[ROPES & GRAY LETTERHEAD]
March 18, 2005
Columbia Common Stock Fund, Inc.
1301 S.W. Fifth Avenue
Portland, OR 97201
Columbia Large Cap Core 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 Common
Stock 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 Core 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 Common Stock Fund, Inc.
Columbia Large Cap Core 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 common stocks of large-cap companies.
Various factors demonstrate the similarity between Target Fund and
Acquiring Fund. 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 Blend" equity
funds. Both funds also received the same overall rating of three stars from
Morningstar.(1) As one would expect from equity funds, each fund invested at
least 96.7% of its net assets in stocks. Furthermore, the funds had very similar
weighted average P/E ratios (15.3 for Target Fund and 16 for Acquiring Fund) and
weighted average projected dividend yields(2) (1.2% for Target Fund and 1.4% for
Acquiring Fund), although their overall yields(3) were different (0.56% for
Target Fund and 0.16% 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 funds' portfolios are quite similar in terms of
sector diversification. As of the comparison date, the funds' equity investments
were compared using three broad industry sectors, which were also subdivided
into twelve narrower categories. Looking solely at the three broad sectors, the
funds shared a total overlap of 89.04%, constituted by 47.68% in services,
21.99% in information, 19.37% in manufacturing. Upon further dividing these
three large industry sectors into twelve sub-categories (services: healthcare
services, consumer services, business services, financial services; information:
software, hardware, media, telecommunications; manufacturing: consumer goods,
industrial goods, energy, utilities), the funds shared a total overlap of
86.65%. Both funds
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(1) The overall rating is a weighted historical average. If a fund has always
remained in the same Morningstar category, the overall rating is calculated
using the following weights: 50% 10-year rating, 30% five-year rating, and 20%
three-year rating. If, however, the fund has changed Morningstar categories, the
fund's historical ratings are given less weight, depending on the magnitude of
the change.
(2) 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.
(3) 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).
Columbia Common Stock Fund, Inc.
Columbia Large Cap Core Fund
were also relatively diversified across these twelve sectors, with each fund
allocating no more than 22% of its equity investments to any one sector. Within
the services sector (constituting the largest category in which both funds
invested), both funds invested primarily in financial services and then in
healthcare services. And within the information sector, both funds invested
primarily in hardware.
Next, the funds' portfolios share considerable 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
94.97%, constituted by 93.45% in North America, 0.59% in Latin America, 0.52% in
the United Kingdom/Western Europe, and 0.41% in all other regions. Upon further
dividing these regions by country, the funds shared a total overlap of 93.03%.
Furthermore, the funds' portfolios are relatively similar in terms of
market capitalization. As of the comparison date, the weighted average market
capitalization figure of Target Fund, $18,020 million, was different from that
of Acquiring Fund, $35,551 million. However, when compared in terms of the
percentage of net assets each fund invested in stocks of varying market
capitalizations, there was a total overlap of 76.93%, consisting of 34.36% in
giant-cap stocks, 29.69% in large-cap stocks, and 12.88% in mid-cap stocks.
Neither fund invested in small-cap or micro-cap stocks.(4)
Consistent with the similarity of investment strategies, the two funds bear
similar 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 1.05 and 0.98,
respectively.(5)
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;
(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 ;
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(4) 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 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%.
(5) 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 Common Stock Fund, Inc.
Columbia Large Cap Core 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.
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.
Columbia Common Stock Fund, Inc.
Columbia Large Cap Core Fund
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 common stocks of large-cap
companies. The funds were both categorized as "Large Blend" equity funds by
Morningstar and their portfolios are substantially similar in terms of average
P/E ratio, average projected dividend yield, sector diversification,
geographical exposure, market capitalization, 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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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