SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material under Rule 14a-12
COLUMBIA FLOATING RATE FUND
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
COLUMBIA FLOATING RATE ADVANTAGE FUND
(Name of Registrant as Specified in its Charter)
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
Payment of filing fee (check the approximate 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:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] 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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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COLUMBIA FLOATING RATE FUND
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
COLUMBIA FLOATING RATE ADVANTAGE FUND
One Financial Center
Boston, Massachusetts 02111-2621
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 30, 2004
To the Shareholders:
A special meeting of the shareholders (the "Meeting") of each of Columbia
Floating Rate Fund, Columbia Institutional Floating Rate Income Fund and
Columbia Floating Rate Advantage Fund will be held on July 30, 2004 at 10:00
a.m., Eastern Time, at One Financial Center, Boston, Massachusetts 02111-2621,
for the following purposes:
1. To approve new advisory agreements between Highland Capital
Management, L.P. and each of Columbia Floating Rate Limited Liability
Company and Columbia Floating Rate Advantage Fund.
2. To elect new trustees/managers to the Board of Trustees/Managers of
each of Columbia Floating Rate Fund, Columbia Institutional Floating
Rate Income Fund, Columbia Floating Rate Limited Liability Company and
Columbia Floating Rate Advantage Fund.
3. To transact any other business as may properly come before the
Meeting, or any adjournments thereof.
Shareholders of record at the close of business on June 1, 2004 are
entitled to notice of, and to vote at, the Meeting. Your attention is called to
the accompanying Proxy Statement. Regardless of whether you plan to attend the
Meeting, PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY so
that a quorum will be present and a maximum number of shares may be voted. If
you are present at the Meeting, you may change your vote, if desired, at that
time.
By the Order of the Trustees/Managers
David A. Rozenson, Secretary
Dated: June [14], 2004
YOUR BOARD OF TRUSTEES/MANAGERS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE PROPOSALS.
COLUMBIA FLOATING RATE FUND
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
COLUMBIA FLOATING RATE ADVANTAGE FUND
One Financial Center
Boston, Massachusetts 02111-2621
SPECIAL MEETING OF SHAREHOLDERS
July 30, 2004
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 30, 2004
A special meeting of shareholders (the "Meeting") of each of Columbia
Floating Rate Fund (the "Floating Rate Fund"), Columbia Institutional Floating
Rate Income Fund (the "Institutional Fund") and Columbia Floating Rate Advantage
Fund (the "Advantage Fund" and, together with the Floating Rate LLC (as defined
herein), each a "Fund" and collectively, the "Funds"), will be held on July 30,
2004 at 10:00 a.m., Eastern Time, at One Financial Center, Boston, Massachusetts
02111-2621, for the following purposes (each a "Proposal" and collectively, the
"Proposals"), each of which is described below:
1. To approve new advisory agreements between Highland Capital
Management, L.P. ("Highland") and each of Columbia Floating Rate
Limited Liability Company (the "Floating Rate LLC") and the Advantage
Fund.
2. To elect new trustees/managers to the Board of Trustees/Managers of
each of the Floating Rate Fund, the Institutional Fund, the Floating
Rate LLC and the Advantage Fund.
3. To transact any other business as may properly come before the
Meeting, or any adjournments thereof.
Solicitation of Proxies
This solicitation of proxies is being made by the Board of
Trustees/Managers (the "Board") of each of the Funds, in connection with the
sale by Columbia Management Advisors, Inc. ("Columbia") of certain of the assets
of its bank loan asset management group to Highland. Solicitation of proxies is
being made primarily by the mailing of this Notice and Proxy Statement with its
enclosures on or about June [14], 2004. Shareholders of record at the close of
business on June 1, 2004 (the "Record Date") are entitled to notice of, and to
vote at, the Meeting. Shareholders of the Funds whose shares are held by
nominees, such as brokers, can vote their proxies by contacting their respective
nominees. In addition to the solicitation of proxies by mail, officers and
agents of the Funds and their affiliates may, without additional compensation,
solicit proxies by telephone, telegraph, facsimile, or oral communication.
Solicitation may also be made by Investor Connect, a division of The Altman
Group, a paid proxy solicitation firm. The costs of soliciting the proxies,
estimated to be approximately ten thousand U.S. dollars (US$10,000), will be
borne by Columbia and Highland pursuant to the terms of the Asset Purchase
Agreement (as defined herein), and not by the Funds.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with the appropriate Fund a written revocation or duly executed
proxy bearing a later date. In addition, any shareholder who attends the Meeting
in person may vote by ballot at the Meeting, thereby canceling any proxy
previously given. The persons named in the accompanying proxy will vote as
directed by the proxy, but in the absence of voting directions in any proxy that
is signed and returned, they intend to vote "FOR" the Proposals and may vote in
their discretion with respect to other matters not now known to the Board of
Trustees/Managers of the Funds that may be presented at the Meeting.
Master/Feeder Structure and Voting
The Floating Rate Fund and the Institutional Fund are "feeder funds" of the
Floating Rate LLC, which means that they invest substantially all of their
assets in shares of the Floating Rate LLC. The Floating Rate Fund and the
Institutional Fund do not have advisory contracts of their own, but shareholders
of such Funds are entitled to vote, as a single class, on the advisory contract
for the Floating Rate LLC. The Floating Rate Fund and the Institutional Fund
have their own trustees, but shareholders of such Funds are entitled to vote, as
a single class, on the proposed managers for the Floating Rate LLC. The Floating
Rate Fund and the Institutional Fund are the only feeder funds of the Floating
Rate LLC. Accordingly, shareholders of the Floating Rate Fund and the
Institutional Fund are being asked to vote on the advisory contract and the
proposed managers for the Floating Rate LLC.
Shareholder Voting Summary
The following table summarizes the Proposals and the Funds whose
shareholders need to vote with respect thereto. With respect to the Floating
Rate LLC, each Proposal may be voted on by shareholders of both the Floating
Rate Fund and the Institutional Fund, voting as one aggregate class.
- --------------------------------------------------------------------------------
Columbia Institutional Columbia Floating
Columbia Floating Floating Rate Income Rate Advantage
Rate Fund Fund Fund
- --------------------------------------------------------------------------------
Proposal 1: Approval of New Advisory Contracts
- --------------------------------------------------------------------------------
New Advisory X X
Contract for
Columbia Floating
Rate Limited
Liability Company
- --------------------------------------------------------------------------------
New Advisory X
Contract for
Columbia Floating
Rate Advantage
Fund
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Columbia Institutional Columbia Floating
Columbia Floating Floating Rate Income Rate Advantage
Rate Fund Fund Fund
- --------------------------------------------------------------------------------
Proposal 2: Election of Trustees/Managers
- --------------------------------------------------------------------------------
Election of X
Trustees for
Columbia Floating
Rate Fund
- --------------------------------------------------------------------------------
Election of X
Trustees for
Columbia
Institutional
Floating Rate
Income Fund
- --------------------------------------------------------------------------------
Election of X X
Managers for
Columbia Floating
Rate Limited
Liability Company
- --------------------------------------------------------------------------------
Election of X
Trustees for
Columbia Floating
Rate Advantage
Fund
- --------------------------------------------------------------------------------
Voting Rights
Shareholders of each Fund at the close of business on the Record Date will
be entitled to be present and to give voting instructions for the relevant Fund
at the Meeting and any adjournments thereof with respect to their shares owned
as of the Record Date. Shareholders of each Fund will be entitled to cast one
vote on the Proposal and on each other matter that they are entitled to vote
upon at the Meeting for each share owned on the Record Date. Shareholders of
each Fund will also be entitled to cast a proportionate fractional vote on the
Proposal and on each other matter that they are entitled to vote upon at the
Meeting for each fractional share owned on the Record Date. As of the Record
Date, each of the Funds have the following numbers of shares outstanding, which
in each case equals the number of votes to which the shareholders of such Fund
are entitled:
Fund Shares Outstanding
- ------------------------------------------------ ------------------
Columbia Floating Rate Fund [??]
Columbia Institutional Floating Rate Income Fund [??]
Columbia Floating Rate Advantage Fund [??]
Thirty (30) per centum of the outstanding shares of each Fund on the Record
Date, represented in person or by proxy, must be present to constitute a quorum.
If a quorum for any Fund is not present at the Meeting, or if a quorum is
present but sufficient votes to approve a Proposal in which that Fund's
shareholders are voting have not been received, the persons named as proxies may
propose one or more adjournments of the Meeting as to that Fund to permit
further solicitation of proxies. Any adjournment will require the affirmative
vote of a majority of the shares of that Fund represented at the Meeting in
person or
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by proxy. In that case, the persons named as proxies will vote all proxies that
they are entitled to vote FOR such an adjournment; provided, however, that any
proxies required to be voted against any Proposal will be voted AGAINST such
adjournment.
The Funds expect that, before the Meeting, broker-dealer firms holding
shares of the Funds in "street name" for their customers will request voting
instructions from their customers and beneficial owners. If these instructions
are not received by the date specified in the broker-dealer firms' proxy
solicitation materials, the Funds understand that the broker-dealers that are
members of the New York Stock Exchange may vote on the items to be considered at
the Meeting on behalf of their customers and beneficial owners under the rules
of the New York Stock Exchange.
In determining whether a quorum is present, the tellers will count shares
represented by proxies that reflect abstentions, and "broker non-votes," as
shares that are present and entitled to vote. Since these shares will be counted
as present, but not as voting in favor of any Proposal, for purposes other than
adjournment, these shares will have the same effect as if they cast votes
against the Proposal. "Broker non-votes" are shares held by brokers or nominees
as to which (i) the broker or nominee does not have discretionary voting power
and (ii) the broker or nominee has not received instructions from the beneficial
owner or other person who is entitled to instruct how the shares will be voted.
Dissenting shareholders have no rights of appraisal or similar rights.
Beneficial Owners
Appendix A to this Proxy Statement lists the persons that, to the knowledge
of the Funds, owned beneficially 5% or more of the outstanding shares of any
class of any Fund as of the Record Date. A shareholder who owns beneficially,
directly or indirectly, more than 25% of any Fund's voting securities may be
deemed a "control person" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of such Fund. The Trustees/Managers and officers of
each Fund, in the aggregate, owned less than one (1) per centum of each Fund's
outstanding shares as of the Record Date. The Board of Trustees/Managers of the
Funds is aware of no arrangements the operation of which at a subsequent date
may result in a change in control of any Fund.
Expenses
The expenses incurred in connection with the solicitation of proxies for
the Meeting, including preparation, filing, printing, mailing, solicitation,
legal fees, out-of-pocket expenses and expenses of any proxy solicitation firm
will be paid by Columbia and Highland, pursuant to the terms of the Asset
Purchase Agreement (as defined herein).
Shareholder Reports
Each Fund will furnish, without charge, a copy of its most recent annual
report, and its most recent semiannual report subsequent to such annual report,
to its shareholders on request.
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Requests for a report should be directed to such Fund by mail to One Financial
Center, Boston, Massachusetts 02111-2621, or by calling 1-800-426-3750.
PROPOSAL 1
TO APPROVE NEW ADVISORY AGREEMENTS
COLUMBIA FLOATING RATE FUND
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
COLUMBIA FLOATING RATE ADVANTAGE FUND
Background
On April 9, 2004, Columbia and Highland entered into an agreement (the
"Asset Purchase Agreement") to sell certain of the assets of Columbia's bank
loan asset management group (the "BLAM Group"), insofar as it relates to the
Funds, to Highland (such transaction, the "Sale"). The Sale closed on April 15,
2004 (the "Closing Date"). Upon completion of the Sale, the advisory agreements
between Columbia and each of the Floating Rate LLC and the Advantage Fund (the
"Prior Advisory Agreements") were terminated, and interim advisory agreements
between Highland and each of the Floating Rate LLC and the Advantage Fund (the
"Interim Advisory Agreements") took effect. Unless the Interim Advisory
Agreements are otherwise terminated, they will continue in effect (a) until new
advisory agreements between Highland and each of the Floating Rate LLC and the
Advantage Fund are approved by the shareholders of the appropriate Funds (each a
"New Advisory Agreement" and collectively, the "New Advisory Agreements") or (b)
for 150 days from the Closing Date, whichever is sooner. Accordingly,
shareholders of the Advantage Fund are being asked to approve a New Advisory
Agreement for the Advantage Fund, and shareholders of the Floating Rate Fund and
the Institutional Fund are being asked, as a single class, to approve a New
Advisory Agreement for the Floating Rate LLC, each to be effective immediately
after such approval.
At a meeting held on March 29, 2004, the Board of Trustees/Managers,
including the Trustees/Managers who are not "interested persons" of the Funds
(the "Independent Trustees/Managers"), as such term is defined in the 1940 Act,
approved the New Advisory Agreements by an unanimous vote of the
Trustees/Managers present, subject to shareholder approval. A description of the
New Advisory Agreements is provided below under the caption "The New Advisory
Agreements." Such description is only a summary and is qualified in its entirety
by reference to the forms of the New Advisory Agreements attached to this Proxy
Statement in Appendix B. In addition, a summary of the considerations of the
Board of Trustees/Managers with respect to the New Advisory Agreements is
provided below under the caption "Trustees'/Managers' Considerations."
In approving the New Advisory Agreements, the Trustees/Managers took into
account that there will be no change in advisory fees paid by the Funds. The
Trustees/Managers also considered that the expenses incurred in connection with
the Meeting would be split between Columbia and Highland and that no such
expenses will be paid by the Funds or their shareholders. Furthermore, based on
the representations of Highland regarding its intentions, the
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Trustees/Managers do not currently anticipate that there will be substantial
changes in the investment policies of the Funds.
The New Advisory Agreements
THE NEW ADVISORY AGREEMENTS WILL NOT RESULT IN A CHANGE IN ADVISORY FEES
PAID BY THE FUNDS. Under the New Advisory Agreements, Highland will, among other
things: (i) continuously furnish an investment program for the Advantage Fund
and the Floating Rate LLC; (ii) place orders for the purchase and sale of
securities for the accounts of the Advantage Fund and the Floating Rate LLC;
(iii) provide for certain facilities and administrative services; (iv) arrange
for the provision and maintenance of an insurance bond against larceny and
embezzlement by officers and employees of the Advantage Fund and the Floating
Rate LLC; and (v) generally manage, supervise and conduct the affairs and
business of the Advantage Fund and the Floating Rate LLC. The Advantage Fund and
the Floating Rate LLC will be responsible for expenses related to, among other
things: (i) fund organization; (ii) shareholder servicing, custodial,
depository, accounting, pricing and trustee services; (iii) bookkeeping,
accounting and auditing; (iv) brokerage and related costs; (v) taxes; (vi)
registration and filing fees; (vii) preparation and printing of certificates
relating to the issuance of securities, prospectuses and marketing materials;
(viii) shareholder and Board meetings and the preparation, printing and mailing
of proxy statements, reports and other communications to shareholders; (ix)
maintenance of books and records; (x) insurance; (xi) legal counsel in
connection with matters relating to the Advantage Fund and the Floating Rate
LLC; and (xii) interest on borrowings by the Advantage Fund and the Floating
Rate LLC. Forms of the New Advisory Agreements are attached to this Proxy
Statement in Appendix B, and the description set forth in this Proxy Statement
of the New Advisory Agreements is qualified in its entirety by reference to
Appendix B.
Under the New Advisory Agreements, subject to the supervision of the
Trustees/Managers of the Funds, Highland will manage the investment of the
assets of the Funds in accordance with the Funds' Prospectuses (the
"Prospectuses") and Statements of Additional Information, and in compliance with
the 1940 Act and the rules, regulations and orders thereunder.
Under each of the New Advisory Agreements, Highland will be entitled to
compensation at the same rates as under the Prior Advisory Agreements. Highland
will be entitled to receive from the Advantage Fund a monthly fee, computed and
accrued daily, at the annual rate of 0.45% of the average net assets of the
Advantage Fund for the first one billion U.S. dollars (US$1,000,000,000), 0.40%
of the average net assets of each Fund for the next one billion U.S. dollars
(US$1,000,000,000) and 0.35% of the average net assets of each Fund that exceed
two billion U.S. dollars (US$2,000,000,000). Highland will be entitled to
receive from the Floating Rate LLC a monthly fee, computed and accrued daily, at
the annual rate of 0.45% of the average net assets of the Floating Rate LLC.
During the fiscal year ended August 31, 2003, the investment adviser for
the Advantage Fund received one million one hundred seventy-eight thousand U.S.
dollars (US$1,178,000) from the Advantage Fund in total advisory fees pursuant
to its Prior Advisory Agreement, and
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the investment adviser for the Floating Rate LLC received two million
seventy-two thousand U.S. dollars (US$2,072,000) from the Floating Rate LLC in
total advisory fees pursuant to its Prior Advisory Contract.
The New Advisory Agreements will continue in effect for a period not to
exceed two years from their effective dates, and thereafter shall continue
automatically for successive annual periods, provided that such continuance is
specifically approved with respect to each Fund at least annually by (i) the
Board of Trustees/Managers of such Fund or (ii) the vote of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of such Fund;
provided, that in either event such continuance also is approved by a majority
of the Independent Trustees/Managers of such Fund, by vote cast in person at a
meeting called for the purpose of voting on such approval. Each New Advisory
Agreement generally provides that it may be terminated at any time, without
penalty, by (i) the Board of Trustees/Managers of the Fund to which it applies,
(ii) the vote of a "majority of the outstanding voting securities" (as defined
in the 1940 Act) of the Fund to which it applies or (iii) by Highland, in each
case on not more than sixty (60) days' nor less than thirty (30) days' written
notice. Each New Advisory Agreement also shall terminate automatically in the
event of its "assignment" (as defined in the 1940 Act). Each New Advisory
Agreement may be amended only by a written instrument and only upon approval by
the vote of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Fund to which it applies.
Highland will carry out its duties under the New Advisory Agreements at its
own expense. Each Fund will pay its own ordinary operating and activity
expenses, such as legal and auditing fees, fees of the adviser, the
administrator, the custodian, accounting services and third-party shareholder
servicing agents, the cost of communicating with shareholders and registration
fees, as well as other operating expenses such as interest, taxes, brokerage,
insurance, bonding, compensation of Independent Trustees/Managers of such Fund
and extraordinary expenses.
Like the Prior Advisory Agreements, the New Advisory Agreements provide
that in the absence of willful misfeasance, bad faith or gross negligence in the
performance (or reckless disregard) of its obligations or duties thereunder on
the part of Highland, Highland shall not be subject to liability to the Funds or
to any shareholder of the Funds for any error of judgment or mistake of law, for
any loss arising out of any investment or for any act or omission in the
execution and management of the Funds.
The Interim Advisory Agreements
The Interim Advisory Agreements were entered into on April 15, 2004.
Shareholder approval of the Interim Advisory Agreements is not required under
the 1940 Act. There are no material differences between the provisions of the
Interim Advisory Agreements and the provisions of the New Advisory Agreements,
except that each Interim Advisory Agreement (i) provides for the commencement of
full advisory responsibilities effective immediately after the Closing Date;
(ii) will terminate automatically upon the close of business on the 150th day
following the Closing Date; (iii) can be terminated at any time, without the
payment of penalty, by either the Board of Trustees/Managers of the Fund to
which it applies or by vote of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of the Fund to which
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it applies, in either case upon ten (10) days' written notice to Highland; and
(iv) provides that any compensation earned under such Interim Advisory Agreement
will be held in an interest-bearing escrow account, with such compensation
(including interest earned thereon) to be paid to Highland if holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Fund to which it applies approve such Fund's New Advisory Agreement by the
close of business on the 150th day following the Closing Date. If such Fund's
New Advisory Agreement is not approved by holders of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of such Fund,
Highland will be paid, out of the escrow account, the lesser of (i) any costs
incurred in performing the Interim Advisory Agreement (plus interest earned on
that amount while in escrow), or (ii) the total amount in the escrow account
(plus interest earned thereon). The Trustees/Managers of the Funds approved the
Interim Advisory Agreements on March 29, 2004.
Covenants Regarding Certain Legal Requirements Under the 1940 Act
Highland has made certain covenants regarding compliance with Section 15(f)
of the 1940 Act, which provides in pertinent part that the investment adviser or
any of its affiliated persons may receive any amount or benefit in connection
with certain transactions involving an assignment of an investment advisory
agreement as long as two conditions are satisfied. The first condition requires
that no "unfair burden" may be imposed on the investment company as a result of
such transactions, or as a result of any express or implied terms, conditions or
understandings applicable to such transactions. The term "unfair burden," as
defined in the 1940 Act, includes any arrangement during the two-year period
after the change in control whereby the investment adviser (or predecessor or
successor adviser), or any interested person of any such adviser, receives or is
entitled to receive any compensation, directly or indirectly, from such
investment company or its security holders (other than fees for bona fide
investment advisory or other services) or from any person in connection with the
purchase or sale of securities or other property to, from or on behalf of such
investment company (other than bona fide ordinary fees for principal
underwriting services). No such compensation arrangements were contemplated in
the Sale. Highland has agreed with Columbia to use its reasonable best efforts
to ensure that neither the Sale nor any terms, conditions or understandings
applicable thereto will cause the imposition of an "unfair burden" on the Funds.
There will be no increase in rates of fees or other compensation during the
applicable two-year period.
The second condition requires that, during the three-year period
immediately following consummation of such transactions, at least seventy-five
(75) per centum of the investment company's board of trustees must not be
"interested persons" (as defined in the 1940 Act) of the investment adviser or
predecessor investment adviser. The Board of Trustees/Managers of the Funds
currently satisfies, the Nominees (as hereinafter defined), if elected, would
satisfy, and Highland has agreed with Columbia to use its reasonable best
efforts to ensure continued satisfaction of, such seventy-five (75) per centum
requirement.
Information Regarding Highland
Highland is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended. Highland specializes in credit and special
situation investing, and as of March 31, 2004 manages $7,660,000,000 in
leveraged loans, high-yield bonds, structured
-8-
products and other assets for banks, insurance companies, pension plans,
foundations and high-net-worth individuals. Current portfolios include
structured investment vehicles, separate accounts and hedge funds. Additionally,
Highland manages two closed-end registered investment companies listed on the
New York Stock Exchange. Highland's principal office address is 13455 Noel Road,
Suite 1300, Dallas, Texas 75240. Highland also maintains an office at 245 Park
Avenue, 39th Floor, New York, New York 10167.
Highland's principal executive officers and general partners and the
principal occupation of each are shown below.
Name Principal Occupation Address
- --------------------- ------------------------ ---------------------------
James Dondero President and 13455 Noel Road, Suite 1300
Managing Partner Dallas, Texas 75240
Mark Okada Chief Investment Officer 13455 Noel Road, Suite 1300
Dallas, Texas 75240
Todd Travers Senior Portfolio Manager 13455 Noel Road, Suite 1300
Dallas, Texas 75240
Strand Advisors, Inc. General Partner 13455 Noel Road, Suite 1300
Dallas, Texas 75240
Highland's Parent is shown below, along with its basis of control. For
purposes of this Proxy Statement, the term "Parent" has the meaning ascribed to
it in Item 22(a)(1)(ix) of Schedule 14A under the Securities Exchange Act of
1934 (the "Exchange Act").
Highland Parent Basis of Control Immediate Parent Basis of Control
- --------------------- ---------------- ---------------- ----------------
Strand Advisors, Inc. General Partner None None
Mr. Dougherty, a Nominee, is a senior portfolio manager for Highland.
Highland does not manage any other funds having an investment objective similar
to that of the Funds.
Broker Affiliations
Fleet Securities, Inc. is the parent company of Quick & Reilly, Inc., and
both Fleet Securities, Inc. and Quick & Reilly, Inc. were deemed to be
Affiliated Brokers of the Funds for the fiscal year ended August 31, 2003
because all of Fleet Securities, Inc., Quick & Reilly, Inc. and Columbia (at
that time the investment adviser for the Funds) were indirectly owned by
FleetBoston Financial Corporation. No Fund paid commissions to any Affiliated
Broker during the fiscal year ended August 31, 2003. For purposes of this proxy
statement, "Affiliated Broker" has the meaning ascribed to it in Item
22(a)(1)(ii) of Schedule 14A under the Exchange Act.
-9-
Trustees'/Managers' Considerations
The Board of Trustees/Managers, including a majority of the Independent
Trustees/Managers, approved the New Advisory Agreements and their submission for
shareholder approval by unanimous vote of the Trustees/Managers present at a
meeting on March 29, 2004. The Interim Advisory Agreements became effective
immediately after the Closing Date. Only when the New Advisory Agreements are
approved by the shareholders will the New Advisory Agreements be in effect and
replace the Interim Advisory Agreements.
If the New Advisory Agreements are not approved by the shareholders, the
Trustees/Managers will promptly consider alternatives.
The Board of Trustees/Managers has been presented with information that it
believes demonstrates that the terms of the New Advisory Agreements are fair to,
and in the best interests of, the Funds and the shareholders of the Funds.
Information was presented at the meeting of the Board of Trustees/Managers on
March 29, 2004 with respect to the Sale. Specific details about the information
considered by the Board of Trustees/Managers are provided below. The Board of
Trustees/Managers expects that there will be no diminution in the scope and
quality of advisory services provided to the Funds as a result of the Sale.
Information considered by the Board of Trustees/Managers in forming the
basis of its recommendation to approve the New Advisory Agreements included,
among other things: (1) the fact that the compensation rates to be received by
Highland under the New Advisory Agreements is the same as the compensation rates
paid under the Prior Advisory Agreements; (2) the experience and resources of
Highland, and Highland's performance history in managing similar accounts; (3)
Highland's covenant that it will use its reasonable best efforts to ensure that
no "unfair burden" (as defined in the 1940 Act) is imposed on the Funds as a
result of the Sale; (4) Highland's covenant that it will use its reasonable best
efforts to ensure that seventy-five (75) per centum of the Board of
Trustees/Managers of the Funds remain disinterested; and (5) Highland's
financial strength and commitment to the investment advisory business generally.
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Related Approvals
Pursuant to the Asset Purchase Agreement, Highland has indicated that it
will not become the investment adviser for any Fund unless the New Advisory
Contracts are approved by the shareholders of both the Floating Rate Fund and
the Advantage Fund. If the shareholders of either of the Floating Rate Fund or
the Advantage Fund do not vote to approve the New Advisory Contracts, then
Highland may or may not agree to serve as the investment adviser for any Fund
that approves its New Advisory Contract.
Vote Required and Recommendation
Approval of the Proposal on behalf of the Advantage Fund requires the
affirmative vote of a "majority of the outstanding voting securities" of such
Fund, which for this purpose means the affirmative vote of the lesser of (i)
more than fifty (50) per centum of the outstanding shares of such Fund or (ii)
sixty-seven (67) per centum or more of the shares of such Fund present at the
Meeting if more than fifty (50) per centum of the outstanding shares of such
Fund are represented at the Meeting in person or by proxy.
Approval of the Proposal on behalf of the Floating Rate LLC requires the
affirmative vote of a "majority of the outstanding voting securities" of each of
the Floating Rate Fund and the Institutional Fund, voting as a single class,
which for this purpose means the affirmative vote of the lesser of (i) more than
fifty (50) per centum of the outstanding shares of each of the Floating Rate
Fund and the Institutional Fund, voting as a single class, or (ii) sixty-seven
(67) per centum or more of the shares of each of the Floating Rate Fund and the
Institutional Fund present at the Meeting, voting as a single class, if more
than fifty (50) per centum of the aggregate of the outstanding shares of such
Funds are represented at the Meeting in person or by proxy.
THE BOARD OF TRUSTEES/MANAGERS OF THE FUNDS, INCLUDING THE INDEPENDENT
TRUSTEES/MANAGERS, HAS CONCLUDED THAT THE PROPOSAL IS IN THE BEST INTERESTS OF
THE SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL.
PROPOSAL 2
TO ELECT NEW TRUSTEES/MANAGERS
COLUMBIA FLOATING RATE FUND
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
COLUMBIA FLOATING RATE ADVANTAGE FUND
Background
In connection with the Sale, the Board of Trustees/Managers is proposed to
be replaced with new Trustees/Managers who are more familiar with Highland and
with the management and operation of other funds advised by Highland. Messrs.
Timothy K. Hui, Scott F. Kavanaugh, James F. Leary, Bryan A. Ward and R. Joseph
Dougherty (the "Nominees") (each of whom has
-11-
agreed to serve) have been nominated for election as Trustees/Managers of each
of the Funds. With respect to the Advantage Fund, the Nominees are to be elected
by the holders of the Class A, Class B, Class C and Class Z shareholders, voting
together as a single class. With respect to the Floating Rate Fund, the Nominees
are to be elected by the holders of the Class A, Class B, Class C and Class Z
shareholders, voting together as a single class. With respect to the
Institutional Fund, the Nominees are to be elected by the shareholders. With
respect to the Floating Rate LLC, the Nominees are to be elected by the holders
of the Class A, Class B, Class C and Class Z shareholders of the Floating Rate
Fund and the shareholders of the Institutional Fund, voting together as a single
class. The Nominees will serve in accordance with the Declaration of Trust,
By-laws and Limited Liability Company Agreement of each Fund, as applicable.
At a meeting held on May 12, 2004, the Board of Trustees/Managers,
including the Independent Trustees/Managers, nominated the Nominees for election
by shareholders. If any one or more of the Nominees are elected by the
shareholders of any one or more of the Funds, then the terms of all current
members of the Board of Trustees/Managers for such Fund(s) will expire. If any
Nominee becomes unavailable for election, the enclosed proxy card may be voted
for a substitute nominee in the discretion of the proxy holder(s).
Required Vote
With respect to the Advantage Fund, the affirmative vote of a plurality of
the holders of shares of beneficial interest of the Advantage Fund present at
the Meeting in person or by proxy is required for the election of each of the
Nominees. With respect to the Floating Rate Fund, the affirmative vote of a
plurality of the holders of shares of beneficial interest of the Floating Rate
Fund present at the Meeting in person or by proxy is required for the election
of each of the Nominees. With respect to the Institutional Fund, the affirmative
vote of a plurality of the holders of shares of beneficial interest of the
Institutional Fund present at the Meeting in person or by proxy is required for
the election of each of the Nominees. With respect to the Floating Rate LLC, the
affirmative vote of a plurality of the holders of shares of beneficial interest
of the Floating Rate Fund and the Institutional Fund (voting as a single class)
present at the Meeting in person or by proxy is required for the election of
each of the Nominees. A plurality vote means that the persons receiving the
highest number of votes will be elected.
Information Regarding the Nominees and the Officers
For information regarding the Nominees and the officers of the Funds, see
Appendix C to this Proxy Statement.
Ownership of Shares of the Funds by Nominees
Appendix D to this Proxy Statement provides information, as of the Record
Date, regarding the beneficial ownership by the Nominees of equity securities in
(a) the Funds, (b) the Funds' "Family of Investment Companies" (as defined in
Item 22(a)(1)(iv) of Schedule 14A under the Exchange Act), (c) an investment
adviser or principal underwriter of the Funds and (d)
-12-
a person (other than a fund) in a control relationship with an investment
adviser or principal underwriter of the Funds.
Officer Compensation
No officer of the Funds receives compensation from any Fund.
Committees of the Board of Trustees/Managers of the Funds
The Board is responsible for the overall management and supervision of the
Funds' affairs and for protecting the interests of the Funds' shareholders. The
Board has created several committees to perform specific functions on behalf of
the Funds. The members of each committee, a description of each committee's
functions and a table setting forth the number of meetings held by the Board and
each committee during the fiscal year ended August 31, 2003 appear below.
AUDIT COMMITTEE
Each Fund has an audit committee (the "Audit Committee") comprised only of
Independent Trustees/Managers. Each member of the Audit Committee must be
financially literate and at least one member must have prior accounting or
related financial management expertise. The current members of the Audit
Committee are Ms. Anne-Lee Verville and Messrs. Douglas A. Hacker, Thomas E.
Stitzel and Richard L. Woolworth.
The Audit Committee adopted a written charter on February 10, 2004, which
sets forth the Audit Committee's structure, powers, duties and methods of
operation. A copy of the written Audit Committee charter is attached as Appendix
E to this Proxy Statement.
The Audit Committee serves as an independent and objective party to monitor
the Funds' accounting policies, financial reporting and internal control systems
and the work of the Funds' independent auditors. The Audit Committee also
provides an open means of communication between the independent accountant, any
internal accounting staff and the Board. The principal functions of the Audit
Committee are to assist Board oversight of: (a) the integrity of each Fund's
financial statements, (b) each Fund's compliance with legal and regulatory
requirements, (c) the independent accountant's qualifications and independence,
(d) the performance of the investment adviser's internal audit function and (e)
the independent accountant. The Audit Committee has direct responsibility for
the appointment, compensation, retention and oversight of the work of the
independent accountant (including resolution of financial reporting
disagreements between management and such independent accountant) for the
purpose of preparing or issuing an audit report or performing other review or
attest services for the Funds.
GOVERNANCE COMMITTEE
Each Fund has a governance committee (the "Governance Committee") that
consists of Independent Trustees/Managers and a Trustee/Manager who is an
interested person of such Fund. The members of the Governance Committee are
Messrs. Richard W. Lowry, Patrick J.
-13-
Simpson, Thomas C. Theobald and William E. Mayer. Mr. Mayer is deemed to be an
interested person of the Funds because of his affiliation with W.R. Hambrecht +
Co. The Governance Committee performs the functions typically performed by
nominating and compensation committees. Among other things, the Governance
Committee recommends to the Board nominees for Trustees/Managers and nominees
for appointment to various committees, performs periodic evaluations of the
effectiveness of the Board, reviews and recommends to the Board policies and
practices to be followed in carrying out the Trustees'/Managers' duties and
responsibilities and reviews and makes recommendations to the Board regarding
the compensation of the Independent Trustees/Managers. The Governance Committee
has not adopted a written charter. Members of the Governance Committee who are
Independent Trustees/Managers consider candidates for Trustees/Managers
identified by any reasonable source, including current Independent
Trustees/Managers, Fund management, Fund shareholders and other persons or
entities.
ADVISORY FEES AND EXPENSES COMMITTEE
Each Fund has an advisory fees and expenses committee (the "Advisory Fees
and Expenses Committee"). The current members of the Advisory Fees and Expenses
Committee are Ms. Janet Langford Kelly and Messrs. Mayer, Charles R. Nelson and
John J. Neuhauser. The Advisory Fees and Expenses Committee's functions include
reviewing and making recommendations to the Board regarding contracts requiring
the approval of a majority of the Independent Trustees/Managers and regarding
other contracts that may be referred to it by the Board.
RECORD OF BOARD AND COMMITTEE MEETINGS
The Board and its committees held the following numbers of meetings during
the fiscal year ended August 31, 2003:
Board of Trustees/Managers: 6
Audit Committee: 10
Governance Committee: 4
Advisory Fees and Expenses Committee: 4
During the fiscal year ended August 31, 2003, each of the current
Trustees/Managers attended more than seventy-five (75) per centum of the
meetings of the Board and the committees of which such Trustee/Manager was a
member. The Funds do not have annual shareholder meetings; therefore, the Funds
do not have a policy regarding Trustee/Manager attendance at annual shareholder
meetings.
Audit Committee Report
At a meeting of the Audit Committee of each Fund on December 9, 2003, the
Audit Committee of each of the Funds: (i) reviewed and discussed with management
such Fund's audited financial statements for the most recently completed fiscal
year and (ii) discussed with PricewaterhouseCoopers LLP ("PwC"), the Funds'
independent accountant, the matters required
-14-
to be discussed by Statement on Auditing Standards No. 61 and other applicable
professional standards and regulatory requirements. At a meeting of the Audit
Committee of each Fund on December 9, 2003, the Audit Committee of each Fund
obtained from PwC a formal written statement consistent with Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees," describing all relationships between the independent accountants
and the Funds that might bear on the independent accountants' independence,
discussed with PwC any relationships that may effect its objectivity and
independence, and based on such statement and discussions, satisfied itself as
to the independent accountants' independence. Based on its review and
discussion, the Audit Committee recommended to the Board that the audited
financial statements for each Fund be included in such Fund's Annual Report to
shareholders.
Based on the recommendation from the Audit Committee and on its own review,
the Board selected PwC as independent accountant for each of the Funds for the
fiscal year ending August 31, 2004. Representatives of PwC are not expected to
be at the Meeting, but have been given the opportunity to make a statement if
they so desire and will be available should any matter arise requiring their
presence.
Audit Committee Pre-Approval of Independent Accountant Services
The Audit Committee is required to pre-approve the engagement of the Funds'
independent accountant to provide audit and non-audit services to each Fund and
non-audit services to the Funds' investment adviser or any entity in a control
relationship with such investment adviser that provides ongoing services to any
of the Funds ("Adviser Affiliate"), if the engagement relates directly to the
operations or financial reporting of the Funds. The engagement may be entered
into pursuant to pre-approval policies and procedures established by the Audit
Committee.
The Funds' Audit Committee has adopted a policy (the "Policy") for the
pre-approval of audit and non-audit services provided to each Fund and non-audit
services provided to its investment adviser and Adviser Affiliates, if the
engagement relates directly to the operations or financial reporting of the
Funds. The Policy sets forth the procedures and conditions pursuant to which
services to be performed by the Funds' independent accountant are to be
pre-approved. Unless a type of service receives general pre-approval under the
Policy, it requires specific pre-approval by the Audit Committee if it is to be
provided by the independent accountant. The Audit Committee may amend the Policy
from time to time and must review and approve the Policy at least annually.
The Policy provides for the general pre-approval by the Audit Committee of
certain: (i) audit services to the Funds; (ii) audit-related services to the
Funds; (iii) tax services to the Funds; (iv) other services to the Funds; and
(v) non-audit Fund-related services to the Funds' adviser and its Adviser
Affiliates. The Policy requires the Fund treasurer and/or the director of
trustee administration to submit to the Audit Committee, at least annually, a
schedule of the types of services that are subject to general pre-approval. The
schedule must provide a description of each type of service that is subject to
general pre-approval and, when possible, must provide
-15-
estimated fees for each instance of provision of each service. The general
pre-approval and related fees will cover the fiscal year of the Funds. At least
annually, the Audit Committee must review and approve the types of services and
review the projected fees for the next year, and may add to or subtract from the
list of pre-approved services from time to time, based on subsequent
determinations. In addition to the fees for each individual service, the Audit
Committee has the authority to implement a fee cap on the aggregate amount of
non-audit services provided to any individual Fund. The fee amounts listed on
the schedules will be updated to the extent necessary at each of the other
regularly scheduled meetings of the Audit Committee.
When specific pre-approval is required, management must submit a written
request to the Audit Committee detailing the proposed engagement and explaining
the purpose of using the independent accountant for such engagement. The Audit
Committee reviews the request at its next regularly scheduled meeting. In cases
when the timing of the management request is critical, the chairperson of the
Audit Committee has the authority to approve the request or to call a special
meeting of the Audit Committee to consider the request.
Fees Paid to Independent Accountants
The following table sets forth the aggregate fees billed by PwC for each
Fund's last two fiscal years for professional services rendered for (i) audit
services, including the audit of each Fund's financial statements and services
normally provided in connection with statutory and regulatory filings or
engagements for those fiscal years; (ii) audit-related services associated with
the review of the Funds' semi-annual financial statements, procedures required
by lending organizations and accounting conversions; (iii) tax services
consisting primarily of tax compliance, tax advice and tax planning; and (iv)
other services.
- --------------------------------------------------------------------------------
Audit-Related All Other
Fund Fiscal Year Audit Fees Fees Tax Fees Fees
- --------------------------------------------------------------------------------
Floating Rate LLC 2002 $ 52,075 $ 2,000 $ 1,400 $ 0
2003 $ 54,570 $ 4,000 $ 3,100 $ 0
- --------------------------------------------------------------------------------
Floating Rate Fund 2002 $ 8,800 $ 2,000 $ 1,700 $ 0
2003 $ 12,710 $ 4,000 $ 2,110 $ 0
- --------------------------------------------------------------------------------
Institutional Fund 2002 $ 7,225 $ 2,000 $ 2,000 $ 0
2003 $ 9,060 $ 4,000 $ 2,110 $ 0
- --------------------------------------------------------------------------------
Advantage Fund 2002 $ 48,260 $ 5,000 $ 1,900 $ 0
2003 $ 51,510 $ 7,000 $ 2,610 $ 0
- --------------------------------------------------------------------------------
All of the audit fees, audit-related fees, tax fees and other fees billed
by PwC for services provided to the Funds in the fiscal years ended August 31,
2002 and August 31, 2003 were pre-approved by the Audit Committee. There were no
amounts that were approved by the Audit Committee pursuant to the de minimis
exception. The aggregate amount of fees paid for non-audit services billed to
the Funds, the Funds' investment adviser and Adviser Affiliates was $95,000 for
the fiscal year ended August 31, 2002 and $95,000 for the fiscal year ended
August 31, 2003.
-16-
The Audit Committee has determined that the provision of the services
described above to the Funds' investment adviser and Adviser Affiliates is
compatible with maintaining the independence of PwC.
Trustee/Manager Nomination Process
The Nominees were reviewed by the entire Board, in lieu of review by the
Governance Committee. The Board determined that, given the information available
to it regarding the Nominees and the familiarity of the Nominees with other
funds advised by Highland, it was in the best interest of the Funds to expedite
the nomination process by considering the Nominees as a full Board. All of the
Nominees were proposed by Highland. Only one Nominee is an "interested person"
(as defined in the 1940 Act) of the Funds.
The Trustees have adopted a policy relating to the consideration of
candidates for Trustees proposed by shareholders. Under that policy as currently
in effect, members of the Governance Committee who are Independent
Trustees/Managers consider, among other things, whether prospective nominees
have distinguished records in their primary careers, personal and professional
integrity and substantive knowledge in areas important to the Board's
operations, such as a background or education in finance, auditing, securities
law, the workings of the securities markets or investment advice. For candidates
to serve as Independent Trustees/Managers, independence from the Funds'
investment adviser, its affiliates and other principal service providers is
critical, as is an independent and questioning mind set. In each case, the
members of the Governance Committee who are Independent Trustees/Managers will
evaluate whether a candidate is an "interested person" under the 1940 Act.
Members of the Governance Committee who are Independent Trustees/Managers also
consider whether a prospective candidate's workload would be consistent with
regular attendance at Board meetings and would allow him or her to be available
for service on Board committees and to devote the additional time and effort
necessary to stay apprised of Board matters and the rapidly changing regulatory
environment in which the Funds operate. Different substantive areas may assume
greater or lesser significance at particular times, in light of a Board's
present composition and its perceptions about future issues and needs.
Members of the Governance Committee who are Independent Trustees/Managers
initially evaluate prospective candidates on the basis of their resumes,
considered in light of the criteria discussed above. Those prospective
candidates that appear likely to be able to fill a significant need of the Board
are contacted by a member of the Governance Committee who is an Independent
Trustee/Manager by telephone to discuss the position. If there appears to be
sufficient interest, an in-person meeting with one or more of the members of the
Governance Committee who are Independent Trustees/Managers is arranged. If a
member of the Governance Committee who is an Independent Trustee/Manager, based
on the results of such contacts, believes he or she has identified a viable
candidate, he or she airs the matter with the other members of the Governance
Committee who are Independent Trustees/Managers for input. Any request by Fund
management to meet with the prospective candidate is given appropriate
consideration. The Funds do not pay fees to third parties to assist in finding
nominees.
Shareholders of a Fund who wish to nominate a candidate to a Fund's Board
may send information regarding prospective candidates to the Governance
Committee, in care of the relevant Fund, at One Financial Center, Boston,
Massachusetts 02111-2621. The information should include evidence of the
shareholders' Fund ownership, a full listing of the proposed candidate's
education, experience, current employment, date of birth, names and addresses of
at least three professional references, information as to whether the candidate
is an "interested person" under the 1940 Act and such other information as may
be helpful to the members of the Governance Committee who are Independent
Trustees/Managers in evaluating the candidate. All satisfactorily completed
information packages regarding a candidate will be forwarded to a member of the
Governance Committee for consideration. Recommendations for candidates will
-17-
be evaluated in light of anticipated vacancies and whether the number of
Trustees/Managers of a Fund is expected to be increased. All nominations from
Fund shareholders will be considered. There may be times when the Governance
Committee does not recruit new Board members. In such case, shareholder
recommendations are maintained on file pending the active recruitment of
Trustees/Managers.
The foregoing policy is subject to change at any time by the Trustees.
Legal Proceedings
The Board of Trustees/Managers of the Funds is aware of no material pending
legal proceedings to which any Nominee is a party adverse to any of the Funds or
any affiliated person of any of the Funds. The Board of Trustees/Managers also
is aware of no Nominee who has a material interest adverse to any of the Funds
or to any affiliated person of any of the Funds. The Board of Trustees/Managers
further is aware of no legal proceedings involving any the Nominees that would
be material to an evaluation of the ability or integrity of any such Nominees
and that would require disclosure under Item 401(f) of Regulation S-K under the
Exchange Act.
Certain Related Transactions and Management Indebtedness
[There have been no transactions or series of similar transactions, since
the beginning of the Funds' last fiscal year, and there are no currently
proposed transactions, to which any Fund was or is to be a party, in which the
amount involved exceeded $60,000, and in which any officer of any Fund or any
security holder who is known by any Fund to own of record or beneficially more
than five (5) per centum of any class of such Fund's shares, or any member of
the immediately family of any such person, had or will have a direct or indirect
material interest.]
[No executive officer of the Funds, no corporation or organization for
which any Trustee/Manager, any Nominee or any executive officer of the Funds is
an executive officer, partner or beneficial owner of more than ten (10) per
centum of any class of its equity securities, and no trust or other estate in or
for which any Trustee/Manager, any Nominee or any executive officer of the Funds
has a substantial beneficial interest or serves as trustee has, at any time
since the beginning of the Funds' last fiscal year, been indebted to any of the
Funds in an amount in excess of $60,000.]
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Funds' Trustees/Managers and
officers, persons who own in excess of ten (10) per centum of any Fund's
outstanding shares and certain officers and directors of any Fund's investment
adviser (collectively, "Section 16 Reporting
-18-
Persons"), to file with the SEC initial reports of beneficial ownership and
reports of changes in beneficial ownership of shares of any of the Funds.
Section 16 Reporting Persons are required by SEC regulations to furnish the
Funds with copies of all Section 16(a) forms that they file. To the Funds'
knowledge, based solely on a review of the copies of such reports furnished to
the Funds, and on representations made, all Section 16 reporting persons
complied with all Section 16(a) filing requirements applicable to them, except
Patrick J. Simpson (no holdings) and Richard L. Woolworth (no holdings).
THE BOARD OF TRUSTEES/MANAGERS OF THE FUNDS, INCLUDING THE INDEPENDENT
TRUSTEES/MANAGERS, HAS CONCLUDED THAT THE PROPOSAL IS IN THE BEST INTERESTS OF
THE SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL.
GENERAL INFORMATION
Other Matters to Come Before the Meeting
Management of the Funds does not know of any matters to be presented at the
Meeting other than those described in this Proxy Statement. If other business
should properly come before the Meeting, the proxy holders will vote thereon in
accordance with their best judgment.
Adviser
The current adviser to the Funds (under the Interim Advisory Agreements) is
Highland Capital Management, L.P. Its business address is 13455 Noel Road, Suite
1300, Dallas, Texas 75240.
Principal Underwriter
The current principal underwriter of the Funds' shares is PFPC
Distributors, Inc. Its business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809.
Administrator
The current administrator of the Funds is Columbia Management Advisors,
Inc. Its business address is 100 Federal Street, Boston, Massachusetts 02110.
Independent Auditor
The current independent auditor of the Funds is PricewaterhouseCoopers LLP.
Its business address is 160 Federal Street, Boston, Massachusetts 02110.
Transactions in Securities of Highland
None of the Nominees have purchased or sold any securities, in an amount
exceeding one (1) per centum of the outstanding securities, of Highland, its
parent company or any subsidiary of either.
-19-
Shareholder Proposals
The Funds are not required to hold annual meetings of shareholders and
currently do not intend to hold such meetings unless shareholder action is
required in accordance with the 1940 Act. A shareholder proposal, to be
considered for inclusion in the proxy statement at any subsequent meeting of
shareholders, must be submitted a reasonable time before the proxy statement for
such meeting is mailed. Whether a shareholder proposal is submitted in the proxy
statement will be determined in accordance with applicable federal and state
laws.
Shareholder Communications
Shareholders may communicate with the Trustees/Managers as a group or
individually. Any such communications should be sent to a Fund's Board or to an
individual Trustee/Manager in writing, in care of the secretary of such Fund, at
One Financial Center, Boston, Massachusetts 02111-2621. The secretary of such
Fund may determine not to forward any letter to the Board or to a
Trustee/Manager that does not relate to the business of such Fund.
Proxy Statement Delivery
"Householding" is the term used to describe the practice of delivering one
copy of a document to a household of shareholders instead of delivering one copy
of a document to each shareholder in the household. Shareholders of the Funds
who share a common address and who have not opted out of the householding
process should receive a single copy of the proxy statement together with one
proxy card for each account. If you received more than one copy of the proxy
statement, you may elect to household in the future; if you received a single
copy of the proxy statement, you may opt out of householding in the future; and
you may, in any event, obtain an additional copy of this proxy statement by
writing to the appropriate Fund at the following address: One Financial Center,
Boston, Massachusetts 02111-2621, or by calling the appropriate Fund at the
following number: 1-800-426-3750.
Principal Executive Officers of the Funds
The principal executive officers of the Funds are Vicki L. Benjamin, Chief
Accounting Officer; Michael Clarke, Controller; J. Kevin Connaughton, President
and Treasurer; and David A. Rozenson, Secretary. Each officer's mailing address
is One Financial Center, Boston, Massachusetts 02111-2621.
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
PRE-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
David A. Rozenson, Secretary
June [14], 2004
-20-
APPENDIX A
----------
BENEFICIAL OWNERS OF FUND SHARES IN EXCESS OF FIVE PER CENTUM
As of the Record Date, to the knowledge of management of the Funds, no
person owned beneficially (or of record) more than five (5) per centum of the
outstanding shares of any class of any of the Funds, except as set forth below:
---------------------------
Shares Beneficially Owned
- ----------------------------------------------- ---------------------------
Name of Beneficial Owner Number Percent
- -----------------------------------------------------------------------------
COLUMBIA FLOATING RATE FUND
- -----------------------------------------------------------------------------
Class A shares:
[??] [??]
Class B shares:
[??] [??]
Class C shares:
[??] [??]
Class Z shares:
[??] [??]
- -----------------------------------------------------------------------------
COLUMBIA INSTITUTIONAL
FLOATING RATE INCOME FUND
- -----------------------------------------------------------------------------
Shares:
[??] [??]
- -----------------------------------------------------------------------------
COLUMBIA FLOATING RATE ADVANTAGE FUND
- -----------------------------------------------------------------------------
Class A shares:
[??] [??]
Class B shares:
[??] [??]
Class C shares:
[??] [??]
Class Z shares:
[??] [??]
- -----------------------------------------------------------------------------
A-1
APPENDIX B
----------
NEW ADVISORY AGREEMENTS
1. New Advisory Agreement between Highland Capital Management, L.P. and
Columbia Floating Rate Limited Liability Company.
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of _______, 2004, by and between Highland
Capital Management, L.P., a Delaware limited partnership (the "Manager"), and
Columbia Floating Rate Limited Liability Company, a Delaware limited liability
company (the "LLC").
WHEREAS, the LLC is engaged in business as a closed-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act"), and periodically offers to repurchase its
shares in conformity with the provisions of Rule 23c-3 under the 1940 Act, which
funds are generally referred to as "interval funds"; and
WHEREAS the Manager is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
SECTION 1. Appointment of Manager.
The LLC hereby appoints the Manager to act as manager and investment
adviser to the LLC for the period and on the terms herein set forth. The Manager
accepts such appointment and agrees to render the services herein set forth, for
the compensation herein provided.
SECTION 2. Duties of Manager.
The Manager, at its own expense, shall furnish the following services and
facilities to the LLC:
(a) Investment Program. The Manager shall (i) furnish continuously
an investment program for the LLC, (ii) determine (subject to the overall
supervision and review of the Board of Managers of the LLC (the "Board"))
what investments shall be purchased, held, sold or exchanged by the LLC and
what portion, if any, of the assets of the LLC shall be held uninvested,
and (iii) make changes in the investments of the LLC. The Manager also
shall manage, supervise and conduct the other affairs and business of the
LLC and matters incidental thereto, subject always to the control of the
Board, and to the provisions of the organizational documents of the LLC,
the Registration Statement of the LLC and its securities, including the
Prospectuses and Statements of Additional Information of the Columbia
Floating Rate Fund and the Columbia Institutional Floating Rate Income Fund
(collectively, the "Feeder Funds"), and the 1940 Act, in each case as from
time to time amended and in effect. Subject to the foregoing, the Manager
shall have the authority to engage one or more sub-advisers in connection
with the management of the LLC, which sub-advisers may be affiliates of the
Manager.
B-1
(b) Office Space and Facilities. The Manager shall furnish the LLC
office space in the offices of the Manager, or in such other place or
places as may be agreed upon from time to time, and all necessary office
facilities, simple business equipment, supplies, utilities and telephone
service for managing the affairs and investments of the LLC.
(c) Administrative Services. The Manager shall supervise the
business and affairs of the LLC and shall provide such services and
facilities as may be required for the effective administration of the LLC
as are not provided by employees or other agents engaged by the LLC,
provided that the Manager shall not have any obligation to provide under
this Agreement any such services which are the subject of a separate
agreement or arrangement between the LLC and the Manager, or an affiliate
of the Manager, or any third-party administrator.
(d) Fidelity Bond. The Manager shall arrange for providing and
maintaining a bond issued by a reputable insurance company authorized to do
business in the place where the bond is issued against larceny and
embezzlement covering each officer and employee of the LLC who may singly
or jointly with others have access to funds or securities of the LLC, with
direct or indirect authority to draw upon such funds or to direct generally
the disposition of such funds. The bond shall be in such reasonable amount
as a majority of the managers who are not "interested persons" of the LLC,
as defined in the 1940 Act, shall determine, with due consideration given
to the aggregate assets of the LLC to which any such officer or employee
may have access. The premium for the bond shall be payable by the LLC in
accordance with Section 3(m).
(e) Portfolio Transactions. The Manager shall place all orders for
the purchase and sale of portfolio securities for the account of the LLC
with brokers or dealers selected by the Manager, although the LLC will pay
the actual brokerage commissions on portfolio transactions in accordance
with Section 3(d).
In placing portfolio transactions for the LLC, it is recognized that the
Manager will give primary consideration to securing the most favorable price and
efficient execution. Consistent with this policy, the Manager may consider the
financial responsibility, research and investment information and other services
provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of the Manager may be a
party. It is understood that neither the LLC nor the Manager has adopted a
formula for allocation of the LLC's investment transaction business. It is also
understood that it is desirable for the LLC that the Manager have access to
supplemental investment and market research and security and economic analysis
provided by brokers who may execute brokerage transactions at a higher cost to
the LLC than would otherwise result when allocating brokerage transactions to
other brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the Manager is authorized to place orders for the purchase
and sale of securities for the LLC with such brokers, subject to review by the
LLC's Board of Managers from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided by
such brokers may be useful or beneficial to the Manager in connection with its
services to other clients.
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On occasions when the Manager deems the purchase or sale of a security to
be in the best interest of the LLC as well as other clients, the Manager, to the
extent permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Manager in
the manner it considers to be the most equitable and consistent with its
fiduciary obligations to the LLC and to such other clients.
SECTION 3. Allocation of Expense.
Except for the services and facilities to be provided by the Manager as set
forth in Section 2 above, the LLC assumes and shall pay all expenses for all
other LLC operations and activities and shall reimburse the Manager for any such
expenses incurred by the Manager. Unless the Prospectuses or Statements of
Additional Information of the Feeder Funds provide otherwise, the expenses to be
borne by the LLC shall include, without limitation:
(a) all expenses of organizing the LLC;
(b) the charges and expenses of (i) any registrar, stock transfer
or dividend disbursing agent, shareholder servicing agent, custodian or
depository appointed by the LLC for the safekeeping of its cash, portfolio
securities and other property, including the costs of servicing shareholder
investment accounts and bookkeeping, accounting and pricing services,
provided to the LLC (other than those utilized by the Manager in providing
the services described in Section 2), (ii) any agent engaged for the
purposes of conducting auctions with respect to the LLC's taxable auction
rate preferred stock, if any shall be issued, (iii) any institution serving
as trustee with respect to the LLC's Senior Extendible Notes, and (iv) fees
of any stock exchange or any rating agency responsible for rating
outstanding securities of the LLC;
(c) the charges and expenses of bookkeeping, accounting and
auditors;
(d) brokerage commissions and other costs incurred in connection
with transactions in the portfolio securities of the LLC, including any
portion of such commissions attributable to brokerage and research services
as defined in Section 28(e) of the Securities Exchange Act of 1934;
(e) taxes, including issuance and transfer taxes, and corporate
registration, filing or other fees payable by the LLC to federal, state or
other governmental agencies;
(f) expenses, including the cost of printing certificates, relating
to the issuance of securities of the LLC;
(g) expenses involved in registering and maintaining registrations
of the LLC and of its securities with the Securities and Exchange
Commission and various states and other jurisdictions, including
reimbursement of actual expenses incurred by the Manager or others in
performing such functions for the LLC, and including compensation of
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persons who are employees of the Manager, in proportion to the relative
time spent on such matters;
(h) expenses of shareholders', unitholders' and managers' meetings,
including meetings of committees, and of preparing, printing and mailing
proxy statements, quarterly reports, semi-annual reports, annual reports
and other communications to existing security holders;
(i) expenses of preparing and printing prospectuses and marketing
materials;
(j) compensation and expenses of the LLC's managers who are not
affiliated with the Manager;
(k) charges and expenses of legal counsel in connection with
matters relating to the LLC, including, without limitation, legal services
rendered in connection with the LLC's corporate and financial structure and
relations with its security holders, issuance of shares of the LLC and
registration and qualification of securities under federal, state and other
laws;
(l) the cost and expense of maintaining the books and records of
the LLC, including general ledger accounting;
(m) insurance premiums on fidelity, errors and omissions and other
coverages, including the expense of obtaining and maintaining a fidelity
bond as required by Section 17(g) of the 1940 Act which may also cover the
Manager;
(n) expenses incurred in obtaining and maintaining any surety bond
or similar coverage with respect to securities of the LLC;
(o) interest payable on the LLC's borrowings;
(p) such other non-recurring expenses of the LLC as may arise,
including expenses of actions, suits or proceedings to which the LLC is a
party and expenses resulting from the legal obligation which the LLC may
have to provide indemnity with respect thereto;
(q) expenses and fees reasonably incidental to any of the foregoing
specifically identified expenses; and
(r) all other expenses permitted by the Prospectuses and Statements
of Additional Information of the Feeder Funds as being paid by the LLC.
SECTION 4. Advisory Fee.
In return for its advisory services, the LLC will pay the Manager a monthly
fee, computed and accrued daily, based on an annual rate of 0.45% of the average
net assets of the LLC. The Manager may waive a portion of its fees. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month,
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compensation for such month shall be computed in manner consistent with the
calculation of the fees payable on a monthly basis. Subject to the provisions of
Section 5 below, the accrued fees will be payable monthly as promptly as
possible after the end of each month during which this Agreement is in effect.
Operating expenses shall not include brokerage, interest, taxes, deferred
organization expenses and extraordinary expenses, if any.
SECTION 5. Reimbursements.
The parties agree that they may negotiate from time to time for the Manager
to reimburse certain costs and expenses of the LLC. If such an agreement is in
effect, the determination of whether reimbursement for such costs and expenses
is due the LLC from the Manager will be made on an accrual basis once monthly,
and if it is so determined that such reimbursement is due, the accrued amount of
such reimbursement which is due shall serve as an offset to the investment
advisory fee payable monthly by the LLC to the Manager pursuant to Section 4
hereof, and the amount to be paid by the Manager to the LLC as soon as is
practicable at the end of a fiscal year of the LLC shall be equal to the
difference between the aggregate reimbursement due the LLC from the Manager for
that fiscal year and the aggregate offsets made by the LLC against the aggregate
investment advisory fees payable to the Manager pursuant to Section 4 hereof for
that fiscal year by virtue of such aggregate reimbursement. The foregoing
limitation on reimbursement of costs and expenses shall exclude interest, taxes,
brokers' charges and expenses, extraordinary costs and expenses (as determined
by the Board in its exercise of its business judgment), and, if payable by the
LLC, the costs and expenses incident to the public offering or private placement
of securities of the LLC, including debt securities.
SECTION 6. Relations With the LLC.
Subject to and in accordance with the organizational documents of the
Manager and the LLC, as well as their policies and procedures and codes of
ethics, it is understood that managers, officers, agents and shareholders of the
LLC are or may be interested in the Manager (or any successor thereof) as
directors, officers or otherwise, that partners, officers and agents of the
Manager (or any successor thereof) are or may be interested in the LLC as
managers, officers, agents, shareholders or otherwise, and that the Manager (or
any such successor thereof) is or may be interested in the LLC as a shareholder
or otherwise.
SECTION 7. Liability of Manager.
The Manager shall not be liable to the LLC for any error of judgment or
mistake of law or for any loss suffered by the LLC in connection with the
matters to which this Agreement relates; provided, however, that no provision of
this Agreement shall be deemed to protect the Manager against any liability to
the LLC or its shareholders to which it might otherwise be subject by reason of
any willful misfeasance, bad faith or gross negligence in the performance of its
duties, or the reckless disregard of its obligations and duties under this
Agreement, nor shall any provision hereof be deemed to protect any manager or
officer of the LLC against any such liability to which he might otherwise be
subject by reason of any willful misfeasance, bad faith or gross negligence in
the performance of his duties or the reckless disregard of his obligations and
duties.
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SECTION 8. Duration and Termination of This Agreement.
(a) Duration. This Agreement shall become effective on the date first set
forth above, such date being the date on which this Agreement has been executed
following (1) the approval of the Board of Managers of the LLC, including
approval by a vote of a majority of the managers who are not "interested
persons" (as defined in the 1940 Act) of the Manager or the LLC, cast in person
at a meeting called for the purpose of voting on such approval and (2) the
approval by a vote of a majority of the outstanding voting securities of the
LLC, voting as a single class. Unless terminated as herein provided, this
Agreement shall remain in full force and effect until the date which is two
years after the effective date of this Agreement. Subsequent to such initial
period of effectiveness, this Agreement shall continue in full force and effect,
subject to Section 8(c), for successive one-year periods so long as such
continuance is approved at least annually (a) by either the Board of Managers of
the LLC or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Feeder Funds, voting as a single class, and (b)
in either event, by the vote of a majority of the managers of the LLC who are
not parties to this Agreement or "interested persons" (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purpose of
voting on such approval.
(b) Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by vote of the holders of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Feeder Funds, voting as a single
class.
(c) Termination. This Agreement may be terminated at any time, without
payment of any penalty, by vote of the Board or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Feeder Funds,
voting as a single class, or by the Manager, in each case on not more than sixty
(60) days' nor less than thirty (30) days' prior written notice to the other
party.
(d) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment (as defined in the 1940
Act).
SECTION 9. Services Not Exclusive.
The services of the Manager to the LLC hereunder are not to be deemed
exclusive, and the Manager shall be free to render similar services to others so
long as its services hereunder are not impaired thereby. In addition, the
parties may enter into agreements pursuant to which the Manager provides
administrative or other non-investment advisory services to the LLC, and may be
compensated for such other services.
SECTION 10. Prior Agreements Superseded.
This Agreement supersedes any prior agreement relating to the subject
matter hereof between the parties hereto.
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SECTION 11. Notices.
Notices under this Agreement shall be in writing and shall be addressed,
and delivered or mailed postage prepaid, to the other party at such address as
such other party may designate from time to time for the receipt of such
notices. Until further notice to the other party, the address of each party to
this Agreement for this purpose shall be 13455 Noel Road, Suite 1300, Dallas,
Texas 75240.
SECTION 12. Governing Law; Counterparts.
This Agreement shall be construed in accordance with the laws of the State
of Delaware, and the applicable provisions of the 1940 Act. To the extent that
applicable law of the State of Delaware, or any of the provisions herein,
conflict with applicable provisions of the 1940 Act, the latter shall control.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
SECTION 13. Miscellaneous.
The Manager agrees to advise the LLC of any change of its membership (which
shall mean its general partner) within a reasonable time after such change. If
the Manager enters into a definitive agreement that would result in a change of
control (within the meaning of the 1940 Act) of the Manager, it agrees to give
the LLC the lesser of sixty days' notice and such notice as is reasonably
practicable before consummating the transaction.
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2. New Advisory Agreement between Highland Capital Management, L.P. and
Columbia Floating Rate Advantage Fund.
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of _______, 2004, by and between Highland
Capital Management, L.P., a Delaware limited partnership (the "Manager"), and
Columbia Floating Rate Advantage Fund, a Massachusetts business trust (the
"Fund").
WHEREAS, the Fund is engaged in business as a closed-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act"), and periodically offers to repurchase its
shares in conformity with the provisions of Rule 23c-3 under the 1940 Act, which
funds are generally referred to as "interval funds"; and
WHEREAS the Manager is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
SECTION 1. Appointment of Manager.
The Fund hereby appoints the Manager to act as manager and investment
adviser to the Fund for the period and on the terms herein set forth. The
Manager accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
SECTION 2. Duties of Manager.
The Manager, at its own expense, shall furnish the following services and
facilities to the Fund:
(a) Investment Program. The Manager shall (i) furnish continuously
an investment program for the Fund, (ii) determine (subject to the overall
supervision and review of the Board of Trustees of the Fund) what
investments shall be purchased, held, sold or exchanged by the Fund and
what portion, if any, of the assets of the Fund shall be held uninvested,
and (iii) make changes in the investments of the Fund. The Manager also
shall manage, supervise and conduct the other affairs and business of the
Fund and matters incidental thereto, subject always to the control of the
Board of Trustees of the Fund, and to the provisions of the organizational
documents of the Fund, the Registration Statement of the Fund and its
securities, including the Prospectus and Statement of Additional
Information, and the 1940 Act, in each case as from time to time amended
and in effect. Subject to the foregoing, the Manager shall have the
authority to engage one or more sub-advisers in connection with the
management of the Fund, which sub-advisers may be affiliates of the
Manager.
(b) Office Space and Facilities. The Manager shall furnish the Fund
office space in the offices of the Manager, or in such other place or
places as may be agreed
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upon from time to time, and all necessary office facilities, simple
business equipment, supplies, utilities and telephone service for managing
the affairs and investments of the Fund.
(c) Administrative Services. The Manager shall supervise the
business and affairs of the Fund and shall provide such services and
facilities as may be required for the effective administration of the Fund
as are not provided by employees or other agents engaged by the Fund,
provided that the Manager shall not have any obligation to provide under
this Agreement any such services which are the subject of a separate
agreement or arrangement between the Fund and the Manager, or an affiliate
of the Manager, or any third-party administrator.
(d) Fidelity Bond. The Manager shall arrange for providing and
maintaining a bond issued by a reputable insurance company authorized to do
business in the place where the bond is issued against larceny and
embezzlement covering each officer and employee of the Fund who may singly
or jointly with others have access to funds or securities of the Fund, with
direct or indirect authority to draw upon such funds or to direct generally
the disposition of such funds. The bond shall be in such reasonable amount
as a majority of the Trustees who are not "interested persons" of the Fund,
as defined in the 1940 Act, shall determine, with due consideration given
to the aggregate assets of the Fund to which any such officer or employee
may have access. The premium for the bond shall be payable by the Fund in
accordance with Section 3(m).
(e) Portfolio Transactions. The Manager shall place all orders for
the purchase and sale of portfolio securities for the account of the Fund
with brokers or dealers selected by the Manager, although the Fund will pay
the actual brokerage commissions on portfolio transactions in accordance
with Section 3(d).
In placing portfolio transactions for the Fund, it is recognized that the
Manager will give primary consideration to securing the most favorable price and
efficient execution. Consistent with this policy, the Manager may consider the
financial responsibility, research and investment information and other services
provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of the Manager may be a
party. It is understood that neither the Fund nor the Manager has adopted a
formula for allocation of the Fund's investment transaction business. It is also
understood that it is desirable for the Fund that the Manager have access to
supplemental investment and market research and security and economic analysis
provided by brokers who may execute brokerage transactions at a higher cost to
the Fund than would otherwise result when allocating brokerage transactions to
other brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the Manager is authorized to place orders for the purchase
and sale of securities for the Fund with such brokers, subject to review by the
Fund's Board of Trustees from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided by
such brokers may be useful or beneficial to the Manager in connection with its
services to other clients.
On occasions when the Manager deems the purchase or sale of a security to
be in the best interest of the Fund as well as other clients, the Manager, to
the extent permitted by applicable
B-9
laws and regulations, may, but shall be under no obligation to, aggregate the
securities to be so sold or purchased in order to obtain the most favorable
price or lower brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Manager in the manner it
considers to be the most equitable and consistent with its fiduciary obligations
to the Fund and to such other clients.
SECTION 3. Allocation of Expense.
Except for the services and facilities to be provided by the Manager as set
forth in Section 2 above, the Fund assumes and shall pay all expenses for all
other Fund operations and activities and shall reimburse the Manager for any
such expenses incurred by the Manager. Unless the Prospectus or Statement of
Additional Information of the Fund provides otherwise, the expenses to be borne
by the Fund shall include, without limitation:
(a) all expenses of organizing the Fund;
(b) the charges and expenses of (i) any registrar, stock transfer
or dividend disbursing agent, shareholder servicing agent, custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, including the costs of servicing shareholder
investment accounts and bookkeeping, accounting and pricing services,
provided to the Fund (other than those utilized by the Manager in providing
the services described in Section 2), (ii) any agent engaged for the
purposes of conducting auctions with respect to the Fund's taxable auction
rate preferred stock, if any shall be issued, (iii) any institution serving
as trustee with respect to the Fund's Senior Extendible Notes, and (iv)
fees of any stock exchange or any rating agency responsible for rating
outstanding securities of the Fund;
(c) the charges and expenses of bookkeeping, accounting and
auditors;
(d) brokerage commissions and other costs incurred in connection
with transactions in the portfolio securities of the Fund, including any
portion of such commissions attributable to brokerage and research services
as defined in Section 28(e) of the Securities Exchange Act of 1934;
(e) taxes, including issuance and transfer taxes, and corporate
registration, filing or other fees payable by the Fund to federal, state or
other governmental agencies;
(f) expenses, including the cost of printing certificates, relating
to the issuance of securities of the Fund;
(g) expenses involved in registering and maintaining registrations
of the Fund and of its securities with the Securities and Exchange
Commission and various states and other jurisdictions, including
reimbursement of actual expenses incurred by the Manager or others in
performing such functions for the Fund, and including compensation of
persons who are employees of the Manager, in proportion to the relative
time spent on such matters;
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(h) expenses of shareholders' and trustees' meetings, including
meetings of committees, and of preparing, printing and mailing proxy
statements, quarterly reports, semi-annual reports, annual reports and
other communications to existing security holders;
(i) expenses of preparing and printing prospectuses and marketing
materials;
(j) compensation and expenses of trustees who are not affiliated
with the Manager;
(k) charges and expenses of legal counsel in connection with
matters relating to the Fund, including, without limitation, legal services
rendered in connection with the Fund's corporate and financial structure
and relations with its security holders, issuance of shares of the Fund and
registration and qualification of securities under federal, state and other
laws;
(l) the cost and expense of maintaining the books and records of
the Fund, including general ledger accounting;
(m) insurance premiums on fidelity, errors and omissions and other
coverages, including the expense of obtaining and maintaining a fidelity
bond as required by Section 17(g) of the 1940 Act which may also cover the
Manager;
(n) expenses incurred in obtaining and maintaining any surety bond
or similar coverage with respect to securities of the Fund;
(o) interest payable on Fund borrowings;
(p) such other non-recurring expenses of the Fund as may arise,
including expenses of actions, suits or proceedings to which the Fund is a
party and expenses resulting from the legal obligation which the Fund may
have to provide indemnity with respect thereto;
(q) expenses and fees reasonably incidental to any of the foregoing
specifically identified expenses; and
(r) all other expenses permitted by the Prospectus and Statement of
Additional Information of the Fund as being paid by the Fund.
SECTION 4. Advisory Fee.
In return for its advisory services, the Fund will pay the Manager a
monthly fee, computed and accrued daily, based on an annual rate of 0.45% of the
average net assets of the Fund for the first one billion dollars
($1,000,000,000), 0.40% of the average net assets of the Fund for the next one
billion dollars ($1,000,000,000), and 0.35% of the average net assets of the
Portfolio over two billion dollars ($2,000,000,000). The Manager may waive a
portion of its fees. If this Agreement becomes effective subsequent to the first
day of a month or shall terminate before the last day of a month, compensation
for such month shall be computed in
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manner consistent with the calculation of the fees payable on a monthly basis.
Subject to the provisions of Section 5 below, the accrued fees will be payable
monthly as promptly as possible after the end of each month during which this
Agreement is in effect. Operating expenses shall not include brokerage,
interest, taxes, deferred organization expenses and extraordinary expenses, if
any.
SECTION 5. Reimbursements.
The parties agree that they may negotiate from time to time for the Manager
to reimburse certain costs and expenses of the Fund. If such an agreement is in
effect, the determination of whether reimbursement for such costs and expenses
is due the Fund from the Manager will be made on an accrual basis once monthly,
and if it is so determined that such reimbursement is due, the accrued amount of
such reimbursement which is due shall serve as an offset to the investment
advisory fee payable monthly by the Fund to the Manager pursuant to Section 4
hereof, and the amount to be paid by the Manager to the Fund as soon as is
practicable at the end of a fiscal year of the Fund shall be equal to the
difference between the aggregate reimbursement due the Fund from the Manager for
that fiscal year and the aggregate offsets made by the Fund against the
aggregate investment advisory fees payable to the Manager pursuant to Section 4
hereof for that fiscal year by virtue of such aggregate reimbursement. The
foregoing limitation on reimbursement of costs and expenses shall exclude
interest, taxes, brokers' charges and expenses, extraordinary costs and expenses
(as determined by the Board in its exercise of its business judgment), and, if
payable by the Fund, the costs and expenses incident to the public offering or
private placement of securities of the Fund, including debt securities.
SECTION 6. Relations With Fund.
Subject to and in accordance with the organizational documents of the
Manager and the Fund, as well as their policies and procedures and codes of
ethics, it is understood that Trustees, officers, agents and shareholders of the
Fund are or may be interested in the Manager (or any successor thereof) as
directors, officers or otherwise, that partners, officers and agents of the
Manager (or any successor thereof) are or may be interested in the Fund as
Trustees, officers, agents, shareholders or otherwise, and that the Manager (or
any such successor thereof) is or may be interested in the Fund as a shareholder
or otherwise.
SECTION 7. Liability of Manager.
The Manager shall not be liable to the Fund for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates; provided, however, that no provision of
this Agreement shall be deemed to protect the Manager against any liability to
the Fund or its shareholders to which it might otherwise be subject by reason of
any willful misfeasance, bad faith or gross negligence in the performance of its
duties, or the reckless disregard of its obligations and duties under this
Agreement, nor shall any provision hereof be deemed to protect any trustee or
officer of the Fund against any such liability to which he might otherwise be
subject by reason of any willful misfeasance, bad faith or gross negligence in
the performance of his duties or the reckless disregard of his obligations and
duties.
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SECTION 8. Duration and Termination of This Agreement.
(a) Duration. This Agreement shall become effective on the date first set
forth above, such date being the date on which this Agreement has been executed
following (1) the approval of the Board of Trustees of the Fund, including
approval by a vote of a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Manager or the Fund, cast in person
at a meeting called for the purpose of voting on such approval and (2) the
approval by a vote of a majority of the outstanding voting securities of the
Fund. Unless terminated as herein provided, this Agreement shall remain in full
force and effect until the date which is two years after the effective date of
this Agreement. Subsequent to such initial period of effectiveness, this
Agreement shall continue in full force and effect, subject to paragraph 8(c),
for successive one-year periods so long as such continuance is approved at least
annually (a) by either the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund, voting as a single class, and (b) in either event, by the vote of a
majority of the trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
(b) Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by vote of the holders of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, voting as a single class.
(c) Termination. This Agreement may be terminated at any time, without
payment of any penalty, by vote of the Trustees or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund, voting
as a single class, or by the Manager, in each case on not more than sixty (60)
days' nor less than thirty (30) days' prior written notice to the other party.
(d) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment (as defined in the 1940
Act).
SECTION 9. Services Not Exclusive.
The services of the Manager to the Fund hereunder are not to be deemed
exclusive, and the Manager shall be free to render similar services to others so
long as its services hereunder are not impaired thereby. In addition, the
parties may enter into agreements pursuant to which the Manager provides
administrative or other non-investment advisory services to the Fund, and may be
compensated for such other services.
SECTION 10. Prior Agreements Superseded.
This Agreement supersedes any prior agreement relating to the subject
matter hereof between the parties hereto.
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SECTION 11. Notices.
Notices under this Agreement shall be in writing and shall be addressed,
and delivered or mailed postage prepaid, to the other party at such address as
such other party may designate from time to time for the receipt of such
notices. Until further notice to the other party, the address of each party to
this Agreement for this purpose shall be 13455 Noel Road, Suite 1300, Dallas,
Texas 75240.
SECTION 12. Governing Law; Counterparts.
This Agreement shall be construed in accordance with the laws of the State
of Delaware, and the applicable provisions of the 1940 Act. To the extent that
applicable law of the State of Delaware, or any of the provisions herein,
conflict with applicable provisions of the 1940 Act, the latter shall control.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
SECTION 13. Miscellaneous.
The Manager agrees to advise the Fund of any change of its membership
(which shall mean its general partner) within a reasonable time after such
change. If the Manager enters into a definitive agreement that would result in a
change of control (within the meaning of the 1940 Act) of the Manager, it agrees
to give the Fund the lesser of sixty days' notice and such notice as is
reasonably practicable before consummating the transaction.
B-14
APPENDIX C
----------
NOMINEE AND OFFICER INFORMATION
1. Biographical Information Regarding Nominees and Executive Officers of the
Funds.
The tables on the next pages provide basic biographical information about
the Nominees and the executive officers of the Funds. The address of each
Nominee is 13455 Noel Road, Suite 1300, Dallas, Texas 75240. The address of each
executive officer is One Financial Center, Boston, Massachusetts 02111-2621.
[Please see the following pages.]
C-1
NOMINEES
--------
- ------------------------------------------------------------------------------------------------------------------------------------
Number of
Position Year Portfolios
Held First in Principal Occupation Overseen in Other
Name/Age with Funds Office During Past Five Years Fund Complex Directorships Held
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED NOMINEES
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy K. Hui Nominee for N/A Assistant Provost for and, since September 1998, [??] Board member of
(Age 55) Trustee/ Director of Learning Resources of the Philadelphia Prospect Street High
Manager Biblical University. Income Portfolio,
Inc. and Prospect
Street Income
Shares, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Scott F. Kavanaugh Nominee for N/A Since March 2003, Sales Representative at Round [??] Board member of
(Age 43) Trustee/ Hill Securities. From February 2003 to July 2003, Prospect Street High
Manager Executive at Provident Funding Mortgage Corp. From Income Portfolio,
January 2000 to February 2003, Executive Vice Inc. and Prospect
President, Director and Treasurer of Commerce Street Income
Capital Bank. From April 1998 to February 2003, Shares, Inc.
Managing Principal and Chief Operating Officer of
Financial Institutional Partners Mortgage Co. and
Managing Principal and President of Financial
Institutional Partners, LLC, an investment banking
firm.
- ------------------------------------------------------------------------------------------------------------------------------------
James F. Leary Nominee for N/A Since January 1999, Managing Director of Benefit [??] Board member of
(Age 73) Trustee/ Capital Southwest, Inc., a financial consulting Capstone Asset
Manager firm. Management Group of
Mutual Funds (nine
portfolios); Board
member of Prospect
Street High Income
Portfolio, Inc. and
Prospect Street
Income Shares, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Bryan A. Ward Nominee for N/A Since January 2002, Senior Manager of Accenture, [??] Board member of
(Age 49) Trustee/ LLP, a consulting firm. From September 1998 to Prospect Street High
Manager December 2001, Special Projects Advisor, Contractor Income Portfolio,
and Information Technology consultant to Accenture, Inc. and Prospect
LLP Street Income
Shares, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED NOMINEE
- ------------------------------------------------------------------------------------------------------------------------------------
R. Joseph Dougherty Nominee for N/A Portfolio Manager of Highland since January 2000. [??] Board member of
(Age 33) Trustee/ Prior to January 2000, Portfolio Analyst for Prospect Street High
Manager Highland. Income Portfolio,
Inc. and Prospect
Street Income
Shares, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
C-2
OFFICERS
--------
- ------------------------------------------------------------------------------------------------------------------------------------
Position Year
Held First in Principal Occupation
Name/Age with Funds Office During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
J. Kevin Connaughton President 2000 President of the Columbia Funds since February 2004; Treasurer of the Columbia Funds
(Age 39) and and of the Liberty All-Star Funds since December 2000; Vice President of Columbia
Treasurer Management Advisors, Inc. since April 2003; Treasurer of the Galaxy Funds since
September 2002; Treasurer of Columbia Multi-Strategy Hedge Fund, LLC since December
2002 (formerly Chief Accounting Officer and Controller of the Liberty Funds and of the
Liberty All-Star Funds from February 1998 to October 2000; Vice President of Colonial
from February 1998 to October 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
Vicki L. Benjamin Chief 2001 Chief Accounting Officer of the Columbia Funds and the Liberty All-Star Funds since
(Age 42) Accounting June 2001; Controller and Chief Accounting Officer of the Galaxy Funds since September
Officer 2002 (formerly Controller of the Columbia Funds and of the Liberty All-Star Funds from
May 2002 to May 2004; Vice President, Corporate Audit, State Street Bank and Trust
Company from May 1998 to April 2001).
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Clarke Controller 2004 Controller of the Columbia Funds and of the Liberty All-Star Funds since 2004 (formerly
(Age 34) Assistant Treasurer of the Columbia Funds and of the Liberty All-Star Funds from June
2002 to May 2004; Vice President, Product Strategy & Development of Liberty Funds Group
from February 2001 to June 2002; Assistant Treasurer of the Liberty Funds and of the
Liberty All-Star Funds from August 1999 to February 2001; Audit Manager at Deloitte &
Touche LLP from May 1997 to August 1999).
- ------------------------------------------------------------------------------------------------------------------------------------
David A. Rozenson Secretary 2003 Secretary of the Columbia Funds and of the Liberty All-Star Funds since December 2003;
(Age 49) Senior Counsel, Bank of America Corp. (formerly FleetBoston Financial Corp.) since
January 1996; Associate General Counsel, Columbia Management Group since November 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
C-3
2. Positions Held with Affiliates by Officers and Interested Nominees
Each of the Funds' officers and each Nominee who is an "interested person"
(as defined in the 1940 Act) of the Funds holds the positions with the
affiliates and principal underwriter of the Funds that are described below
opposite his or her name.
- --------------------------------------------------------------------------------
Name of Officer or Name of Affiliate or
Nominee Principal Underwriter Description of Position Held
- --------------------------------------------------------------------------------
R. Joseph Dougherty Highland Capital Senior Portfolio Manager
Management, L.P.
- --------------------------------------------------------------------------------
3. Arrangements for Selection as Nominee or Officer
All Nominees were reviewed by the Board of Trustees/Managers of the Funds
based on the criteria generally employed by the Funds' Governance Committee to
review candidates for nomination as trustee/manager. There exist no arrangements
or understandings between any Nominee and any other person pursuant to which any
such Nominee was selected as a Nominee. There exist no arrangements or
understandings between any officer of the Funds and any other person pursuant to
which any such officer was selected as an officer.
4. Related Positions Held by Disinterested Nominees
Except as disclosed in the table in Section 1 of this Appendix C, no
disinterested Nominee and no immediate family member thereof holds, or has held
within the past five years, any position, as a director, general partner,
officer, employee or otherwise, with any of the Funds, any fund having the same
investment adviser or principal underwriter as any of the Funds, any fund having
an investment adviser or principal underwriter in a control relationship with
any investment adviser or principal underwriter of any of the Funds, any
investment adviser or principal underwriter of any of the Funds or any person in
a control relationship with any investment adviser or principal underwriter of
any of the Funds.
5. Interests of Disinterested Nominees in Affiliated Persons
Except as disclosed in Appendix D to this Proxy Statement, no disinterested
Nominee, and no immediate family member thereof, has, and at no time in the past
five years had, any direct or indirect interest, the value of which exceeds
$60,000, in any investment adviser or principal underwriter of any of the Funds,
or in any person (other than a fund) in a control relationship with any
investment adviser or principal underwriter of any of the Funds.
6. Interests of Disinterested Nominees in Affiliated Transactions
No disinterested Nominee, and no immediate family member thereof, has, and
at no time since the beginning of the past two completed fiscal years of the
Funds had, any direct or indirect material interest in any transaction or series
of similar transactions involving amounts in excess of $60,000 to which any of
the following persons was or is a party: (a) any of the Funds; (b) any
C-4
officer of any of the Funds; (c) any fund having the same investment adviser or
principal underwriter as any of the Funds; (d) any fund having an investment
adviser or principal underwriter in a control relationship with any investment
adviser or principal underwriter of any of the Funds; (e) any officer of any
fund having the same investment adviser or principal underwriter as any of the
Funds; (f) any officer of any fund having an investment adviser or principal
underwriter in a control relationship with any investment adviser or principal
underwriter of any of the Funds; (g) any investment adviser or principal
underwriter of any of the Funds; (h) any officer of any investment adviser or
principal underwriter of any of the Funds; (i) any person in a control
relationship with any investment adviser or principal underwriter of any of the
Funds; or (j) any officer of any person in a control relationship with any
investment adviser or principal underwriter of any of the Funds.
7. Relationships of Disinterested Nominees with Affiliated Persons
No disinterested Nominee, and no immediate family member thereof, has, and
at no time since the beginning of the past two completed fiscal years of the
Funds had, any direct or indirect relationship involving amounts in excess of
$60,000 with any of the following persons: (a) any of the Funds; (b) any officer
of any of the Funds; (c) any fund having the same investment adviser or
principal underwriter as any of the Funds; (d) any fund having an investment
adviser or principal underwriter in a control relationship with any investment
adviser or principal underwriter of any of the Funds; (e) any officer of any
fund having the same investment adviser or principal underwriter as any of the
Funds; (f) any officer of any fund having an investment adviser or principal
underwriter in a control relationship with any investment adviser or principal
underwriter of any of the Funds; (g) any investment adviser or principal
underwriter of any of the Funds; (h) any officer of any investment adviser or
principal underwriter of any of the Funds; (i) any person in a control
relationship with any investment adviser or principal underwriter of any of the
Funds; or (j) any officer of any person in a control relationship with any
investment adviser or principal underwriter of any of the Funds. For purposes of
this Section 7 of this Appendix C, "relationship" includes payments of property
or services to or from any person specified above; provision of legal services
to any person specified above; provision of investment banking services to any
person specified above, other than as a participating underwriter in a
syndicate; and any consulting or other relationship substantially similar in
nature and scope to any of the relationships listed in this sentence.
8. Potential Associative Conflicts of Interest of the Nominees
No officer of any investment adviser or principal underwriter of any of the
Funds, and no officer of any person in a control relationship with any
investment adviser or principal underwriter of any of the Funds, serves, and at
no time since the beginning of the past two completed fiscal years served, as a
director of any company for which a disinterested Nominee is, or at any time
since the beginning of the past two completed fiscal years was, an officer.
C-5
APPENDIX D
----------
BENEFICIAL OWNERSHIP OF EQUITY SECURITIES
BY NOMINEES
1. Beneficial Ownership of Equity Securities by Nominees in Funds and Family
of Investment Companies
The tables below show the dollar range of equity securities of each of the
Funds and the aggregate dollar range of equity securities of all of the funds in
the Funds' "Family of Investment Companies" (as defined in Item 22(a)(1)(iv) of
Schedule 14A under the Exchange Act) owned by each Nominee as of the Record
Date.
COLUMBIA FLOATING RATE FUND
- --------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Securities in all Funds Overseen
Dollar Range of Equity by Nominee in Family of
Name of Nominee Securities in the Fund Investment Companies
- --------------------------------------------------------------------------------
Timothy K. Hui None US$[??]
- --------------------------------------------------------------------------------
Scott F. Kavanaugh None US$[??]
- --------------------------------------------------------------------------------
James F. Leary None US$[??]
- --------------------------------------------------------------------------------
Bryan A. Ward None US$[??]
- --------------------------------------------------------------------------------
R. Joseph Dougherty None US$[??]
- --------------------------------------------------------------------------------
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
- --------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Securities in all Funds Overseen
Dollar Range of Equity by Nominee in Family of
Name of Nominee Securities in the Fund Investment Companies
- --------------------------------------------------------------------------------
Timothy K. Hui None US$[??]
- --------------------------------------------------------------------------------
Scott F. Kavanaugh None US$[??]
- --------------------------------------------------------------------------------
James F. Leary None US$[??]
- --------------------------------------------------------------------------------
Bryan A. Ward None US$[??]
- --------------------------------------------------------------------------------
R. Joseph Dougherty None US$[??]
- --------------------------------------------------------------------------------
D-1
COLUMBIA FLOATING RATE ADVANTAGE FUND
- --------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Securities in all Funds Overseen
Dollar Range of Equity by Nominee in Family of
Name of Nominee Securities in the Fund Investment Companies
- --------------------------------------------------------------------------------
Timothy K. Hui None US$[??]
- --------------------------------------------------------------------------------
Scott F. Kavanaugh None US$[??]
- --------------------------------------------------------------------------------
James F. Leary None US$[??]
- --------------------------------------------------------------------------------
Bryan A. Ward None US$[??]
- --------------------------------------------------------------------------------
R. Joseph Dougherty None US$[??]
- --------------------------------------------------------------------------------
2. Beneficial Ownership of Equity Securities by Disinterested Nominees in Fund
Affiliates
The following tables show the beneficial ownership of equity securities by
disinterested Nominees of each Fund, and the immediate family members thereof,
in the investment adviser or principal underwriter of each Fund, and in any
person in a control relationship with the investment adviser or principal
underwriter of each Fund.
COLUMBIA FLOATING RATE FUND
- -------------------------------------------------------------------------------
Name of Owners
and Relationship Title of Value of Percent of
Name of Nominee to Nominee Company Class Securities Class
- -------------------------------------------------------------------------------
Timothy K. Hui [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
Scott F. Kavanaugh [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
James F. Leary [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
Bryan A. Ward [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
- -------------------------------------------------------------------------------
Name of Owners
and Relationship Title of Value of Percent of
Name of Nominee to Nominee Company Class Securities Class
- -------------------------------------------------------------------------------
Timothy K. Hui [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
Scott F. Kavanaugh [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
James F. Leary [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
Bryan A. Ward [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
D-2
COLUMBIA FLOATING RATE ADVANTAGE FUND
- -------------------------------------------------------------------------------
Name of Owners
and Relationship Title of Value of Percent of
Name of Nominee to Nominee Company Class Securities Class
- -------------------------------------------------------------------------------
Timothy K. Hui [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
Scott F. Kavanaugh [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
James F. Leary [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
Bryan A. Ward [??] [??] [??] US$[??] [??]%
- -------------------------------------------------------------------------------
D-3
APPENDIX E
----------
AUDIT COMMITTEE CHARTER
COLUMBIA FUNDS
Audit Committee Charter
adopted on February 10, 2004
I. PURPOSE
This Charter has been adopted by the Audit Committee of the Board of
Directors/ Trustees (the "Board") of each investment company in the Columbia
Family of Funds complex. The portfolio(s) of any such investment company are
referred to as the "Fund(s)." The primary function of the Audit Committee is to
assist the Board in fulfilling certain of its responsibilities. This Charter
sets forth the duties and responsibilities of the Audit Committee.
The Audit Committee serves as an independent and objective party to monitor
the Funds' accounting policies, financial reporting and internal control system,
and the work of the Funds' independent auditors. The Audit Committee also serves
to provide an open avenue of communication among the independent auditors, the
internal accounting staff of the Funds' investment adviser (the "Adviser") and
the Board.
. Management has the primary responsibility to establish and maintain
systems for accounting, reporting and internal controls, which functions
may be delegated to an accounting service agent, provided management
provides adequate oversight.
. The independent auditors have the primary responsibility to plan and
implement proper audits, with proper consideration given to internal
controls, of the Funds' accounting and reporting practices.
The Audit Committee shall assist Board oversight of (1) the integrity of
the Funds' financial statements, (2) the Funds' compliance with legal and
regulatory requirements, (3) the independent auditors' qualifications and
independence, and (4) the performance of the Funds' internal audit function and
independent auditors. The Audit Committee may have additional functions and
responsibility as deemed appropriate by the Board and the Audit Committee.
Although the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits nor to determine that the Funds' financial statements are complete or
accurate or have been prepared in accordance with generally accepted accounting
principles. That is the responsibility of management and the independent
auditors. Nor is it the duty of the Audit Committee to conduct investigations or
to assure compliance with laws, regulations or any code of ethics approved or
adopted by the Board.
II. COMPOSITION
The Audit Committee shall be comprised of three or more independent Board
members. For purposes of this Charter, a Board member shall be deemed to be
independent if he or she (1) is not an "interested person" of the Funds, as that
term is defined in the Investment Company Act
E-1
of 1940, (2) has not accepted, directly or indirectly, any consulting, advisory
or other compensatory fee from the Funds except for services as a Board member,
(3) is free from any relationship that, in the opinion of the Board, would
interfere with the exercise of his or her independent judgment as a member of
the Audit Committee, and (4) in the case of a Fund whose shares are listed on
the New York Stock Exchange, Inc. (the "NYSE") or another stock exchange, meets
the independence requirements set forth in NYSE Rule 303.01(B)(3) or the
applicable rule of such exchange.
Each member of the Audit Committee shall be financially literate, or shall
become so within a reasonable period of time after his or her appointment to the
Audit Committee. At least one member shall have accounting or related financial
management expertise.
The members of the Audit Committee shall be appointed by the Board and
shall serve at the pleasure of the Board. Unless a Chair is appointed by the
Board, the members of the Audit Committee may designate a Chair by majority
vote.
III. MEETINGS
The Audit Committee shall meet as frequently and at such times as
circumstances dictate. Special meetings (including telephonic meetings) may be
called by the Chair or a majority of the members of the Audit Committee upon
reasonable notice to the other members of the Audit Committee.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall:
A. Charter. Review this Charter annually and recommend any proposed
changes to the Board.
B. Internal Controls.
1. Review annually with management and the independent auditors
their separate evaluations of the adequacy and effectiveness of
the Funds' system of internal controls.
2. Review with management and the independent auditors:
a. any significant audit findings related to the Funds' systems
for accounting, reporting and internal controls; and
b. any recommendations for the improvement of internal control
procedures or particular areas where new or more detailed
controls or procedures are desirable.
E-2
C. Independent Auditors.
1. Selection and Oversight. Be directly responsible for the
appointment, compensation, retention and oversight of the work of
the independent auditors (including resolution of disagreements
between management and the independent auditors regarding
financial reporting) for the purpose of preparing or issuing an
audit report or performing other audit, review or attest services
for the Funds. Any such engagement shall be pursuant to a written
engagement letter approved by the Audit Committee. The
independent auditors shall report directly to the Audit
Committee.
2. Pre-approval of Non-audit Services to the Funds. Except as
provided below, pre-approve any engagement of the Funds'
independent auditors to provide any services to the Funds (other
than the "prohibited non-audit services" specified below),
including the fees and other compensation to be paid for such
services, unless the engagement to render such services is
entered into pursuant to pre-approval policies and procedures
established by the Audit Committee that are detailed as to the
particular service (provided the Audit Committee is informed of
each such service)./1/ The Audit Committee may designate from
time to time one or more of its members acting singly or
together, as the Audit Committee may designate, to pre-approve
such services on behalf of the Audit Committee. Unless and until
the Audit Committee designates otherwise, the Chair of the Audit
Committee may grant such pre-approval. Any such delegated
pre-approval shall be reported to the Audit Committee by the
member or members exercising such delegated authority at the next
meeting of the Audit Committee.
The independent auditors shall not perform any of the following
non-audit services for any Fund ("prohibited non-audit
services"):
a. Bookkeeping or other services related to the accounting
records or financial statements of the Fund;
b. Financial information systems design and implementation;
c. Appraisal or valuation services, fairness opinions or
contribution-in-kind reports;
d. Actuarial services;
- --------------------------------------------------------------------------------
/1/ Pre-approval of non-audit services to a Fund is not required, if:
a. the services were not recognized by management at the time of the
engagement as non-audit services;
b. the aggregate fees for all such non-audit services provided to the
Fund are less than 5% of the total fees paid by the Fund to its
independent auditors during the fiscal year in which the non-audit
services are provided; and
c. such services are promptly brought to the attention of the Audit
Committee by management, and the Audit Committee or its delegate
approves them prior to the completion of the audit.
E-3
e. Internal audit outsourcing services;
f. Management functions or human resources;
g. Broker or dealer, investment adviser or investment banking
services;
h. Legal services or expert services unrelated to the audit;
and
i. Any other services that the Public Company Accounting
Oversight Board determines are impermissible.
3. Pre-approval of Certain Non-audit Services to the Adviser and its
Affiliates. Except as provided below, pre-approve any engagement
of the Funds' independent auditors to provide any services to the
Adviser (not including any subadviser whose role is primarily
portfolio management and is subcontracted or overseen by the
Adviser) or any entity controlling, controlled by or under common
control with the Adviser that provides ongoing services to the
Funds if the engagement relates directly to the operations or
financial reporting of the Funds, including the fees and other
compensation to be paid to the independent auditors./2/ The Audit
Committee may designate from time to time one or more of its
members acting singly or together, as the Audit Committee may
designate, to pre-approve such services on behalf of the Audit
Committee. Unless and until the Audit Committee designates
otherwise, the Chair of the Audit Committee may grant such
pre-approval. Any such delegated pre-approval shall be reported
to the Audit Committee by the member or members exercising such
delegated authority at the next meeting of the Audit Committee.
4. Auditor Independence. On an annual basis, request, receive in
writing and review the independent auditors' specific
representations as to their independence, including
identification of all significant relationships the auditors have
with the Funds, management, any affiliates and any material
service provider to the Funds and recommend that the Board take
appropriate action, if any, in response to the independent
auditors' report to satisfy itself as to the independent
auditors' independence.
- --------------------------------------------------------------------------------
/2/ Pre-approval of such non-audit services to the Adviser or an affiliate of
the Adviser is not required, if:
a. the services were not recognized by management at the time of the
engagement as non-audit services;
b. the aggregate fees for all such non-audit services provided to the
Adviser and all entities controlling, controlled by or under common
control with the Adviser are less than 5% of the total fees for
non-audit services requiring pre-approval under Section IVC2 or 3 of
this Charter paid by the Funds, the Adviser and all such other
entities to its independent auditors during the fiscal year in which
the non-audit services are provided; and
c. such services are promptly brought to the attention of the Audit
Committee by management and the Audit Committee or its delegate
approves them prior to the completion of the audit.
E-4
5. Audit Scope. On an annual basis, meet with the independent
auditors and management to review the arrangements for and scope
of the proposed audits for the current year and the audit
procedures to be utilized.
6. Audit Results. On an annual basis at the conclusion of the audit,
meet with the independent auditors and management to review the
audit results, including any comments or recommendations of the
independent auditors or management regarding their assessment of
significant risks or exposures and the steps taken by management
to minimize such risks to the Funds, any audit problems or
difficulties and management's response, and any deviations from
the proposed scope of the audit previously presented to the Audit
Committee.
7. Management Letter. Review any management letter prepared by the
independent auditors and management's response to any such
letter.
8. Auditor Report. On an annual basis, obtain and review a report by
the independent auditors describing the independent auditors'
internal quality-control procedures and any material issues
raised by the independent auditors' most recent internal
quality-control review or peer review, or by any inquiry or
investigation by governmental or professional authorities, within
the preceding five years, respecting one or more independent
audits carried out by the independent auditors, and any steps
taken to deal with any such issues.
D. Financial Reporting Processes.
Meet separately and periodically with management, internal auditors
(or other personnel responsible for the internal audit function) and
the independent auditors and review the matters that the auditors
believe should be communicated to the Audit Committee in accordance
with auditing professional standards.
E. Closed-End Funds. With respect to any closed-end Fund:
1. Financial Statements. Review with management and the independent
auditors the Fund's audited annual financial statements and
quarterly unaudited financial statements, including any
discussion or analysis of the Fund's financial condition and
results of operations, and, recommend to the Board, if
appropriate, that the audited financial statements be included in
the Fund's annual report to shareholders required by Section
30(e) of the Investment Company Act of 1940 and Rule 30d-1
thereunder.
2. Press Releases. Discuss press releases issued by the Fund to the
extent they are related to financial information of the Fund.
3. Audit Committee Report. Prepare an audit committee report as
required by the Securities and Exchange Commission to be included
in the annual proxy statement.
E-5
F. Authority.
1. Information. Have direct access to management and personnel
responsible for the Funds' accounting and financial reporting and
for the Funds' internal controls, as well as to the independent
auditors and the Funds' other service providers.
2. Investigation. Have the authority to investigate any matter
brought to its attention within the scope of its duties and, in
its discretion, to engage independent legal counsel and other
advisers, as it determines necessary to carry out its duties. The
Audit Committee may request any officer or employee of the
Adviser, the Funds' independent auditors, or outside counsel to
attend any meeting of the Audit Committee or to meet with any
member of, or consultants to, the Audit Committee.
3. Funding. Be provided with appropriate funding by the Funds, as
determined by the Audit Committee, for the payment of (a)
compensation to any independent auditors engaged for the purpose
of preparing or issuing an audit report or performing other
audit, review or attest services for the Funds, (b) compensation
to any advisers employed by the Audit Committee, and (c) ordinary
administrative expenses of the Audit Committee that are necessary
or appropriate in carrying out its duties.
4. Code of Ethics. Have the authority to review any violations under
the Columbia Management Group Family of Funds Code of Ethics for
Principal Executive and Senior Financial Officers brought to its
attention by the Chief Legal Officer and review any waivers
sought by a covered officer under that code.
G. Other Responsibilities.
1. Report to the Board. Report regularly its significant activities
to the Board and make such recommendations with respect to any
matters herein as the Audit Committee may deem necessary or
appropriate.
2. Whistleblower Procedures. Establish procedures for the receipt,
retention and treatment of complaints received by the Funds or
the Adviser regarding accounting, internal accounting controls or
audit matters, and for the confidential, anonymous submission by
any employee of the Funds, the Adviser or its affiliates of
concerns regarding questionable accounting or auditing matters.
3. Risk Policies. Discuss policies with respect to risk assessment
and risk management.
4. Hiring Policies. If any Fund proposes to employ any current or
former employee of the independent auditors, set clear policies
for hiring any such person.
E-6
5. Necessary Activities. Perform any other activities consistent
with this Charter, the Funds' governing documents and governing
law as the Audit Committee or the Board deems necessary or
appropriate.
6. Minutes. Maintain minutes of its meetings.
E-7
PROXY CARD
COLUMBIA FLOATING RATE FUND
One Financial Center
Boston, Massachusetts 02111-2621
SPECIAL MEETING OF SHAREHOLDERS
July 30, 2004
This proxy card is solicited on behalf of the Board of Trustees/Managers of
Columbia Floating Rate Fund and Columbia Floating Rate Limited Liability Company
for the special meeting of shareholders to be held at 10:00 a.m., Eastern Time
on July 30, 2004 at One Financial Center, Boston, Massachusetts 02111-2621 (the
"Meeting").
The undersigned hereby appoints Kevin Connaughton, Robert J. Fitzpatrick,
Vincent P. Pietropaolo and David A. Rozenson as proxies, each with the power to
appoint his or her substitute and to vote the shares held by the undersigned at
the Meeting and at any adjournment thereof, in the manner directed below with
respect to the matters referred to in the Proxy Statement for the Meeting,
receipt of which is hereby acknowledged, and in the proxies' discretion, upon
such other matters as may properly come before the Meeting or any adjournment
thereof.
If you desire to vote for some, but not all, of the Nominees, mark the box
labeled "FOR ALL EXCEPT" and cross out the name of any Nominee that you do not
desire to vote for.
PLEASE VOTE, SIGN AND DATE THIS PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE.
THESE VOTING INSTRUCTIONS WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, THIS VOTING INSTRUCTION WILL BE VOTED "FOR" ALL PROPOSALS.
Please indicate your vote by marking the appropriate box. Example: [X]
THE BOARD OF TRUSTEES/MANAGERS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
FOLLOWING PROPOSALS.
--------------------------------------
FOR AGAINST ABSTAIN
- ------------------------------------------------------------------------------------------------------------
1. To approve a new Advisory Agreement between Highland Capital
Management, L.P. and Columbia Floating Rate Limited Liability [_] [_] [_]
Company.
- ------------------------------------------------------------------------------------------------------------
--------------------------------------
FOR ALL
FOR ALL EXCEPT WITH-HOLD
- ------------------------------------------------------------------------------------------------------------
2. To elect five trustees for Columbia Floating Rate Fund:
a. Timothy K. Hui
b. Scott F. Kavanaugh [_] [_] [_]
c. James F. Leary
d. Bryan A. Ward
e. R. Joseph Dougherty
- ------------------------------------------------------------------------------------------------------------
3. To elect five managers for Columbia Floating Rate Limited
Liability Company:
a. Timothy K. Hui
b. Scott F. Kavanaugh [_] [_] [_]
c. James F. Leary
d. Bryan A. Ward
e. R. Joseph Dougherty
- ------------------------------------------------------------------------------------------------------------
IMPORTANT
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE
STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR BALLOT AS SOON AS
POSSIBLE. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE SIGN AND DATE BELOW BEFORE MAILING.
NOTE: This proxy must be signed exactly as your name(s) appear(s) hereon.
If as an attorney, executor, guardian or in some representative capacity as an
officer of a corporation, please add titles as such. A proxy with respect to
shares held in the name of two or more persons shall be valid if executed by one
of them unless at or prior to exercise of such proxy Columbia Floating Rate Fund
receives specific written notice to the contrary from any one of them.
----------------------------------------
Signature
----------------------------------------
Signature (if held jointly)
Date:
----------------------------------
-2-
PROXY CARD
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
One Financial Center
Boston, Massachusetts 02111-2621
SPECIAL MEETING OF SHAREHOLDERS
July 30, 2004
This proxy card is solicited on behalf of the Board of Trustees/Managers of
Columbia Institutional Floating Rate Income Fund and Columbia Floating Rate
Limited Liability Company for the special meeting of shareholders to be held at
10:00 a.m., Eastern Time on July 30, 2004 at One Financial Center, Boston,
Massachusetts 02111-2621 (the "Meeting").
The undersigned hereby appoints Kevin Connaughton, Robert J. Fitzpatrick,
Vincent P. Pietropaolo and David A. Rozenson as proxies, each with the power to
appoint his or her substitute and to vote the shares held by the undersigned at
the Meeting and at any adjournment thereof, in the manner directed below with
respect to the matters referred to in the Proxy Statement for the Meeting,
receipt of which is hereby acknowledged, and in the proxies' discretion, upon
such other matters as may properly come before the Meeting or any adjournment
thereof.
If you desire to vote for some, but not all, of the Nominees, mark the box
labeled "FOR ALL EXCEPT" and cross out the name of any Nominee that you do not
desire to vote for.
PLEASE VOTE, SIGN AND DATE THIS PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE.
THESE VOTING INSTRUCTIONS WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, THIS VOTING INSTRUCTION WILL BE VOTED "FOR" ALL PROPOSALS.
Please indicate your vote by marking the appropriate box. Example: [X]
THE BOARD OF TRUSTEES/MANAGERS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
FOLLOWING PROPOSALS.
--------------------------------------
FOR AGAINST ABSTAIN
- ------------------------------------------------------------------------------------------------------------
1. To approve a new Advisory Agreement between Highland Capital
Management, L.P. and Columbia Floating Rate Limited Liability [_] [_] [_]
Company.
- ------------------------------------------------------------------------------------------------------------
--------------------------------------
FOR ALL
FOR ALL EXCEPT WITH-HOLD
- ------------------------------------------------------------------------------------------------------------
2. To elect five trustees for Columbia Floating Rate Fund:
a. Timothy K. Hui
b. Scott F. Kavanaugh [_] [_] [_]
c. James F. Leary
d. Bryan A. Ward
e. R. Joseph Dougherty
- ------------------------------------------------------------------------------------------------------------
3. To elect five managers for Columbia Floating Rate Limited
Liability Company:
a. Timothy K. Hui
b. Scott F. Kavanaugh [_] [_] [_]
c. James F. Leary
d. Bryan A. Ward
e. R. Joseph Dougherty
- ------------------------------------------------------------------------------------------------------------
IMPORTANT
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE
STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR BALLOT AS SOON AS
POSSIBLE. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE SIGN AND DATE BELOW BEFORE MAILING.
NOTE: This proxy must be signed exactly as your name(s) appear(s) hereon.
If as an attorney, executor, guardian or in some representative capacity as an
officer of a corporation, please add titles as such. A proxy with respect to
shares held in the name of two or more persons shall be valid if executed by one
of them unless at or prior to exercise of such proxy Columbia Institutional
Floating Rate Income Fund receives specific written notice to the contrary from
any one of them.
----------------------------------------
Signature
----------------------------------------
Signature (if held jointly)
Date:
----------------------------------
-2-
PROXY CARD
COLUMBIA FLOATING RATE ADVANTAGE FUND
One Financial Center
Boston, Massachusetts 02111-2621
SPECIAL MEETING OF SHAREHOLDERS
July 30, 2004
This proxy card is solicited on behalf of the Board of Trustees of Columbia
Floating Rate Advantage Fund for the special meeting of shareholders to be held
at 10:00 a.m., Eastern Time on July 30, 2004 at One Financial Center, Boston,
Massachusetts 02111-2621 (the "Meeting").
The undersigned hereby appoints Kevin Connaughton, Robert J. Fitzpatrick,
Vincent P. Pietropaolo and David A. Rozenson as proxies, each with the power to
appoint his or her substitute and to vote the shares held by the undersigned at
the Meeting and at any adjournment thereof, in the manner directed below with
respect to the matters referred to in the Proxy Statement for the Meeting,
receipt of which is hereby acknowledged, and in the proxies' discretion, upon
such other matters as may properly come before the Meeting or any adjournment
thereof.
If you desire to vote for some, but not all, of the Nominees, mark the box
labeled "FOR ALL EXCEPT" and cross out the name of any Nominee that you do not
desire to vote for.
PLEASE VOTE, SIGN AND DATE THIS PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE.
THESE VOTING INSTRUCTIONS WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, THIS VOTING INSTRUCTION WILL BE VOTED "FOR" ALL PROPOSALS.
Please indicate your vote by marking the appropriate box. Example: [X]
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE FOLLOWING
PROPOSALS.
--------------------------------------
FOR AGAINST ABSTAIN
- ------------------------------------------------------------------------------------------------------------
1. To approve a new Advisory Agreement between Highland Capital
Management, L.P. and Columbia Floating Rate Limited Liability [_] [_] [_]
Company.
- ------------------------------------------------------------------------------------------------------------
--------------------------------------
FOR ALL FOR ALL
EXCEPT WITH-HOLD
- ------------------------------------------------------------------------------------------------------------
2. To elect five trustees for Columbia Floating Rate Fund:
a. Timothy K. Hui
b. Scott F. Kavanaugh [_] [_] [_]
c. James F. Leary
d. Bryan A. Ward
e. R. Joseph Dougherty
- ------------------------------------------------------------------------------------------------------------
IMPORTANT
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE
STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR BALLOT AS SOON AS
POSSIBLE. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE SIGN AND DATE BELOW BEFORE MAILING.
NOTE: This proxy must be signed exactly as your name(s) appear(s) hereon.
If as an attorney, executor, guardian or in some representative capacity as an
officer of a corporation, please add titles as such. A proxy with respect to
shares held in the name of two or more persons shall be valid if executed by one
of them unless at or prior to exercise of such proxy Columbia Floating Rate Fund
receives specific written notice to the contrary from any one of them.
----------------------------------------
Signature
----------------------------------------
Signature (if held jointly)
Date:
----------------------------------
-2-