Reorganization shall be given in writing (i) to the Crabbe Huson Trust
at 121 S.W. Morrison, Suite 1400, Portland, Oregon 97204, and (ii) to the
Colonial Trust at One Financial Center, Boston, Massachusetts 02111, or at such
other place as shall be specified in a written notice given by either party to
the other party to this Agreement and Plan of Reorganization, and shall be
validly given if mailed by first class mail, postage prepaid.
10. EXPENSES. The Crabbe Huson Fund and the New Crabbe Huson Fund shall
each bear their own expenses relating to the reorganization contemplated hereby
to the extent such expenses are not paid by others, provided, however, that if
the reorganization is consummated such expenses of the Crabbe Huson Fund, to the
extent not paid by others, shall be assumed and borne by the New Crabbe Huson
Fund.
44
<PAGE>
11. MISCELLANEOUS PROVISIONS. This Agreement and Plan of Reorganization
shall bind and inure to the benefit of the parties and their respective
successors and assigns. It shall be governed by and carried out in accordance
with the laws of The Commonwealth of Massachusetts. It is executed in several
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one agreement. A copy of the document establishing the
Colonial Trust is filed with the Secretary of The Commonwealth of Massachusetts.
This Agreement is executed by officers not as individuals and is not binding
upon any of the Trustees, officers or shareholders of the Colonial Trust
individually, but only upon the assets of the New Crabbe Huson Fund.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement and Plan
of Reorganization to be executed and delivered by their duly authorized officers
as of the day and year first written above.
CRABBE HUSON FUNDS (on behalf of [name of
Crabbe Huson Fund])
By:
---------------------------------------
NAME:
TITLE:
COLONIAL TRUST III
(on behalf name of Crabbe Huson Fund])
By:
---------------------------------------
NAME:
TITLE:
45
<PAGE>
EXHIBIT B
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT dated as of between COLONIAL TRUST III, a Massachusetts
business trust (Trust), with respect to CRABBE HUSON FUND (Fund), and
THE CRABBE HUSON GROUP, INC., a corporation (Adviser).
In consideration of the promises and covenants herein, the parties agree as
follows:
1. The Adviser will manage the investment of the assets of the fund in
accordance with its prospectus and statement of additional information and will
perform the other services herein set forth, subject to the supervision of the
Board of Trustees of the Trust. The adviser may delegate its investment
responsibilities to a sub-adviser.
2. In carrying out its investment management obligations, the Adviser
shall:
(a) Evaluate such economic, statistical and financial information and
undertake such investment research as it shall believe advisable;
(b) Purchase and sell securities and other investments for the Fund in
accordance with the procedures described in its prospectus and statement of
additional information; and
(c) Report results to the Board of Trustees of the Trust.
The Adviser shall be free to render similar services to others so long as
its services hereunder are not impaired thereby.
3. The Fund shall pay the Adviser monthly a fee at the annual rate of %
of the average daily net assets of the Fund.
4. If the operating expenses of the Fund for any fiscal year exceed the
most restrictive applicable expense limitation for any state in which shares are
sold, the Adviser's fee shall be reduced by the excess but not to less than
zero. Operating expenses shall not include brokerage, interest, taxes, deferred
organization expenses, Rule 12b-1 distribution fees, service fees and
extraordinary expenses, if any. The Adviser may waive its compensation (and bear
expenses of the Fund) to the extent that expenses of the Fund exceed any
expenses limitation the Adviser declares to be effective.
46
<PAGE>
5. This Agreement shall become effective as of the date of its execution,
and
(a) Unless otherwise terminated, shall continue until two years from its
date of execution and from year to year thereafter so long as approved
annually in accordance with the 1940 Act;
(b) May be terminated without penalty on sixty days' written notice to
the Adviser either by vote of the Board of Trustees of the Trust or by vote
of a majority of the outstanding shares of the Fund;
(c) Shall automatically terminate in the event of its assignment; and
(d) May be terminated without penalty by the Adviser on sixty days'
written notice to the Trust.
6. This Agreement may be amended in accordance with the 1940 Act.
7. For purposes of the Agreement, the terms "vote of a majority of the
outstanding shares", "affiliated person" and "assignment" shall have their
respective meanings defined in the 1940 Act and exemptions and interpretations
issued by the Securities and Exchange Commission under the 1940 Act.
8. In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Adviser, or reckless disregard of its obligations and duties
hereunder, the Adviser shall not be subject to any liability to the Trust or the
Fund, to any shareholder of the Trust or the Fund or to any other person, firm
or organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
COLONIAL TRUST III
(on behalf of CRABBE HUSON FUND)
By:
---------------------------------------
TITLE:
THE CRABBE HUSON GROUP INC.
By:
---------------------------------------
TITLE:
47
<PAGE>
A copy of the document establishing the Trust is filed with the Secretary of
The Commonwealth of Massachusetts. This Agreement is executed by officers no as
individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of the Fund.
48
<PAGE>
EXHIBIT C
NEW CRABBE HUSON FUNDS INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority
of the outstanding voting securities" means the affirmative vote of the lesser
of (1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more
of the shares present at a meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
Each Fund may:
1. Borrow from banks, other affiliated funds and other persons to the
extent permitted by applicable law, provided that a Fund's borrowings shall not
exceed 33 1/3% of the value of its total assets (including the amount borrowed)
less liabilities (other than borrowings) or such other percentage permitted by
law;
2. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets, except that the Real Estate Fund may own real
estate as a result of owning securities without limit;
3. Purchase and sell futures contracts and related options as long as the
total initial margin and premiums do not exceed 5% of total assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans (a) through lending of securities, (b) through the purchase
of debt instruments or similar evidences of indebtedness typically sold
privately to financial institutions, (c) through an interfund lending program
with other affiliated funds provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed 33 1/3% of the value of its
total assets (taken at market value at the time of such loans), and (d) through
repurchase agreements; and
6. Not concentrate more than 25% (not applicable to the Real Estate Fund)
of its total assets in any one industry or with respect to 75% of the Fund's
assets (not applicable to the Oregon Tax-Free Fund), purchase the
49
<PAGE>
securities of any issuer (other than the obligations issued or guaranteed as to
principal and interest by the Government of the United States or any agency or
instrumentality thereof) if, as a result of such purchase, more than 5% of the
Fund's total assets would be invested in the securities of such issuer.
Notwithstanding the investment policies and restrictions of the Funds, each
Fund may invest all or a portion of its investable assets in management
investment companies with substantially the same investment objectives, policies
and restrictions as such Fund.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, each Fund may not:
1. Have a short sales position (except for the Special Fund), unless the
Fund owns, or owns rights (exercisable without payment) to acquire an equal
amount of securities; and
2. Invest more than 15% of its net assets in illiquid assets.
50
<PAGE>
EXHIBIT D
TRUSTEES OF NEW CRABBE HUSON FUNDS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE DURING PAST FIVE YEARS
- -------------------------------------- --- -------------------------------------
<S> <C> <C>
Robert J. Birnbaum 70 Consultant (formerly Special Counsel,
313 Bedford Road Dechert Price & Rhoads from
Ridgewood, NJ 07450 September, 1988 to December, 1993,
President, New York Stock Exchange
from May, 1985 to June, 1988,
President, American Stock Exchange,
Inc. from 1977 to May, 1985).
Tom Bleasdale 68 Retired (formerly Chairman of the
11 Carriage Way Board and Chief Executive Officer,
Danvers, MA 01923 Shore Bank & Trust Company from
1992-1993), is a Director of The
Empire Company since June, 1995.
Lora S. Collins 62 Attorney (formerly Attorney, Kramer,
1175 Hill Road Levin, Naftalis & Frankel from
Southold, NY 11971 September, 1986 to November, 1996).
James E. Grinnell 68 Private Investor since November,
22 Harbor Avenue 1988.
Marblehead, MA 01945
Richard W. Lowry 62 Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE DURING PAST FIVE YEARS
- -------------------------------------- --- -------------------------------------
<S> <C> <C>
William E. Mayer 58 Partner, Development Capital, LLC
500 Park Avenue, 5th Floor (formerly Dean, College of Business
New York, NY 10022 and Management, University of
Maryland from October, 1992 to
November, 1996, Dean, Simon Graduate
School of Business, University of
Rochester from October, 1991 to July,
1992).
James L. Moody, Jr. 66 Retired (formerly Chairman of the
16 Running Tide Road Board, Hannaford Bros. Co. from May,
Cape Elizabeth, ME 04107 1984 to May, 1997, and Chief
Executive Officer, Hannaford Bros.
Co. from May, 1973 to May, 1992).
John J. Neuhauser 55 Dean, Boston College School of
140 Commonwealth Avenue Management since September, 1977.
Chestnut Hill, MA 02167
Robert L. Sullivan 70 Retired Partner, KPMG Peat Marwick
7121 Natelli Woods Lane LLP
Bethesda, MD 20817
</TABLE>
The Board of Trustees has 6 standing committees; governance, audit, advisory
fees and expenses, transfer agency, trading oversight/brokerage and
compensation. Each Trustee serves on 3 committees.
52
