[ROPES & GRAY LETTERHEAD]
March 18, 2005
Columbia Growth Fund, Inc.
1301 S.W. Fifth Avenue
Portland, OR 97201
Columbia Large Cap Growth Fund
Columbia Funds Trust XI
One Financial Center
Boston, MA 02111-2621
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization (the "Agreement") dated December 17, 2004 between Columbia Growth
Fund, Inc., an Oregon corporation ("Target Fund"), and Columbia Funds Trust XI,
a Massachusetts business trust (the "Acquiring Trust"), on behalf of Columbia
Large Cap Growth Fund ("Acquiring Fund"). The Agreement describes a transaction
(the "Transaction") to occur as of the date of this letter (the "Closing Date"),
pursuant to which Acquiring Fund will acquire substantially all of the assets of
Target Fund in exchange for shares of beneficial interest in Acquiring Fund (the
"Acquiring Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund Shares received by
Target Fund will be distributed by Target Fund to its shareholders in
liquidation and termination of Target Fund. This opinion as to certain U.S.
federal income tax consequences of the Transaction is furnished to you pursuant
to Section 8.5 of the Agreement. Capitalized terms not defined herein are used
herein as defined in the Agreement.
Target Fund is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company. Shares
of Target Fund are redeemable at net asset value at each shareholder's option.
Target Fund has elected to be a regulated investment company for federal income
tax purposes under Section 851 of the Internal Revenue Code of 1986, as amended
(the "Code").
Acquiring Fund is a series of the Acquiring Trust, which is registered
under the 1940 Act as an open-end management investment company. Shares of
Acquiring Fund are redeemable at net asset value at each shareholder's option.
Acquiring Fund has elected to be a regulated investment company for federal
income tax purposes under Section 851 of the Code.
For purposes of this opinion, we have considered the Agreement, the
Combined Prospectus/Proxy Statement filed January 19, 2005, and such other items
as we have deemed
Columbia Growth Fund, Inc.
Columbia Large Cap Growth Fund
necessary to render this opinion. In addition, you have provided us with letters
dated as of the date hereof, representing as to certain facts, occurrences and
information upon which you have indicated that we may rely in rendering this
opinion (whether or not contained or reflected in the documents and items
referred to above).
The facts you have represented as to in paragraph 5 of the letter from
Acquiring Fund and paragraph 6 of the letter from Target Fund, each dated as of
the date hereof, support the conclusion that, following the Transaction,
Acquiring Fund will continue the historic business of Target Fund as an open-end
management investment company that seeks capital appreciation, generally by
investing in stocks of companies expected to experience above-average earnings
growth.
Various factors demonstrate the similarity between Target Fund and
Acquiring Fund. The two funds' investment styles are very similar because they
are run by the same managers, Paul J. Berlinguet and Alexander S. Macmillan. As
of August 31, 2004 ("the comparison date"), a randomly selected date that
reflects the funds' portfolios without reference to the Transaction, both funds
were categorized by Morningstar as "Large Growth" equity funds. As one would
expect from equity funds, each fund invested at least 98.7% of its net assets in
stocks. Furthermore, the funds had identical weighted average P/E ratios (20.1)
and weighted average projected dividend yields1 (0.7%), although their overall
yields2 were slightly different (0% for Target Fund and 0.05% for Acquiring
Fund).
A comparison of the funds' portfolios indicates that, consistent with the
funds' shared goals and strategies, the funds hold stocks with similar
characteristics. First, the two funds' portfolios are almost identical in terms
of market capitalization. As of the comparison date, the weighted average market
capitalization figures, $32,888 million for Target Fund and $32,773 million for
Acquiring Fund, were within 0.3% of each other. Neither fund invested in
small-cap or micro-cap stocks, and their holdings overlapped by 45.46% in
giant-cap stocks, 35.65% in large-cap stocks, and 18.75% in mid-cap stocks,
amounting to a total overlap of 99.86%.3
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1 Projected dividend yield for a stock is the percentage of its stock price that
a company is projected to pay out as dividends. It is calculated by dividing
estimated annual dividends per share (DPS) for the current fiscal year by the
company's most recent month-end stock price. Morningstar calculates internal
estimates for the current year DPS based on the most recently reported DPS and
average historical dividend growth rates. This is one of the five value factors
used to calculate the Morningstar Style Box. For portfolios, this data point is
calculated by taking an asset-weighted average of the dividend yields of all the
stocks in the portfolio.
2 Yield, expressed as a percentage, represents a fund's income return on capital
investment for the past 12 months. This figure refers only to interest
distributions from fixed-income securities, dividends from stocks, and realized
gains from currency transactions. Monies generated from the sale of securities
or from options and futures transactions are considered capital gains, not
income. Return of capital is also not considered income. Morningstar computes
yield by dividing the sum of the fund's income distributions for the past 12
months by the previous month's net asset value (adjusted upward for any capital
gains distributed over the same time period).
3 Rather than using a fixed number of "large-cap" or "small-cap" stocks,
Morningstar uses a flexible system that is not adversely affected by overall
movements in the market. World equity markets are first divided into seven style
zones: (1) United States, (2) Latin America, (3) Canada, (4) Europe, (5) Japan,
(6) Asia excluding Japan, and (7) Australia/New Zealand. The stocks in each
style zone are further subdivided into size groups. "Giant-cap" stocks are
defined as those that account for the top 40% of the capitalization of each
style zone, "large-cap" stocks
Columbia Growth Fund, Inc.
Columbia Large Cap Growth Fund
Next, the funds' portfolios are similar in terms of sector and industry
diversification. As of the comparison date, the funds' equity investments were
compared using three broad sectors, which were also subdivided into twelve
industries. Looking solely at the three broad sectors, the funds shared a total
overlap of 99.76%, constituted by 44.12% in services, 27.93% in manufacturing,
and 27.71% in information. This extremely high overlap of 99.76% may be due to
the fact that the sector composition of both funds reflects that of the
large-cap growth segment of the U.S. stock market. Upon further dividing these
three sectors into twelve industries (services: healthcare services, consumer
services, business services, financial services; manufacturing: consumer goods,
industrial goods, energy, utilities; information: software, hardware, media,
telecommunications), the funds shared a total overlap of 99.43%. Both funds were
also relatively diversified across these twelve industries, with each fund
allocating no more than 23% of its assets to any one industry. Within the
services sector (constituting the largest category in which both funds
invested), both funds invested principally in healthcare services. Within the
manufacturing sector, both funds invested primarily in industrial goods and
consumer goods. And within the information sector, both funds invested primarily
in hardware.
Furthermore, the funds' portfolios share remarkable similarity in terms of
regional and country exposure. As of the comparison date, the funds' total
assets were compared using specific world regions, which were then subdivided by
country. Looking solely at the regions, the funds shared a total overlap of
99.53%, constituted by 91.28% in North America, 4.13% in Asia (excluding Japan),
3.26% in the United Kingdom/Western Europe, and 0.86% in all other regions. Upon
further dividing these regions by country, the funds still shared a total
overlap of 99.53%. Notably, the funds' investments were virtually identical in
each country. Both invested around 91% in the United States, 2.3% in Israel, and
extremely small amounts (2% or less) in Australia, Bermuda, Germany, Singapore,
South Korea, Switzerland, and the United Kingdom.
Consistent with the similarity of investment strategies, the two funds bear
comparable risk profiles. As of the comparison date, Target Fund and Acquiring
Fund correlated with the S&P 500 to a similar degree, with betas of 1.12 and
1.05, respectively.4
Based on the foregoing representations and assumption and our review of the
documents and items referred to above, we are of the opinion that generally,
subject to the final paragraphs hereof, for U.S. federal income tax purposes:
(i) The Transaction will constitute a reorganization within the
meaning of Section 368(a) of the Code, and Acquiring Fund and
Target Fund each will be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
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represent the next 30%, "mid-cap" stocks represent the next 20%, "small-cap"
stocks represent the next 7%, and "micro-cap" stocks represent the smallest 3%.
4 Beta is the statistical measure of the degree of variance between a security
or fund and a specifically defined market, such as the S&P 500.
Columbia Growth Fund, Inc.
Columbia Large Cap Growth Fund
(ii) Under section 1032 of the Code, no gain or loss will be
recognized by Acquiring Fund upon the receipt of the assets of
Target Fund in exchange for Acquiring Fund Shares and the
assumption by Acquiring Fund of the liabilities of Target Fund;
(iii) Under section 362(b) of the Code, the basis in the hands of
Acquiring Fund of the assets of Target Fund transferred to
Acquiring Fund in the Transaction will be the same as the basis
of such assets in the hands of Target Fund immediately prior to
the transfer;
(iv) Under section 1223(2) of the Code, the holding periods of the
assets of Target Fund in the hands of Acquiring Fund will include
the periods during which such assets were held by Target Fund;
(v) Under section 361 of the Code, no gain or loss will be recognized
by Target Fund upon the transfer of Target Fund's assets to
Acquiring Fund in exchange for Acquiring Fund Shares and the
assumption by Acquiring Fund of the liabilities of Target Fund,
or upon the distribution of Acquiring Fund Shares by Target Fund
to its shareholders in liquidation;
(vi) Under section 354 of the Code, no gain or loss will be recognized
by Target Fund shareholders upon the exchange of their Target
Fund shares for Acquiring Fund Shares;
(vii) Under section 358 of the Code, the aggregate basis of Acquiring
Fund Shares a Target Fund shareholder receives in connection with
the Transaction will be the same as the aggregate basis of his or
her Target Fund shares exchanged therefor;
(viii) Under section 1223(1) of the Code, a Target Fund shareholder's
holding period for his or her Acquiring Fund Shares will be
determined by including the period for which he or she held the
Target Fund shares exchanged therefor, provided that he or she
held such Target Fund shares as capital assets; and
(ix) Acquiring Fund will succeed to and take into account the items of
Target Fund described in Section 381(c) of the Code, subject to
the conditions and limitations specified in Sections 381, 382,
383 and 384 of the Code and the Regulations thereunder.
We express no view with respect to the effect of the reorganization on any
transferred asset as to which any unrealized gain or loss is required to be
recognized at the end of a taxable year (or on the termination or transfer
thereof) under federal income tax principles.
In connection with this opinion, we call your attention to Revenue Ruling
87-76, 1987-2 C.B. 84, published by the Internal Revenue Service ("IRS"). In
that ruling, the IRS held that the so-called "continuity of business enterprise"
requirement necessary to tax-free reorganization treatment was not met in the
case of an acquisition of an investment company which invested in corporate
stocks and bonds by an investment company which invested in municipal bonds.
Columbia Growth Fund, Inc.
Columbia Large Cap Growth Fund
Specifically, the IRS based its ruling on its conclusion that the business of
investing in corporate stocks and bonds is not the same line of business as
investing in municipal bonds. We believe that the IRS's conclusion in this
ruling is questionable, and that, even if the IRS's conclusion is correct, the
facts of this Transaction are distinguishable from those in the published
ruling.
We believe that Acquiring Fund and Target Fund are both engaged in the same
line of business: each is an open-end management investment company that seeks
capital appreciation, generally by investing in stocks of companies expected to
experience above-average earnings growth. The funds were both categorized as
"Large Growth" equity funds by Morningstar and their portfolios are
substantially similar in terms of average P/E ratio, average projected dividend
yield, market capitalization, sector diversification, geographical exposure, and
risk profile. After the Transaction, Acquiring Fund will continue that line of
business for the benefit of the stockholders of both Target and Acquiring Funds.
While Acquiring Fund will dispose of securities formerly held by Target Fund,
these dispositions will be fully consistent with the shared historic investment
policies of both Funds and all proceeds generated by such dispositions will be
reinvested in a manner fully consistent with such policies. In these
circumstances, we are of the opinion that Acquiring Fund will have continued the
historic business of Target Fund for the benefit of, among others, the historic
stockholders of Target Fund, and that the continuity of business enterprise
doctrine should, as a result, be fulfilled. Because Revenue Ruling 87-76 is the
only published ruling dealing specifically with the application of the
"continuity of business enterprise" requirement to a reorganization involving
investment companies, however, our opinion cannot be free from doubt. No ruling
has been or will be obtained from the IRS as to the subject matter of this
opinion and there can be no assurance that the IRS or a court of law will concur
with the opinion set forth above.
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Columbia Growth Fund, Inc.
Columbia Large Cap Growth Fund
Our opinion is based on the Internal Revenue Code of 1986, as amended,
Treasury Regulations, Internal Revenue Service rulings, judicial decisions, and
other applicable authority, all as in effect on the date of this opinion. The
legal authorities on which this opinion is based may be changed at any time. Any
such changes may be retroactively applied and could modify the opinions
expressed above.
Very truly yours,
Ropes & Gray LLP