AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
June 15, 2005
REGISTRATION NO. 333-121037
(INVESTMENT COMPANY ACT REGISTRATION NO. 811-4978)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- - - - - - - - - - -
FORM N-14
----
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
-----
-----
PRE-EFFECTIVE AMENDMENT NO. / /
-----
-----
POST-EFFECTIVE AMENDMENT NO. 1 /X/
-----
(CHECK APPROPRIATE BOX OR BOXES)
- - - - - - - - - - - - - - - - -
COLUMBIA FUNDS TRUST XI
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
1-617-426-3750
- - - - - - - - - - - - - - - - -
R. SCOTT HENDERSON
COLUMBIA MANAGEMENT ADVISORS, INC.
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
- - - - - - - - - - - - - - - -
COPIES TO:
JOHN M. LODER, ESQUIRE CAMERON AVERY, ESQUIRE
ROPES & GRAY LLP BELL, BOYD AND LLOYD LLC
ONE INTERNATIONAL PLACE THREE FIRST NATIONAL PLAZA
BOSTON, MASSACHUSETTS 02110 70 W. MADISON STREET, SUITE 3300
CHICAGO, ILLINOIS 60602
It is proposed that this filing will become effective immediately upon filing
pursuant to paragraph (d) of Rule 462 under the Securities Act of 1933, as
amended. This amendment to the registration statement on Form N-14 of the
Columbia Large Cap Growth Fund and Large Cap Core Fund, filed with the
Commission on December 7, 2004 (Registration No. 333-121037)(the "Registration
Statement"), is being filed to add Exhibit 12 to the Registration Statement. No
other information contained in the Registration Statement is amended, deleted or
superseded hereby.
Title of Securities Being Registered:
Class A
Class B
Class C
Class G
Class Z
Approximate Date of Proposed Offering:
As soon as practicable after this Registration Statement becomes or is declared
effective.
It is proposed that this filing will become effective on January 6, 2005
pursuant to Rule 488.
An indefinite amount of the Registrant's securities has been registered under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. In reliance upon such rule, no filing fee is being paid at this
time.
This Registration Statement relates solely to the Registrant's Columbia Large
Cap Growth Fund and Columbia Large Cap Core Fund series.
COLUMBIA GROWTH FUND, INC.
ONE FINANCIAL CENTER,
BOSTON, MASSACHUSETTS 02111-2621
Dear Investor:
I am writing to ask for your vote on the proposed acquisition of Columbia Growth
Fund, Inc. (the "Growth Fund") by Columbia Large Cap Growth Fund (the "Large Cap
Growth Fund"). At a special meeting of shareholders on February 16, 2005, you
will be asked to vote on your Fund's acquisition.
The proposed acquisition of the Growth Fund is one of several acquisitions
recommended by Columbia Management Group, Inc. ("Columbia"), the parent company
of the investment advisor to the Columbia funds. Columbia's overall goal in
proposing these fund mergers is two-fold. First, by merging funds with generally
similar investment strategies, Columbia can create larger, more efficient
investment portfolios. Second, by streamlining its product offering, Columbia
can more efficiently concentrate its investment management and distribution
resources on a more focused group of portfolios. Columbia recommended the
acquisition of the Growth Fund to enable its shareholders to invest in a larger,
more efficient investment portfolio while continuing to access a similar
investment strategy.
Should the Growth Fund's merger be approved, and other conditions to the
acquisition satisfied, your current fund investment will be exchanged, without
immediate tax consequences, for an equal investment (that is, dollar value) in
the Large Cap Growth Fund.
The table below provides information on the Large Cap Growth Fund shares you
will receive upon consummation of the acquisition:
<Table>
<Caption>
YOU WILL RECEIVE THE FOLLOWING SHARE CLASS OF
IF YOU OWN THE FOLLOWING SHARE CLASS OF THE THE LARGE CAP GROWTH FUND UPON
GROWTH FUND: CONSUMMATION OF THE ACQUISITION:
Class A Class A
Class B Class B
Class C Class C
Class D Class C
Class G Class G
Class Z Class Z
</Table>
More information on the specific details and reasons for your fund's acquisition
is contained in the enclosed combined Prospectus/Proxy Statement. Please read it
carefully.
THE BOARD OF DIRECTORS OF THE GROWTH FUND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE ACQUISITION OF THE GROWTH FUND BY THE LARGE CAP GROWTH FUND, INCLUDING
THE DISSOLUTION OF THE GROWTH FUND FOLLOWING THE PROPOSED ACQUISITION.
YOUR VOTE IS IMPORTANT. YOU CAN VOTE BY COMPLETING THE ENCLOSED PROXY CARD. A
SELF-ADDRESSED POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE.
We appreciate your participation and prompt response in these matters and thank
you for your continued support.
Sincerely,
Christopher L. Wilson
President
December , 2004
[Job Code]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 16, 2005
COLUMBIA GROWTH FUND, INC.
1-866-270-3134
To the shareholders of Columbia Growth Fund, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of Columbia
Growth Fund, Inc. (the "Growth Fund") will be held at 2:00 p.m. Eastern Time on
Wednesday, February 16, 2005, at the offices of the Growth Fund, One Financial
Center, Boston, Massachusetts 02111, for the following purposes:
1. To approve an Agreement and Plan of Reorganization providing for (i) the
sale of all of the assets of the Growth Fund to, and the assumption of all
of the liabilities of the Growth Fund by, Columbia Large Cap Growth Fund
(the "Large Cap Growth Fund"), in exchange for shares of the Large Cap
Growth Fund, (ii) the distribution of such shares to the shareholders of
the Growth Fund in complete liquidation of the Growth Fund, and (iii) the
dissolution under state law and the de-registration under the Investment
Company Act of 1940, as amended, of the Growth Fund.
2. To consider and act upon such other matters that properly come before the
meeting or any adjourned session of the meeting.
Shareholders of record of Columbia Growth Fund at the close of business on
December 1, 2004, are entitled to notice of and to vote at the meeting and any
adjourned session.
Shareholders of Columbia Growth Fund are or may be entitled to assert
dissenters' rights under Oregon law. Please see "Terms of the Agreement and Plan
of Reorganization" in the enclosed Prospectus/Proxy Statement.
By Order of the Board of Directors,
David Rozenson,
Secretary
December __, 2004
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE SEE THE ENCLOSED PROSPECTUS/PROXY STATEMENT AND OTHER MATERIALS FOR
INSTRUCTIONS ON HOW TO VOTE EASILY AND QUICKLY.
COMBINED PROSPECTUS/PROXY STATEMENT
DECEMBER __, 2004
ACQUISITION OF THE ASSETS AND LIABILITIES OF
COLUMBIA GROWTH FUND, INC.
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
1-866-270-3134
BY AND IN EXCHANGE FOR SHARES OF
COLUMBIA LARGE CAP GROWTH FUND
C/O COLUMBIA FUNDS TRUST XI
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
1-866-270-3134
TABLE OF CONTENTS
<Table>
QUESTIONS AND ANSWERS....................................... 4
PROPOSAL -- Acquisition of Columbia Growth Fund, Inc. by
Columbia Large Cap Growth Fund............................ 14
Principal Investment Risks................................ 14
Information about the Acquisition......................... 15
GENERAL..................................................... 27
Voting Information........................................ 27
Appendix A -- Agreement and Plan of Reorganization.......... A-1
Appendix B -- Fund Information.............................. B-1
Appendix C -- Capitalization................................ C-1
Appendix D -- Information Applicable to Class A, Class B,
Class C, Class G and Class Z Shares of Columbia Large Cap
Growth Fund............................................... D-1
Appendix E -- Financial Highlights for Columbia Large Cap
Growth Fund............................................... E-1
Appendix F -- Comparison of a Massachusetts Business Trust
with an Oregon Corporation................................ F-1
Appendix G -- Dissenters' Rights............................ G-1
</Table>
This combined Prospectus/Proxy Statement (the "Prospectus/Proxy Statement")
contains information you should know before voting on the Agreement and Plan of
Reorganization dated ________ , 2004 among Columbia Funds Trust XI ("Trust XI")
on behalf of Columbia Large Cap Growth Fund (the "Large Cap Growth Fund"),
Columbia Growth Fund, Inc. (the "Growth Fund," and together with the Large Cap
Growth Fund, the "Funds"), and Columbia Management Group, Inc. ("Columbia") (the
"Agreement and Plan of Reorganization") relating to the proposed
acquisition of the Growth Fund, Inc. by the Large Cap Growth Fund (the
"Acquisition") at a Special Meeting of Shareholders of the Growth Fund (the
"Meeting"), which will be held at 2:00 p.m. Eastern Time on Wednesday, February
16, 2005, at the offices of the Funds, One Financial Center, Boston,
Massachusetts 02111. The Funds are both registered open-end management
investment companies. Please read this Prospectus/Proxy Statement and keep it
for future reference.
The Proposal in this Prospectus/Proxy Statement relates to the proposed
acquisition of the Growth Fund by the Large Cap Growth Fund. If the Acquisition
occurs, you will become a shareholder of the Large Cap Growth Fund. The Large
Cap Growth Fund seeks long-term capital appreciation. If the Agreement and Plan
of Reorganization is approved by the shareholders of the Growth Fund and the
Acquisition occurs, the Growth Fund will transfer all of the assets and
liabilities attributable to each class of its shares to the Large Cap Growth
Fund in exchange for shares of the same class of the Large Cap Growth Fund
(except for the Class D shares of the Growth Fund, which will be exchanged for
Class C shares of the Large Cap Growth Fund) with the same aggregate net asset
value as the net value of the assets and liabilities transferred. After that
exchange, shares of each class received by the Growth Fund will be distributed
pro rata to its shareholders of the corresponding class, and the Growth Fund
will be dissolved under state law and de-registered under the Investment Company
Act of 1940, as amended (the "1940 Act").
The following documents have been filed with the Securities and Exchange
Commission (the "SEC") and are incorporated into this Prospectus/Proxy Statement
by reference:
- The Prospectuses of the Growth Fund dated January 1, 2004, as
supplemented through November 4, 2004.
- The Statement of Additional Information of the Growth Fund dated January
1, 2004, as supplemented through October 21, 2004.
- The Report of Independent Registered Public Accounting Firm and the
financial statements included in the Annual Report to Shareholders of the
Growth Fund dated August 31, 2004.
- The Statement of Additional Information of the Large Cap Growth Fund
dated ________ , 2004, relating to the Acquisition.
The Growth Fund has previously sent its Annual Report to its shareholders. For a
free copy of this Report or any of the documents listed above, you may call
1-800-426-3750, or you may write to your Fund at the address listed on the cover
of this Prospectus/Proxy Statement. You may also
2
obtain many of these documents by accessing the Internet site for your Fund at
www.columbiafunds.com. Text-only versions of all the Large Cap Growth Fund and
Growth Fund documents can be viewed online or downloaded from the EDGAR database
on the SEC's Internet site at www.sec.gov. You can review and copy information
about the Funds by visiting the Public Reference Room, U.S. Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, DC 20549-0102 and at
the regional offices of the SEC located at 233 Broadway, New York, NY 10279 and
175 W. Jackson Boulevard, Suite 900, Chicago, IL 60604. You can obtain copies,
upon payment of a duplicating fee, by sending an e-mail request to
publicinfo@sec.gov or by writing the Public Reference Room at the address above.
Information on the operation of the Public Reference Room may be obtained by
calling 202-942-8090.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
An investment in any Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
3
QUESTIONS AND ANSWERS
THE FOLLOWING QUESTIONS AND ANSWERS PROVIDE AN OVERVIEW OF KEY FEATURES OF THE
ACQUISITION AND OF THE INFORMATION CONTAINED IN THIS COMBINED PROSPECTUS/PROXY
STATEMENT. PLEASE REVIEW THE FULL PROSPECTUS/PROXY STATEMENT PRIOR TO CASTING
YOUR VOTE.
1. WHAT IS BEING PROPOSED?
The Board of Directors of the Growth Fund is recommending that the Large Cap
Growth Fund acquire the Growth Fund. This means that the Large Cap Growth Fund
would acquire all of the assets and liabilities of the Growth Fund in exchange
for shares of the Large Cap Growth Fund. If the Acquisition is approved and
completed, shareholders of the Growth Fund will receive shares of the Large Cap
Growth Fund with a dollar value equal to the value of their Growth Fund shares
on the business day prior to the closing of the merger, and the Growth Fund will
subsequently be dissolved under state law and de-registered under the 1940 Act.
The Acquisition is currently scheduled to take place on or around February 25,
2005, or such other date as the parties may agree.
2. WHY IS THE ACQUISITION BEING PROPOSED?
The Board of Directors of the Growth Fund recommends approval of the Acquisition
because it offers shareholders of the Growth Fund an investment in a larger
investment portfolio with similar investment goals and strategies. Spreading
fixed costs over a broader asset base allows the potential for more efficient
operation, and lower overall expenses. In reviewing the Acquisition, the
Directors also considered that, based on expense ratios as of September 30,
2004, and a commitment by Columbia Management Advisors, Inc. ("Columbia
Management"), each Fund's investment advisor, to limit the total management fees
of the Large Cap Growth Fund, shareholders of your fund are expected to
experience no change in net expenses.
Please review "Reasons for the Acquisition" in the Proposal section of this
Prospectus/Proxy Statement for more information regarding the factors considered
by the Board of Directors.
Shareholders of the Growth Fund should note that, although the investment goal
and strategies of the Large Cap Growth Fund are generally similar to those of
the Growth Fund, the investment style of the combined fund may differ from that
of the Growth Fund. Question 4 below provides information about the investment
goals, strategies and policies of the Funds.
4
3. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE AND WHAT ARE
THEY ESTIMATED TO BE FOLLOWING THE ACQUISITION?
The following tables allow you to compare the sales charges, management fees and
expenses of each Fund and the estimated expenses the combined fund is expected
to bear in the first year following the Acquisition. The shareholder fees
presented below for the Large Cap Growth Fund apply both before and after giving
effect to the Acquisition. Sales charges, if applicable, are paid directly by
shareholders to Columbia Funds Distributor, Inc., each Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management
fees, 12b-1 fees (if applicable) and administrative costs, including pricing and
custody services.
The Annual Fund Operating Expenses shown in the table below represent expenses
for each Fund's most recent fiscal year (August 31, 2004 for the Growth Fund and
September 30, 2004 for the Large Cap Growth Fund) and those projected for the
combined fund on a pro forma basis after giving effect to the Acquisition and
based on pro forma combined net assets as of September 30, 2004.
Based on the expense ratios shown below, net expenses of each class of shares of
Large Cap Growth Fund are expected to be equal to the net expenses of each
corresponding class of shares of your Fund (after giving effect to the
contractual fee waiver described in footnote 9 to the Annual Fund Operating
Expenses table). Columbia Management has undertaken to maintain this waiver
through the first anniversary of the consummation of the Acquisition, after
which this arrangement may be modified or terminated at any time, which may
cause the expenses of a class of shares of Large Cap Growth Fund to be higher
than the estimated expenses of the corresponding class of shares of your Fund.
Shareholders of the Growth Fund will not pay additional sales charges as a
result of the Acquisition, although any applicable contingent deferred sales
charges ("CDSCs") will continue to apply.
5
SHAREHOLDER FEES
(paid directly from your investment)
GROWTH FUND(1)
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS D CLASS G CLASS Z
Maximum sales charge (load) on
purchases (%) (as a percentage
of the offering price) 5.75 0.00 0.00 1.00(2) 0.00 0.00
- --------------------------------------------------------------------------------------------
Maximum deferred sales charge
(load) on redemptions (%) (as a
percentage of the lesser of
purchase price or redemption
price) 1.00(3) 5.00 1.00 1.00 5.00 0.00
- --------------------------------------------------------------------------------------------
Redemption fee (%) (as a
percentage of amount redeemed,
if applicable) (4) (4) (4) (4) (4) (4)
</Table>
LARGE CAP GROWTH FUND(1)
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS G CLASS Z
Maximum sales charge (load) on purchases
(%) (as a percentage of the offering
price) 5.75 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
lesser of purchase price or redemption
price) 1.00(3) 5.00 1.00 5.00 0.00
- -------------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of
amount redeemed, if applicable) (4) (4) (4) (4) (4)
</Table>
LARGE CAP GROWTH FUND(1)
(PRO FORMA COMBINED AS OF SEPTEMBER 30, 2004)
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS G CLASS Z
Maximum sales charge (load) on purchases
(%) (as a percentage of the offering
price) 5.75 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
lesser of purchase price or redemption
price) 1.00(3) 5.00 1.00 5.00 0.00
- -------------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of
amount redeemed, if applicable) (4) (4) (4) (4) (4)
</Table>
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) Columbia Funds Distributor, Inc., the Funds' distributor, has agreed to
waive indefinitely the front-end sales charge for purchases of Class D
shares by existing Class D shareholders.
(3) This charge applies only to Class A shares bought without an initial sales
charge that are sold within 18 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
6
ANNUAL FUND OPERATING EXPENSES
(deducted directly from Fund assets)
GROWTH FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS D CLASS G CLASS Z
Management fees (%) 0.60 0.60 0.60 0.60 0.60 0.60
- --------------------------------------------------------------------------------------------
Distribution and service
(12b-1) fees (%) 0.25(6) 1.00 1.00 1.00 0.95(7) 0.00
- --------------------------------------------------------------------------------------------
Other expenses(5) (%) 0.24 0.24 0.24 0.24 0.24 0.24
- --------------------------------------------------------------------------------------------
Total annual fund operating
expenses (%) 1.09 1.84 1.84 1.84 1.79 0.84
</Table>
LARGE CAP GROWTH FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS G CLASS Z
Management fees(8) (%) 0.80 0.80 0.80 0.80 0.80
- -------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees
(%) 0.25(6) 1.00 1.00 0.95(7) 0.00
- -------------------------------------------------------------------------------------------
Other expenses(5) (%) 0.24 0.24 0.24 0.24 0.24
- -------------------------------------------------------------------------------------------
Total annual fund operating expenses
(%) 1.29 2.04 2.04 1.99 1.04
</Table>
LARGE CAP GROWTH FUND
(PRO FORMA COMBINED AS OF SEPTEMBER 30, 2004)
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS G CLASS Z
Management fees(9)(10) (%) 0.75 0.75 0.75 0.75 0.75
- -------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees
(%) 0.25(6) 1.00 1.00 0.95(7) 0.00
- -------------------------------------------------------------------------------------------
Other expenses(5) (%) 0.22 0.22 0.22 0.22 0.22
- -------------------------------------------------------------------------------------------
Total annual fund operating expenses
(%) 1.22 1.97 1.97 1.92 0.97
- -------------------------------------------------------------------------------------------
Expense reimbursement(9) (%) (0.13) (0.13) (0.13) (0.13) (0.13)
- -------------------------------------------------------------------------------------------
Net expense(9) (%) 1.09 1.84 1.84 1.79 0.84
</Table>
(5) Other expenses have been restated to reflect contractual changes to the
transfer agency and bookkeeping fees for the Growth Fund and to the
transfer agency fees for the Large Cap Growth Fund effective November 1,
2003.
(6) Each of the Large Cap Growth Fund and the Growth Fund may pay distribution
and service (12b-1) fees of up to a maximum of 0.35% of the Fund's average
daily net assets attributable to Class A shares (comprised of up to 0.25%
for shareholder liaison services and up to 0.10% for distribution
services). Both funds will limit payments under the plan to 0.25%
(7) Class G shares may be subject to distribution and service (12b-1) fees up
to a maximum of 1.15% of the Fund's average daily net assets attributable
to Class G shares (comprised of up to 0.65% for distribution services, up
to 0.25% for shareholder liaison services and up to 0.25% for
administrative support services). Both funds will limit payments under the
plan to 0.95%
(8) The Large Cap Growth Fund pays a management fee of 0.73% and an
administration fee of 0.07%.
7
(9) The Fund's advisor has contractually agreed to bear a portion of the Fund's
expenses so that the Fund's ordinary operating expenses (excluding
distribution and service fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) do not exceed 0.84% annually for classes A,
B, C, G and Z shares. The advisor has undertaken to maintain this
arrangement for one year following consummation of the Acquisition, after
which date it may be modified or terminated at any time.
(10) After consummation of the Acquisition, the Large Cap Growth Fund is
expected to pay a management fee of 0.68% and an administration fee of
0.07%.
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in the Large Cap Growth
Fund or the Growth Fund currently with the cost of investing in the combined
fund on a pro forma basis and also allow you to compare these costs with the
cost of investing in other mutual funds. The table reflects a one-year expense
reimbursement as described in footnote 9 to the Annual Fund Operating Expenses
table and also reflects, with respect to the Growth Fund, the waiver of the
initial sales charge for Class D shares. It uses the following hypothetical
conditions.
- $10,000 initial investment
- 5% total return for each year
- Each Fund's operating expenses remain the same
- Reinvestment of all dividends and distributions
- Class B shares convert to Class A shares after eight years
EXAMPLE EXPENSES
(your actual costs may be higher or lower)
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
GROWTH FUND
Class A $680 $ 902 $1,141 $1,827
- ----------------------------------------------------------------------------------------------
Class B: did not sell your shares $187 $ 579 $ 995 $1,962
sold all your shares at end of
period $687 $ 879 $1,195 $1,962
- ----------------------------------------------------------------------------------------------
Class C: did not sell your shares $187 $ 579 $ 995 $2,159
sold all your shares at end of
period $287 $ 579 $ 995 $2,159
- ----------------------------------------------------------------------------------------------
Class D: did not sell your shares $187 $ 579 $ 995 $2,159
sold all your shares at end of
period $287 $ 579 $ 995 $2,159
- ----------------------------------------------------------------------------------------------
Class G: did not sell your shares $182 $ 563 $ 970 $1,921
sold all your shares at end of
period $682 $ 963 $1,270 $1,921
- ----------------------------------------------------------------------------------------------
Class Z $ 86 $ 268 $ 466 $1,037
</Table>
8
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
LARGE CAP GROWTH FUND
Class A $699 $ 960 $1,240 $2,039
- ----------------------------------------------------------------------------------------------
Class B: did not sell your shares $207 $ 639 $1,097 $2,173
sold all your shares at end of
period $707 $ 939 $1,297 $2,173
- ----------------------------------------------------------------------------------------------
Class C: did not sell your shares $207 $ 639 $1,097 $2,366
sold all your shares at end of
period $307 $ 639 $1,097 $2,366
- ----------------------------------------------------------------------------------------------
Class G: did not sell your shares $202 $ 623 $1,071 $2,146
sold all your shares at end of
period $702 $1,023 $1,371 $2,146
- ----------------------------------------------------------------------------------------------
Class Z $106 $ 330 $ 572 $1,268
LARGE CAP GROWTH FUND
(pro forma combined)
Class A $680 $ 928 $1,195 $1,957
- ----------------------------------------------------------------------------------------------
Class B: did not sell your shares $187 $ 606 $1,050 $2,091
sold all your shares at end of
period $687 $ 906 $1,250 $2,091
- ----------------------------------------------------------------------------------------------
Class C: did not sell your shares $187 $ 606 $1,050 $2,285
sold all your shares at end of
period $287 $ 606 $1,050 $2,285
- ----------------------------------------------------------------------------------------------
Class G: did not sell your shares $182 $ 591 $1,025 $2,064
sold all your shares at end of
period $682 $ 991 $1,325 $2,064
- ----------------------------------------------------------------------------------------------
Class Z $ 86 $ 296 $ 524 $1,178
</Table>
The projected post-Acquisition pro forma Annual Fund Operating Expenses and
Example Expenses presented above are based upon numerous material assumptions,
including that (1) the current contractual agreements will remain in place; and
(2) certain fixed costs involved in operating the Growth Fund are eliminated.
Although these projections represent good faith estimates, there can be no
assurance that any particular level of expenses or expense savings will be
achieved because expenses depend on a variety of factors, including the future
level of fund assets, many of which are beyond the control of the Large Cap
Growth Fund or Columbia.
9
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE LARGE CAP GROWTH
FUND AND THE GROWTH FUND COMPARE?
This table shows the investment goal and principal investment strategies of each
Fund:
<Table>
<Caption>
LARGE CAP GROWTH FUND GROWTH FUND
INVESTMENT GOAL: The Large Cap Growth INVESTMENT GOAL: The Growth Fund seeks
Fund seeks long-term capital capital appreciation by investing,
appreciation under normal market conditions, in
stocks of companies expected to
experience long-term, above-average
earnings growth.
- ---------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES: The PRINCIPAL INVESTMENT STRATEGIES: The
Large Cap Growth Fund seeks to achieve Growth Fund seeks to achieve its goal
its goal as follows: as follows:
- - Under normal market conditions, the - Growth stocks are stocks of companies
Large Cap Growth Fund invests at that are expected to experience
least 80% of its net assets (plus any long-term, above-average earnings
borrowings for investment purposes) growth. These companies, as compared
in a broadly diversified portfolio of to the overall market, tend to have
large-capitalization equity attractive valuations, strong
securities, primarily common stocks competitive positions within their
and securities that can be converted industry groups and the ability to
into common stocks. grow using internal resources.
- - The Large Cap Growth Fund invests - The Growth Fund may also invest up to
mainly in companies that Columbia 25% of its assets in foreign
Management believes will have faster securities, including ADRs, Global
earnings growth than the economy in Depositary Receipts ("GDRs"), and
general. NASDAQ-listed foreign securities.
- - The Large Cap Growth Fund may invest - The Growth Fund may invest in Real
up to 20% of its total assets in Estate Investment Trusts ("REITs").
foreign securities, either directly
or indirectly through the purchase of
American Depositary Receipts
("ADRs"), European Depository
Receipts ("EDRs") and Continental
Depository Receipts ("CDRs").
- - Columbia Management looks for large-
capitalization companies (generally
over $5 billion) in growing
industries, focusing on technological
advances, good product development,
strong management and other factors
which support future growth.
- - Columbia Management seeks out
companies that have a history of
strong earnings growth and are
projected to continue a similar
pattern of growth over the next three
to five years.
</Table>
The following highlights the differences in certain investment strategies that
the Funds use to achieve their investment goals:
- - The Large Cap Growth Fund may invest up to 20% of its total assets in foreign
securities. In addition, the Large Cap Growth Fund may invest in securities
issued by foreign branches of U.S. banks and foreign banks.
10
The Growth Fund may invest up to 25% of its assets in foreign securities. The
Growth Fund may not invest in foreign equities of emerging countries, but the
Fund's investments in ADRs, GDRs, and NASDAQ-listed securities are not subject
to this limitation, even if the issuer is headquartered in, has its principal
operations in, derives its revenues from, has its principal trading market
located in or was legally organized in an emerging market country.
- - The Large Cap Growth Fund has a fundamental investment restriction under which
it may not borrow money except to the extent permitted by the 1940 Act (i.e.,
up to 33 1/3% of the Fund's total assets). The Growth Fund has a fundamental
investment restriction under which it may not borrow money in excess of 5
percent of its net asset value, and any borrowing must only be temporary from
banks for extraordinary or emergency purposes.
- - Each of the Growth Fund and Large Cap Growth Fund may invest in REITs. The
Large Cap Growth Fund, however, will not invest more than 10 percent of its
net assets in REITs.
- - The Growth Fund has a fundamental investment restriction under which it may
not buy or sell commodities or commodity contracts. The Large Cap Growth Fund
has a fundamental investment restriction under which it may not purchase or
sell commodities or commodity contracts except that it may, to the extent
consistent with its investment objective and policies, purchase and sell
financial futures contracts and related options and foreign currency forward
contracts, futures contracts and related options.
- - The Growth Fund has a fundamental investment restriction under which it may
not purchase securities of any issuer when those officers and directors of the
Fund who individually own 1/2 of 1 percent of the securities of that issuer
together own 5 percent or more. The Large Cap Growth Fund has no similar
investment restriction.
- - The Growth Fund has a fundamental investment restriction under which it many
not invest more than 5 percent of its total assets at cost in the securities
of companies which (with predecessor companies) have a record of less than
three years continuous operation and equity securities which are not readily
marketable. The Large Cap Growth Fund has no similar investment restriction.
- - The Growth Fund has a fundamental investment restriction under which it may
not invest in companies for the purposes of control or management. The Large
Cap Growth Fund has a non-fundamental
11
investment restriction under which it may not purchase securities for the
purpose of exercising control.
- - The Growth Fund has a fundamental investment restriction under which it may
not buy securities on margin or make short sales. The Large Cap Growth Fund
has a similar non-fundamental investment restriction.
- - The Growth Fund has a fundamental investment restriction under which it may
not invest directly in oil, gas, or other mineral development or exploration
programs or leases, although it may own securities of companies engaged in
those businesses. The Large Cap Growth Fund has no similar investment
restriction.
- - The Large Cap Growth Fund has a fundamental investment restriction under which
it may not write or sell put options, call options, straddles, spreads or any
combination thereof except that it may, to the extent consistent with its
investment objective and policies, write covered call options and covered put
options and purchase and sell other options. These options must be listed on a
national securities exchange and issued by the Options Clearing Corporation,
and the aggregate value must not exceed 25% of the Large Cap Growth Fund's
assets. The Growth Fund may write call options, but only if such options are
covered. The Growth Fund may write such options on up to 25% of its net
assets.
Except as noted above, the Funds are generally subject to substantially similar
fundamental and non-fundamental investment policies. For a complete list of the
Funds' investment policies and restrictions, see each Fund's Statement of
Additional Information.
5. WHAT CLASS OF LARGE CAP GROWTH FUND SHARES WILL YOU RECEIVE IF THE
ACQUISITION OCCURS?
If you own Class A, Class B, Class C, Class G or Class Z shares of the Growth
Fund, you will receive the same class of shares of the Large Cap Growth Fund
that you currently own in the Growth Fund. The shares will have the same
exchange rights and will bear the same CDSCs upon redemption and, in the case of
Class B shares, will convert to Class A shares at the same time as your current
shares. The shares will also have the same distribution, purchase and redemption
procedures as your current shares.
If you own Class D shares of the Growth Fund, you will receive Class C shares of
the Large Cap Growth Fund. Like your Class D shares of the Growth Fund, the
Class C shares of the Large Cap Growth Fund carry a CDSC of 1.00% that is
applied to shares sold within the first year after they are purchased. The
shares you receive in the Acquisition will be subject to the same CDSC
applicable to your Class D shares of the Growth Fund.
12
Please see Appendix D for more information on Class C shares of the Large Cap
Growth Fund.
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION?
The Acquisition is expected to be tax-free to you for federal income tax
purposes. This means that neither you nor the Growth Fund is expected to
recognize a gain or loss as a direct result of the Acquisition. However, since
the Acquisition will end the tax year of the Growth Fund, it may accelerate
distributions from the Growth Fund to you as a shareholder. Specifically, the
Growth Fund will recognize any net investment company taxable income and any net
realized capital gains (after reduction by any available capital loss
carryforwards) or losses in the short tax year ending on the date of the
Acquisition, and will declare and pay a distribution of such income and such
gains to its shareholders on or before that date.
The cost basis and holding period of your Growth Fund shares are expected to
carry over to your new shares in the Large Cap Growth Fund.
Certain other tax consequences are discussed below under "Federal Income Tax
Consequences."
7. WHO BEARS THE EXPENSES ASSOCIATED WITH THE ACQUISITION?
Columbia Management and the Large Cap Growth Fund will each bear a portion of
the out of pocket expenses associated with the Acquisition, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this Prospectus/Proxy
Statement and any filings with the SEC and other governmental authorities in
connection with the Acquisition; (2) the fees and expenses of any proxy
solicitation firm retained in connection with the Acquisition; (3) the legal
fees and expenses incurred by the Funds in connection with the Acquisition; and
(4) the Directors' and/or Trustees' fees and out of pocket expenses incurred as
a result of the Acquisition. Should your Fund's shareholders not approve the
Acquisition, Columbia Management will bear all costs associated with the
Acquisition.
8. WHO IS ELIGIBLE TO VOTE?
Shareholders of record on December 1, 2004 are entitled to attend and vote at
the Meeting or any adjournment of the Meeting. On each proposal, all
shareholders of your Fund, regardless of the class of shares held, will vote
together as a single class. Each share is entitled to one vote. Shares
represented by properly executed proxies, unless revoked before or at the
Meeting, will be voted according to shareholders' instructions. If you sign a
proxy but do not fill in a vote, your shares will be voted to approve the
Acquisition.
13
PROPOSAL -- ACQUISITION OF COLUMBIA GROWTH FUND, INC. BY COLUMBIA LARGE CAP
GROWTH FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization dated
[ ], 2004, a form of which is attached as Appendix A to this
Prospectus/Proxy Statement. By approving the Agreement and Plan of
Reorganization, you are also approving the Acquisition of the Growth Fund by the
Large Cap Growth Fund and the dissolution of the Growth Fund under state law and
the de-registration of the Growth Fund under the 1940 Act.
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the Large Cap Growth Fund, and how
do they compare with those of the Growth Fund?
The principal risks associated with each Fund are generally similar because the
Funds have generally similar investment goals and strategies. The actual risks
of investing in each Fund depend on the securities held in each Fund's portfolio
and on market conditions, both of which change over time.
Both Funds are subject to management risk and market risk. Management risk means
that the advisor's investment decisions might produce losses or cause the Fund
to underperform when compared to other funds with a similar investment goal.
Market risk means that security prices in a market, sector or industry may fall,
reducing the value of your investment. Because of management and market risk,
there is no guarantee that the Fund will achieve its investment goal or perform
favorably among comparable funds.
Since they purchase equity securities, the Funds are subject to equity risk.
This is the risk that stock prices will fall over short or extended periods of
time. Although the stock market has historically outperformed other asset
classes over the long term, the stock market tends to move in cycles. Individual
stock prices may fluctuate drastically from day to day and may underperform
other asset classes over an extended period of time. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These price movements may result from factors affecting
individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential
for growth in revenue and earnings. Prices of growth stocks may be more
sensitive to changes in current or expected earnings than the prices of
14
other stocks. Growth stocks may not perform as well as value stocks or the stock
market in general.
Both Funds may invest in foreign securities, which are subject to special risks.
Foreign markets can be extremely volatile. Fluctuations in currency exchange
rates may impact the value of foreign securities without a change in the
intrinsic value of those securities. The liquidity of foreign securities may be
more limited than that of domestic securities, which means that the Fund may, at
times, be unable to sell foreign securities at desirable prices. Brokerage
commissions, custodial fees and other fees are generally higher for foreign
investments. In addition, foreign governments may impose withholding taxes which
would reduce the amount of income and capital gains available to distribute to
shareholders. Other risks include possible delays in the settlement of
transactions or in the notification of income; less publicly available
information about companies; the impact of political, social or diplomatic
events; possible seizure, expropriation or nationalization of the company or its
assets; and possible imposition of currency exchange controls.
The Large Cap Growth Fund may also invest in convertible securities. Convertible
securities are securities that can be converted into common stock, such as
certain debt securities and preferred stock, and are subject to the usual risks
associated with fixed income investments, such as interest rate risk and credit
risk. In addition, because they react to changes in the value of the equity
securities into which they will convert, convertible securities are also subject
to market risk.
An investment in the Large Cap Growth Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Shareholders of the Growth Fund should note that, although the investment goal
and strategies of the Large Cap Growth Fund are generally similar to those of
the Growth Fund, there may be some difference in the investment style of the
combined fund. In particular, the Large Cap Growth Fund typically invests a
greater portion of its assets in the securities of large capitalization
companies. Please see the answer to question 4 above under "Questions and
Answers" for more information comparing the investment goals, strategies and
policies of the Funds.
INFORMATION ABOUT THE ACQUISITION
Terms of the Agreement and Plan of Reorganization
If approved by the shareholders of the Growth Fund, the Acquisition is expected
to occur on or around February 25, 2005, or such other date as the
15
parties may agree, under the Agreement and Plan of Reorganization. The following
is a brief summary of the principal terms of the Agreement and Plan of
Reorganization. Please review Appendix A for more information regarding the
Agreement and Plan of Reorganization.
- - The Growth Fund will transfer all of the assets and liabilities attributable
to each class of its shares to the Large Cap Growth Fund in exchange for
shares of the same class of the Large Cap Growth Fund (except that Class D
shares of the Growth Fund will be exchanged for Class C shares of the Large
Cap Growth Fund) with an aggregate net asset value equal to the net value of
the transferred assets and liabilities.
- - The Acquisition will occur on the next business day after the time (currently
scheduled to be 4:00 p.m. Eastern Time on February 25, 2005, or such other
date and time as the parties may determine) when the assets of each Fund are
valued for purposes of the Acquisition.
- - The shares of each class of the Large Cap Growth Fund received by the Growth
Fund will be distributed to the shareholders of the same class of the Growth
Fund (except that shareholders of Class D shares of the Growth Fund will be
distributed Class C shares of the Large Cap Growth Fund) pro rata in
accordance with their percentage ownership of such class of the Growth Fund in
full liquidation of the Growth Fund.
- - After the Acquisition, the Growth Fund's affairs will be wound up in an
orderly fashion, it will be dissolved under state law and de-registered under
the 1940 Act.
- - The Acquisition requires approval by the Growth Fund's shareholders and
satisfaction of a number of other conditions; the Acquisition may be
terminated at any time with the approval of the Trustees of Columbia Funds
Trust XI and the Directors of the Growth Fund.
Shareholders should be aware that the Acquisition as proposed is not expected to
result in recognition of gain or loss to shareholders for federal income tax
purposes and that, if the Acquisition is consummated, shareholders will be free
to redeem the shares which they receive in the transaction at their current net
asset value, less any applicable CDSC. In addition, shares may be redeemed at
any time prior to the consummation of the Acquisition. Shareholders who object
to the Acquisition may be entitled under Oregon law to demand payment for, or an
appraisal of, their shares. Information concerning dissenter's rights is
contained in Appendix G.
16
Shares You Will Receive
If the Acquisition occurs, shareholders of Class A, B, C, G and Z shares of the
Growth Fund will receive shares in the Large Cap Growth Fund of the same class
as the shares that they currently own in the Growth Fund. Shareholders of Class
D shares of the Growth Fund will receive Class C shares of the Large Cap Growth
Fund. In comparison to the shares you currently own, the shares you receive will
have the following characteristics:
- - They will have an aggregate net asset value equal to the aggregate net asset
value of your current shares as of the business day before the closing of the
Acquisition.
- - They will bear the same sales charges (except as noted below for Class D
shareholders), redemption fees and CDSCs, if any, as your current shares to
the extent such charges and fees apply, and for purposes of determining the
CDSC applicable to any redemption and/or conversion of Class B shares to Class
A shares, if applicable, the new shares will continue to age from the date you
purchased your Growth Fund shares. Although the Class D shares of the Growth
Fund have a front-end sales charge of 1.00% (currently being waived), Class C
shares of the Large Cap Growth Fund have no front-end sales charge.
- - The procedures for purchasing and redeeming your shares will not change as a
result of the Acquisition.
- - You will have the same exchange options as you currently have, although Class
D shareholders receiving Class C shares of the Large Cap Growth Fund may
exchange their Class C shares for another fund distributed by Columbia Funds
Distributor, Inc. at net asset value.
- - You will have voting and other rights generally similar to those you currently
have, but as a shareholder of the Large Cap Growth Fund. Please see Appendix F
for more information regarding the differences between the Large Cap Growth
Fund and the Growth Fund.
Information concerning the capitalization of each of the Funds is contained in
Appendix C.
Reasons for the Acquisition
The Directors of the Growth Fund, including all Directors who are not
"interested persons" of the Fund, Columbia Management or its affiliates, have
determined on behalf of the Fund that the Acquisition would be in the best
interests of the Fund's shareholders and that the interests of existing
shareholders in the Fund would not be diluted as a result of the Acquisition.
The Directors have unanimously approved the Agreement and Plan of
17
Reorganization and the Acquisition and recommended that Fund shareholders vote
in favor of the Acquisition by approving the Agreement and Plan of
Reorganization.
In proposing the Acquisition, Columbia presented to the Directors of the Growth
Fund, at meetings held on August 11, 2004, and October 13, 2004, the following
reason for the Growth Fund to enter into the Acquisition:
- - The Acquisition is expected to create a larger fund with an investment goal
and strategies generally similar to those of the Growth Fund.
At the meetings, the Directors (with the advice and assistance of independent
counsel) considered, among other things:
1. the Acquisition as part of a continuing initiative to streamline and
improve the offerings of the Columbia funds family;
2. various potential shareholder benefits of the Acquisition;
3. the current asset level of the Growth Fund and the combined pro forma asset
level of the Large Cap Growth Fund;
4. the historical performance results of the Funds;
5. the investment objectives and principal investment strategies of the Growth
Fund and the investment objectives and the principal investment strategies
of the Large Cap Growth Fund;
6. the fact that the Large Cap Growth Fund is expected to have a higher
investment advisory fee and, accordingly, before giving effect to
contractual fee waivers, higher total operating expense ratios than the
Growth Fund;
7. Columbia Management's commitment until the first anniversary of the
Acquisition to bear a portion of the Large Cap Growth Fund's expenses so
that total annual fund operating expenses (exclusive of distribution and
service fees, brokerage commissions, interest, taxes, and extraordinary
expenses, if any) will not exceed 0.84% of the Fund's average net assets,
which will result in a net expense ratio that is equal to the expense ratio
of Growth Fund prior to giving effect to the Acquisition;
8. the expected U.S. federal income tax consequences of the Acquisition,
including limitations on the use of realized and unrealized losses for U.S.
federal income tax purposes and the potential diminution of the ability to
use such losses to offset future gains;
9. that the Large Cap Growth Fund would bear at least part of the expenses
associated with the Acquisition;
18
10. the potential benefits of the Acquisition to Columbia Management and its
affiliates; and
11. that the Acquisition would offer shareholders of the Growth Fund an
investment in a larger investment portfolio with similar investment goals
and strategies and that spreading fixed costs over a broader asset base
allows the potential for more efficient operation, and lower overall
expenses.
Columbia Management believes that the Acquisition will present an opportunity
for achieving long-term viability. If approved, the Acquisition will combine the
Growth Fund's assets with those of the Large Cap Growth Fund, resulting in a
combined portfolio that is significantly larger than the Growth Fund. Larger
mutual funds have more buying power (for example, they have greater opportunity
to purchase round lots of securities) and are better able to diversify their
portfolios.
Columbia Management also believes that the Acquisition helps eliminate
overlapping products. Both Funds are growth funds. Columbia Management believes
that streamlining its product offerings in a particular asset segment will help
minimize investor confusion.
In addition, the Directors considered that the Acquisition is intended to permit
the Growth Fund's shareholders to exchange their investment for an investment in
the Large Cap Growth Fund without recognizing gain or loss for federal income
tax purposes. By contrast, if a Growth Fund shareholder were to redeem his or
her shares to invest in another fund, the transaction would likely be a taxable
event for such shareholder. Similarly, if the Growth Fund were liquidated or
reorganized in a taxable transaction, the transaction would likely be a taxable
event for the Growth Fund shareholders. After the Acquisition, shareholders may
redeem any or all of their Growth Fund shares at net asset value (subject to any
applicable CDSC) at any time, at which point they would recognize a taxable gain
or loss.
The Directors also considered the potentially negative tax effects of the
Acquisition. In particular, they reviewed the historical and pro forma tax
attributes of the Funds and the effect of the Acquisition on certain tax losses
of the Funds (see "Federal Income Tax Consequences" below). The Directors
considered the potentially less favorable tax attributes of the combined fund
under a range of circumstances, and determined that any such impact was likely
to be outweighed by lower fund operating expenses and other benefits to
shareholders resulting from the Acquisition.
Furthermore, the Directors considered the tax effects of the Acquisition and the
relative Fund performance results set forth below under "Performance
19
Information." No assurance can be given that the Large Cap Growth Fund will
achieve any particular level of performance after the Acquisition.
Performance Information
The charts below show the percentage gain or loss in each calendar year for the
10-year period ending December 31, 2003, for the Class Z shares of each of the
Growth Fund and the Large Cap Growth Fund. They should give you a general idea
of how each Fund's return has varied from year to year. All returns include the
reinvestment of dividends and distributions. Performance results include the
effects of Fund expenses and also reflect the effect of expense reduction
arrangements, if any. If these arrangements had not been in place, the
performance would have been lower. As with all mutual funds, past performance
(before and after taxes) does not predict a fund's future performance. No
assurance can be given that the Large Cap Growth Fund will achieve any
particular level of performance after the Acquisition.
Additional discussion of the manner of calculation of total return is contained
in each Fund's respective Prospectuses and Statement of Additional Information.
GROWTH FUND (CLASS Z)
(BAR CHART)
<Table>
32.98% 20.80% 26.32% 30.34% 26.02% 26.47%
-0.63% -7.94% -21.04% -33.49%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
</Table>
<Table>
Class Z's year-to-date total return through For period shown in bar chart:
September 30, 2004, was -2.88%. Best quarter: Fourth Quarter 1998, +25.59%
Worst quarter: Third Quarter 2001, -22.01%
</Table>
20
LARGE CAP GROWTH FUND (CLASS Z)(1)
(BAR CHART)
<Table>
0.72% 34.29% 20.95% 30.79% 26.15% 26.55% 22.55%
-1.26% -18.61% -26.79%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
</Table>
<Table>
Class Z's year-to-date total return through For period shown in bar chart:
September 30, 2004, was -3.23%. Best quarter: 4th Quarter 1998, +24.20%
Worst quarter: 3rd Quarter 2001, -17.17%
</Table>
(1) The calendar year total returns shown for Class Z shares include the
returns of Trust Shares of the Galaxy Equity Growth Fund ("Galaxy Fund"),
the predecessor to the Fund, for periods prior to November 18, 2002, the
date on which Class Z shares were initially offered by the Large Cap Growth
Fund.
The following tables list each Fund's average annual total return for each class
of its shares for the one-year, five-year and ten-year periods ending December
31, 2003, (including the effects of Fund expenses) for Class A, B, C, D, G and Z
shares of the Growth Fund and for Class A, B, C, G and Z shares of the Large Cap
Growth Fund. These tables are intended to provide you with some indication of
the risks of investing in the Funds. At the bottom of each table, you can
compare the Funds' performance with one or more broad-based market indices.
After-tax returns are calculated using the historical highest individual federal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's own tax situation and may differ from
those shown. After-tax returns may not be relevant to investors who hold shares
through tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
21
GROWTH FUND
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 18.73 -6.37(2) 6.58(2)
Return After Taxes on Distributions 18.73 -7.34(2) 4.57(2)
Return After Taxes on Distributions and Sale of Fund
Shares 12.17 -5.43(2) 4.89(2)
- ---------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 19.98 -5.73(2) 7.12(2)
Return After Taxes on Distributions 19.98 -6.72(2) 5.11(2)
Return After Taxes on Distributions and Sale of Fund
Shares 12.98 -4.90(2) 5.39(2)
- ---------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 23.74(2) -5.46(2) 7.10(2)
Return After Taxes on Distributions 23.74(2) -6.43(2) 5.09(2)
Return After Taxes on Distributions and Sale of Fund
Shares 15.43(2) -4.67(2) 5.37(2)
- ---------------------------------------------------------------------------------------
Class D (%)
Return Before Taxes 22.83 -5.60(2) 7.02(2)
Return After Taxes on Distributions 22.83 -6.57(2) 5.01(2)
Return After Taxes on Distributions and Sale of Fund
Shares 14.84 -4.79(2) 5.29(2)
- ---------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes 20.11 -5.85(3) 7.14(3)
Return After Taxes on Distributions 20.11 -6.85(3) 5.12(3)
Return After Taxes on Distributions and Sale of Fund
Shares 13.07 -5.00(3) 5.40(3)
- ---------------------------------------------------------------------------------------
Class Z (%)
Return Before Taxes 26.47 -5.17 7.26
Return After Taxes on Distributions 26.47 -6.14 5.25
Return After Taxes on Distributions and Sale of Fund
Shares 17.21 -4.45 5.50
- ---------------------------------------------------------------------------------------
Russell 1000 Growth Index (%)(4) 29.75 -5.11 9.21
- ---------------------------------------------------------------------------------------
S&P 500 Index (%)(4) 28.68 -0.57 11.07
</Table>
(2) Class A, Class B, Class C and Class D are newer classes of shares. Their
performance information includes returns of the Fund's Class Z shares (the
oldest existing fund class) for periods prior to their inception. These
returns have not been restated to reflect any differences in expenses (such
as Rule 12b-1 fees) between Class Z shares and the newer classes of shares.
If differences in expenses had been reflected, the returns shown for
periods prior to the inception of the newer classes of shares would have
been lower. Class C shares were initially offered on October 13, 2003.
Class A, B and D shares were initially offered on November 1, 2002, and
Class Z shares were initially offered on June 16, 1967.
(3) Class G is a newer class of shares. Its performance information includes
returns of the Fund's Class Z shares for periods prior to its inception.
These returns have not been restated to reflect any differences in expenses
(such as Rule 12b-1 fees) between Class G shares and Class Z shares. If
differences in expenses had been reflected, the returns shown for periods
prior to the inception of the newer classes of shares would have been
lower. Class G shares were initially offered on November 1, 2002, and Class
Z shares were initially offered on June 16, 1967.
(4) The Growth Fund's returns are compared to the S&P 500 Index and the Russell
1000 Growth Index. The advisor intends to replace the S&P 500 Index with
the Russell 1000 Growth Index as the primary benchmark for the Fund. The
advisor believes that the Russell 1000 Growth Index offers shareholders a
more useful comparison for the Growth Fund's relative performance than the
S&P 500 Index.
22
LARGE CAP GROWTH FUND
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 15.16 -3.21(5) 8.46(5)
Return After Taxes on Distributions 15.16 -3.98(5) 7.12(5)
Return After Taxes on Distributions and Sale of Fund
Shares 9.85 -2.81(5) 7.00(5)
- ---------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 16.17 -3.14(5) 8.68(5)
Return After Taxes on Distributions 16.17 -3.92(5) 7.35(5)
Return After Taxes on Distributions and Sale of Fund
Shares 10.51 -2.73(5) 7.24(5)
- ---------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 20.30 -2.80(5) 8.70(5)
Return After Taxes on Distributions 20.30 -3.57(5) 7.36(5)
Return After Taxes on Distributions and Sale of Fund
Shares 13.19 -2.44(5) 7.25(5)
- ---------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes 16.01 -3.48(6) 8.43(6)
Return After Taxes on Distributions 16.01 -4.28(6) 7.03(6)
Return After Taxes on Distributions and Sale of Fund
Shares 10.41 -3.00(6) 6.95(6)
- ---------------------------------------------------------------------------------------
Class Z (%)
Return Before Taxes 22.55 -1.82(7) 9.45(7)
Return After Taxes on Distributions 22.54 -2.61(7) 8.03(7)
Return After Taxes on Distributions and Sale of Fund
Shares 14.67 -1.66(7) 7.84(7)
- ---------------------------------------------------------------------------------------
Russell 1000 Growth Index (%)(8) 29.75 -5.11 9.21
- ---------------------------------------------------------------------------------------
S&P 500 Index (%)(8) 28.68 -0.57 11.07
</Table>
(5) The average annual total returns shown include the returns of Prime A
Shares (for Class A shares) and Prime B Shares (for Class B shares) of the
Galaxy Fund for periods prior to November 18, 2002, the date on which Class
A and Class B shares were initially offered by the Large Cap Growth Fund.
The returns shown for Class A shares and Class B shares also include the
returns of Retail A Shares of the Galaxy Fund (adjusted, as necessary, to
reflect the sales charges applicable to Class A shares and Class B shares,
respectively) for periods prior to the date of inception of Prime A Shares
and Prime B Shares (October 31, 1998). Class A and Class B shares generally
would have had substantially similar returns to Retail A Shares because
they would have been invested in the same portfolio of securities, although
returns would have been lower to the extent that expenses for Class A and
Class B shares exceed expenses paid by Retail A Shares. The returns shown
for Class C Shares include the returns of Retail B Shares of the Galaxy
Fund (adjusted to reflect the sales charge applicable to Class C shares)
for periods prior to November 18, 2002, the date on which Class C shares
were initially offered by the Fund. The returns shown for Class C shares
also include the returns of Retail A Shares of the Galaxy Fund (adjusted to
reflect the sales charges applicable to Class C shares) for periods prior
to the date of inception of Prime B Shares (November 1, 1998). Class C
shares generally would have had substantially similar returns because they
would have been invested in the same portfolio of securities, although the
returns would have been lower to the extent that expenses for Class C
shares exceed expenses paid by Retail A and Prime B Shares.
(6) The average annual total returns shown include the returns of Retail B
Shares of the Galaxy Fund for periods prior to November 18, 2002, the date
on which Class G shares were initially offered by the Large Cap Growth
Fund. The returns shown for Class G shares also include the returns of
Retail A Shares (adjusted to reflect the sales charges applicable to Class
G shares) for periods
23
prior to the inception of Retail B Shares of the Galaxy Fund (March 4,
1996). Retail A shares were initially offered on December 14, 1990. Class G
shares generally would have had substantially similar returns to Retail A
shares because they would have been invested in the same portfolio of
securities, although the returns would have been lower to the extent that
expenses for Class G shares exceed expenses paid by Retail A shares.
(7) The average annual total returns shown include returns of Trust Shares of
the Galaxy Fund for periods prior to November 18, 2002, the date on which
Class Z shares were initially offered by the Fund. Trust Shares of the
Galaxy Fund were initially offered on December 14, 1990.
(8) Beginning in 2003, the Large Cap Growth Fund's benchmark was changed to the
Russell 1000 Growth Index, an unmanaged index that tracks the performance
of those companies in the Russell 1000 Growth Index with higher
price-to-book ratios and higher forecasted growth values. Previously, the
Fund's returns were compared to the Standard & Poor's 500 Index ("S&P 500
Index"), an unmanaged index that tracks the performance of 500 widely held,
large-capitalization U.S. stocks. The advisor believes that the Russell
1000 Growth Index, because of its greater emphasis on those companies in
the Russell 1000 Growth Index with higher price-to-book ratios and higher
forecasted growth values, more accurately reflects the type of securities
in which the Large Cap Growth Fund invests. The Large Cap Growth Fund's
average annual returns for the one-year, five-year and ten-year periods are
shown compared to the Russell 1000 Growth Index, as well as the Large Cap
Growth Fund's previous benchmark, the S&P 500 Index. Unlike the Large Cap
Growth Fund, indices are not investments, do not incur fees, expenses or
taxes and are not professionally managed.
Federal Income Tax Consequences
The Acquisition is intended to be a tax-free reorganization. Ropes & Gray LLP
has delivered to the Large Cap Growth Fund and the Growth Fund an opinion, and
the closing of the Acquisition will be conditioned on receipt of a letter from
Ropes & Gray LLP confirming such opinion, to the effect that, on the basis of
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), although not entirely free from doubt, for federal income tax purposes:
- - the Acquisition will constitute a reorganization within the meaning of Section
368(a) of the Code, and the Growth Fund and the Large Cap Growth Fund will
each be a "party to a reorganization" within the meaning of Section 368(b) of
the Code;
- - under Section 361 of the Code, no gain or loss will be recognized by the
Growth Fund upon the transfer of its assets to the Large Cap Growth Fund in
exchange for Large Cap Growth Fund shares and the assumption by the Large Cap
Growth Fund of the Growth Fund's liabilities, or upon the distribution of
Large Cap Growth Fund shares by the Growth Fund to its shareholders in
liquidation;
- - under Section 354 of the Code, no gain or loss will be recognized by
shareholders of the Growth Fund on the distribution of Large Cap
24
Growth Fund shares to them in exchange for their shares of the Growth Fund;
- - under Section 358 of the Code, the aggregate tax basis of the Large Cap Growth
Fund shares that the Growth Fund's shareholders receive in exchange for their
Growth Fund shares will be the same as the aggregate tax basis of the Growth
Fund shares exchanged therefor;
- - under Section 1223(1) of the Code, a Growth Fund shareholder's holding period
for the Large Cap Growth Fund shares received will be determined by including
the holding period for the Growth Fund shares exchanged therefor, provided
that the shareholder held the Growth Fund shares as a capital asset;
- - under Section 1032 of the Code, no gain or loss will be recognized by the
Large Cap Growth Fund upon receipt of the assets transferred to the Large Cap
Growth Fund in exchange for Large Cap Growth Fund shares and the assumption by
the Large Cap Growth Fund of the liabilities of the Growth Fund;
- - under Section 362(b) of the Code, the Large Cap Growth Fund's tax basis in the
assets that the Large Cap Growth Fund receives from the Growth Fund will be
the same as the Growth Fund's tax basis in such assets immediately prior to
such exchange;
- - under Section 1223(2) of the Code, the Large Cap Growth Fund's holding periods
in such assets will include the Growth Fund's holding periods in such assets;
and
- - under Section 381 of the Code, the Large Cap Growth Fund will succeed to the
capital loss carryovers of the Growth Fund, if any, but the use by the Large
Cap Growth Fund of any such capital loss carryovers (and of capital loss
carryovers of the Large Cap Growth Fund) may be subject to limitation under
Section 383 of the Code.
The opinion is, and the confirming letter will be, based on certain factual
certifications made by officers of the Growth Fund and Trust XI and will also be
based on customary assumptions. Neither the opinion nor the confirmation letter
is a guarantee that the tax consequences of the Acquisition will be as described
above.
Ropes & Gray LLP will express no view with respect to the effect of the
Acquisition 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.
25
Prior to the closing of the Acquisition, the Growth Fund will, and the Large Cap
Growth Fund may, declare a distribution to shareholders, which together with all
previous distributions, will have the effect of distributing to shareholders all
of its investment company taxable income (computed without regard to the
deduction for dividends paid) and net realized capital gains (after reduction by
any available capital loss carryforwards), if any, through the closing of the
Acquisition. Such distributions will be taxable to shareholders.
The Large Cap Growth Fund's ability to carry forward the pre-Acquisition losses
of the Growth Fund will technically be limited as a result of the Acquisition
due to the effect of loss limitation rules under applicable tax law. The effect
of this limitation, however, will depend on the amount of losses in each Fund at
the time of the Acquisition. For example, based on data as of September 29,
2004, the Growth Fund and the Large Cap Growth Fund had pre-Acquisition "net
losses" (i.e., capital loss carryforwards as of last fiscal year end as adjusted
by year-to-date realized gains or losses and all unrealized gains) equal to
37.72% and 0.64% of each Fund's net assets, respectively. If the Acquisition
were to have occurred on September 29, 2004, the combined fund would have had
net losses equal to 10.27% of its net assets. Due to the combined effects of
loss limitation rules and the spreading of losses over a larger asset base, the
amount of net losses as a percentage of net assets available to shelter future
growth of the International Equity Fund would have decreased from 37.72% to
10.27% (a difference of 27.45 percentage points), and the same figure with
respect to the Large Cap Growth Fund would have increased from 0.64% to 10.27%
(a difference of 9.63 percentage points). As a result, shareholders of the
Growth Fund could, under certain circumstances, pay more taxes, or pay taxes
sooner, than they would if the Acquisition had not occurred.
This description of the federal income tax consequences of the Acquisition is
made without regard to the particular facts and circumstances of any
shareholder. Shareholders are urged to consult their own tax advisors as to the
specific consequences to them of the Acquisition, including the applicability
and effect of state, local, non-U.S. and other tax laws.
THE DIRECTORS OF THE GROWTH FUND UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT
AND PLAN OF REORGANIZATION AND THE DISSOLUTION OF THE GROWTH FUND IN ACCORDANCE
WITH THE AGREEMENT AND PLAN OF REORGANIZATION.
26
Required Vote for the Proposal
Approval of the Agreement and Plan of Reorganization and dissolution under state
law will require the affirmative vote of the holders of more than 50% of the
outstanding shares of the Growth Fund. A vote of the shareholders of the Large
Cap Growth Fund is not needed to approve the Acquisition.
GENERAL
INVESTMENT ADVISOR
Columbia Management Advisors, Inc., located at 100 Federal Street, Boston,
Massachusetts 02110, is each Fund's investment advisor. Columbia Management is
responsible for each Fund's management, subject to oversight by the Fund's Board
of Trustees or Board of Directors, as the case may be. In its duties as
investment advisor, Columbia Management runs each Fund's day-to-day business,
including placing all orders for the purchase and sale of the Fund's portfolio
securities. Columbia Management is a direct wholly owned subsidiary of Columbia
Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of
America Corporation. Prior to April 1, 2004, Columbia was an indirect wholly
owned subsidiary of FleetBoston Financial Corporation. Effective April 1, 2004,
FleetBoston Financial Corporation was acquired by Bank of America Corporation.
Columbia Management, a registered investment advisor, has been an investment
advisor since 1969.
VOTING INFORMATION
The Directors of the Growth Fund are soliciting proxies from the shareholders of
the Growth Fund in connection with the Meeting, which has been called to be held
at 2:00 p.m. Eastern Time on Wednesday, February 16, 2005, at the Fund's
offices, One Financial Center, Boston, Massachusetts 02111. The meeting notice,
this combined Prospectus/Proxy Statement and proxy inserts are being mailed to
shareholders beginning on or about December [ ], 2004.
Information About Proxies and the Conduct of the Meeting
Solicitation of Proxies. Proxies will be solicited primarily by mailing this
combined Prospectus/Proxy Statement and its enclosures, but proxies may also be
solicited through further mailings, telephone calls, personal interviews or
e-mail by officers of the Growth Fund or by employees or agents of Columbia and
its affiliated companies. In addition, [Georgeson
27
Shareholder] has been engaged to assist in the solicitation of proxies, at an
estimated cost of approximately $[ ]. [Columbia Management will bear
the costs of such solicitation.]
Voting Process
You can vote in any one of the following ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, fax, or Internet (see enclosed proxy insert for instructions);
or
c. In person at the Meeting.
Shareholders who owned shares on the record date, December 1, 2004, are entitled
to vote at the Meeting. Shareholders of the Growth Fund are entitled to cast one
vote for each share owned on the record date. If you choose to vote by mail or
fax and you are an individual account owner, please sign exactly as your name
appears on the proxy insert. Either owner of a joint account may sign the proxy
insert, but the signer's name must exactly match the name that appears on the
card.
Costs. The estimated costs of the Meeting, including the costs of soliciting
proxies, and the costs of the Acquisition to be borne by the Large Cap Growth
Fund and the Growth Fund are approximately $63,949 and $0, respectively.
Columbia is also bearing a portion of such costs. This portion to be borne by
Columbia is in addition to the amounts to be borne by the Large Cap Growth Fund.
In the event that the shareholders of the Growth Fund do not approve the
Agreement and Plan of Reorganization or the Acquisition does not close for any
reason, Columbia will bear the costs of the failed Acquisition which would
otherwise have been borne by the Large Cap Growth Fund and the Growth Fund.
Voting and Tabulation of Proxies. Shares represented by duly executed proxies
will be voted as instructed on the proxy. If no instructions are given, the
proxy will be voted in favor of the Proposal. You can revoke your proxy by
sending a signed, written letter of revocation to the Secretary of the Growth
Fund, by properly executing and submitting a later-dated proxy or by attending
the Meeting and voting in person.
Votes cast in person or by proxy at the Meeting will be counted by persons
appointed by the Large Cap Growth Fund as tellers for the Meeting (the
"Tellers"). A majority of the shares of the Growth Fund entitled to vote on the
record date, present in person or represented by proxy, constitute a quorum for
the transaction of business by the shareholders of the Growth Fund at the
Meeting. In determining whether a quorum is present, the
28
Tellers will count shares represented by proxies that reflect abstentions and
"broker non-votes" as shares that are present and entitled to vote. Abstentions
and broker non-votes have the effect of a negative vote on 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.
Advisors' and Underwriter's Addresses. The address of each Fund's investment
advisor, Columbia Management, is 100 Federal Street, Boston, Massachusetts
02110. The address of each Fund's principal underwriter, Columbia Funds
Distributor, Inc., is One Financial Center, Boston, Massachusetts 02111.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists the total number of shares outstanding as of
December 1, 2004, for each class of the Growth Fund entitled to vote at the
Meeting. It also identifies holders of more than five percent of any class of
shares of each Fund, and contains information about the executive officers,
Directors and Trustees of the Funds and their shareholdings in the Funds and the
Trusts.
Adjournments; Other Business. If the Growth Fund has not received enough votes
by the time of the Meeting to approve the Proposal, the persons named as proxies
may propose that such Meeting be adjourned one or more times to permit further
solicitation of proxies. Any adjournment requires the affirmative vote of a
majority of the total number of shares of the Growth Fund that are present in
person or by proxy on the question when the adjournment is being voted on. The
persons named as proxies will vote in favor of any such adjournment all proxies
that they are entitled to vote in favor of the Proposal. They will vote against
any such adjournment any proxy that directs them to vote against the Proposal.
They will not vote any proxy that directs them to abstain from voting on the
Proposal.
The Meeting has been called to transact any business that properly comes before
it. The only business that management of the Growth Fund intends to present or
knows that others will present is the Proposal.
29
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization dated as of [ ], 2004, is by
and among Columbia Funds Trust XI (the "Trust"), a Massachusetts business trust
established under a Declaration of Trust dated January 8, 1987, as amended, on
behalf of Columbia Large Cap Growth Fund (the "Acquiring Fund"); Columbia Growth
Fund, Inc. (the "Acquired Fund"), an Oregon corporation established under
Articles of Incorporation dated November 23, 1966, as amended; and Columbia
Management Group, Inc. ("Columbia").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Sections 361(a) and Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), and any
successor provision. The reorganization will consist of the transfer of all of
the assets of the Acquired Fund attributable to its Class A shares in exchange
for Class A shares of beneficial interest of the Acquiring Fund (the "Class A
Acquisition Shares"), the transfer of all of the assets of the Acquired Fund
attributable to its Class B shares in exchange for Class B shares of beneficial
interest of the Acquiring Fund (the "Class B Acquisition Shares"), the transfer
of all of the assets of the Acquired Fund attributable to its Class C shares in
exchange for Class C shares of beneficial interest of the Acquiring Fund (the
"Class C Acquisition Shares"), the transfer of all of the assets of the Acquired
Fund attributable to its Class D shares in exchange for Class C shares of
beneficial interest of the Acquiring Fund (the "Class D/C Acquisition Shares"),
the transfer of all assets of the Acquired Fund attributable to its Class G
shares in exchange for Class G shares of beneficial interest of the acquiring
fund (the "Class G Acquisition Shares") and the transfer of all of the assets of
the Acquired Fund attributable to its Class Z shares in exchange for Class Z
shares of beneficial interest of the Acquiring Fund ("Class Z Acquisition
Shares" and together with the Class A Acquisition Shares, the Class B
Acquisition Shares, the Class C Acquisition Shares, the Class D/C Acquisition
Shares, and the Class G Acquisition Shares, the "Acquisition Shares") and the
assumption by the Acquiring Fund of the liabilities of the Acquired Fund (other
than certain expenses of the reorganization contemplated hereby) and the
distribution of the Class A Acquisition Shares, the Class B Acquisition Shares,
the Class C Acquisition Shares, the Class D/C Acquisition Shares, the Class G
Acquisition Shares, and the Class Z Acquisition Shares to the Class A, Class B,
Class C, Class D, Class G, and Class Z shareholders, respectively, of the
Acquired Fund in
A-1
liquidation of the Acquired Fund, all upon the terms and conditions set forth in
this Agreement.
In consideration of the premises and of the covenants and agreements hereinafter
set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ACQUISITION SHARES AND LIQUIDATION OF ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein,
(a) The Trust, on behalf of the Acquired Fund, will transfer and
deliver to the Acquiring Fund, and the Acquiring Fund will
acquire, all the assets of the Acquired Fund as set forth in
paragraph 1.2;
(b) The Acquiring Fund will assume all of the Acquired Fund's
liabilities and obligations of any kind whatsoever, whether
absolute, accrued, contingent or otherwise, in existence on the
Closing Date (as defined in paragraph 1.2 hereof) (the
"Obligations"); except that expenses of the reorganization
contemplated hereby to be paid by the Acquired Fund pursuant to
paragraph 9.2 shall not be assumed or paid by the Acquiring
Fund; and
(c) The Acquiring Fund will issue and deliver to the Acquired Fund
in exchange for such assets the number of Class A, Class B,
Class C, Class D/C, Class G and Class Z Acquisition Shares
(including fractional shares, if any) determined by dividing
the net asset values of the Class A, Class B, Class C, Class D,
Class G and Class Z shares of the Acquired Fund, respectively,
computed in the manner and as of the time and date set forth in
paragraph 2.1, by the net asset value of one Class A, Class B,
Class C, Class G or Class Z Acquisition Share, as applicable,
computed in the manner and as of the time and date set forth in
paragraph 2.2. Such transactions shall take place at the
closing provided for in paragraph 3.1 (the "Closing").
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all cash, securities, dividends and interest
receivable, receivables for shares sold and all other assets which are
owned by the Acquired Fund on the closing date provided in
A-2
paragraph 3.1 (the "Closing Date") and any deferred expenses, other
than unamortized organizational expenses, shown as an asset on the
books of the Acquired Fund on the Closing Date. The Acquiring Fund
agrees that all rights to indemnification and all limitations of
liability existing in favor of the Trust's current and former Trustees
and officers, acting in their capacities as such, under the Trust's
Declaration of Trust and Bylaws as in effect as of the date of this
Agreement shall survive the reorganization as obligations of the
Acquiring Fund and shall continue in full force and effect, without
any amendment thereto, and shall constitute rights which may be
asserted against the Trust, its successors or assigns.
1.3 As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to its Class A shareholders of
record ("Acquired Fund Class A Shareholders"), determined as of the
close of business on the Valuation Date (as defined in paragraph 2.1),
Class A Acquisition Shares received by the Acquired Fund pursuant to
paragraph 1.1; to its Class B shareholders of record ("Acquired Fund
Class B Shareholders"), determined as of the close of business on the
Valuation Date, Class B Acquisition Shares received by the Acquired
Fund pursuant to paragraph 1.1; to its Class C shareholders of record
("Acquired Fund Class C Shareholders"), determined as of the close of
business on the Valuation Date, Class C Acquisition Shares received by
the Acquired Fund pursuant to paragraph 1.1; to its Class D
shareholders of record ("Acquired Fund Class D Shareholders"),
determined as of the close of business on the Valuation Date, Class
D/C Acquisition Shares received by the Acquired Fund pursuant to
paragraph 1.1; to its Class G shareholders of record ("Acquired Fund
Class G Shareholders"), determined as of the close of business on the
Valuation Date, Class G Acquisition Shares received by the Acquired
Fund pursuant to paragraph 1.1; and to its Class Z shareholders of
record ("Acquired Fund Class Z Shareholders," and collectively with
Acquired Fund Class A Shareholders, Acquired Fund Class B
Shareholders, Acquired Fund Class C Shareholders, Acquired Fund Class
D Shareholders, and Acquired Fund Class G Shareholders the "Acquired
Fund Shareholders"), determined as of the close of business on the
Valuation Date, Class Z Acquisition Shares received by the Acquired
Fund pursuant to paragraph 1.1. Such liquidation and distribution will
A-3
be accomplished by the transfer of the Acquisition Shares then
credited to the account of the Acquired Fund on the books of the
Acquiring Fund to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund Shareholders and representing
the respective pro rata number of Acquisition Shares due such
shareholders. The Acquiring Fund shall not be obligated to issue
certificates representing Acquisition Shares in connection with such
exchange.
1.4 With respect to Acquisition Shares distributable pursuant to paragraph
1.3 to an Acquired Fund Shareholder holding a certificate or
certificates for shares of the Acquired Fund, if any, on the Valuation
Date, the Trust will not permit such shareholder to receive
Acquisition Share certificates therefor, exchange such Acquisition
Shares for shares of other investment companies, effect an account
transfer of such Acquisition Shares, or pledge or redeem such
Acquisition Shares until the Trust has been notified by the Acquired
Fund or its agent that such Acquired Fund Shareholder has surrendered
all his or her outstanding certificates for Acquired Fund shares or,
in the event of lost certificates, posted adequate bond.
1.5 As soon as practicable after the Closing Date, the Acquired Fund shall
file an application pursuant to Section 8(f) of the Investment Company
Act of 1940, as amended (the "1940 Act"), for an order declaring that
it has ceased to be an investment company and, upon receipt of such
order, shall make all filings and take all other steps as shall be
necessary and proper to effect its complete dissolution under Oregon
law. After the Closing Date, the Acquired Fund shall not conduct any
business except in connection with its liquidation, deregistration,
and dissolution.
2. VALUATION.
2.1 For the purpose of paragraph 1, the value of the Acquired Fund's
assets to be acquired by the Acquiring Fund hereunder shall be the net
asset value computed as of the close of regular trading on the New
York Stock Exchange on the business day next preceding the Closing
(such time and date being herein called the "Valuation Date") using
the valuation procedures set forth in the Declaration of Trust of the
Trust and the then current prospectus or prospectuses or statement or
statements of additional information of the Acquiring Fund
(collectively, as amended or supplemented from time to time, the
"Acquiring Fund Prospectus"), after deduction for the expenses of the
A-4
reorganization contemplated hereby to be paid by the Acquired Fund
pursuant to paragraph 9.2, and shall be certified by the Acquired
Fund.
2.2 For the purpose of paragraph 2.1, the net asset value of a Class A,
Class B, Class C, Class D/C, Class G or Class Z Acquisition Shares
shall be the net asset value per share computed as of the close of
regular trading on the New York Stock Exchange on the Valuation Date,
using the valuation procedures set forth in the Declaration of Trust
of the Trust and the Acquiring Fund Prospectus.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be on February 25, 2005, or on such other date
as the parties may agree. The Closing shall be held at 9:00 a.m. at
Columbia's offices, One Financial Center, Boston, Massachusetts 02111,
or at such other time and/or place as the parties may agree.
3.2 The portfolio securities of the Acquired Fund shall be made available
by the Acquired Fund to State Street Bank and Trust Company, as
custodian for the Acquiring Fund (the "Custodian"), for examination no
later than five business days preceding the Valuation Date. On the
Closing Date, such portfolio securities and all the Acquired Fund's
cash shall be delivered by the Acquired Fund to the Custodian for the
account of the Acquiring Fund, such portfolio securities to be duly
endorsed in proper form for transfer in such manner and condition as
to constitute good delivery thereof in accordance with the custom of
brokers or, in the case of portfolio securities held in the U.S.
Treasury Department's book-entry system or by the Depository Trust
Company, Participants Trust Company or other third party depositories,
by transfer to the account of the Custodian in accordance with Rule
17f-4, Rule 17f-5 or Rule 17f-7, as the case may be, under the 1940
Act and accompanied by all necessary federal and state stock transfer
stamps or a check for the appropriate purchase price thereof. The cash
delivered shall be in the form of currency or certified or official
bank checks, payable to the order of "State Street Bank and Trust
Company, custodian for Columbia Large Cap Growth Fund."
3.3 In the event that on the Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be
restricted, or (b) trading or the reporting of trading on said
A-5
Exchange or elsewhere shall be disrupted so that accurate appraisal of
the value of the net assets of the Acquired Fund or the Acquiring Fund
is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed
and reporting shall have been restored; provided that if trading shall
not be fully resumed and reporting restored within three business days
of the Valuation Date, this Agreement may be terminated by either the
Trust or the Acquiring Fund upon the giving of written notice to the
other party.
3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver
to the Acquiring Fund or its designated agent a list of the names and
addresses of the Acquired Fund Shareholders and the number of
outstanding shares of common stock of the Acquired Fund owned by each
Acquired Fund Shareholder, all as of the close of business on the
Valuation Date, certified by the Vice President, Secretary or
Assistant Secretary of the Trust. The Trust will provide to the
Acquired Fund evidence satisfactory to the Acquired Fund that the
Acquisition Shares issuable pursuant to paragraph 1.1 have been
credited to the Acquired Fund's account on the books of the Acquiring
Fund. On the Liquidation Date, the Trust will provide to the Acquired
Fund evidence satisfactory to the Acquired Fund that such Acquisition
Shares have been credited pro rata to open accounts in the names of
the Acquired Fund Shareholders as provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other such bills of
sale, instruments of assumption of liabilities, checks, assignments,
stock certificates, receipts or other documents as such other party or
its counsel may reasonably request in connection with the transfer of
assets, assumption of liabilities and liquidation contemplated by
paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants the following to the Trust
and to the Acquiring Fund as of the date hereof and agrees to confirm
the continuing accuracy and completeness in all material respects of
the following on the Closing Date:
(a) The Acquired Fund is a corporation duly organized and validly
existing under the laws of the State of Oregon;
(b) The Acquired Fund is a duly registered investment company classified
as a management company of the open-end type
A-6
and its registration with the Securities and Exchange Commission as
an investment company under the 1940 Act is in full force and
effect;
(c) The Acquired Fund is not in violation in any material respect of any
provision of its Articles of Incorporation or Bylaws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Fund is a party or by which the
Acquired Fund is bound, and the execution, delivery and performance
of this Agreement will not result in any such violation;
(d) The Acquired Fund has no material contracts or other commitments
(other than this Agreement and such other contracts as may be
entered into in the ordinary course of its business) which if
terminated may result in material liability to the Acquired Fund or
under which (whether or not terminated) any material payments for
periods subsequent to the Closing Date will be due from the Acquired
Fund;
(e) To the knowledge of the Acquired Fund, except as has been disclosed
in writing to the Acquiring Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Acquired Fund, any
of its properties or assets, or any person whom the Acquired Fund
may be obligated to indemnify in connection with such litigation,
proceeding or investigation, and is not a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
(f) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the schedule
of investments of the Acquired Fund at, as of and for the year ended
August 31, 2004, audited by PricewaterhouseCoopers LLP, copies of
which have been furnished to the Acquiring Fund, fairly reflect the
financial condition and results of operations of the Acquired Fund
as of such dates and for the periods then ended in accordance with
generally accepted accounting principles consistently applied, and
the Acquired Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on the statements of
assets referred to above or those
A-7
incurred in the ordinary course of its business since August 31,
2004;
(g) Since August 31, 2004, there has not been any material adverse
change in the Acquired Fund's financial condition, assets,
liabilities or business (other than changes occurring in the
ordinary course of business), or any incurrence by the Acquired Fund
of indebtedness, except as disclosed in writing to the Acquiring
Fund. For the purposes of this subparagraph (g), distributions of
net investment income and net realized capital gains, changes in
portfolio securities, changes in the market value of portfolio
securities or net redemptions shall be deemed to be in the ordinary
course of business;
(h) As of the Closing Date, all federal and other tax returns and
reports of the Acquired Fund required by law to have been filed by
such date (giving effect to extensions) shall have been filed, and
all federal and other taxes shown to be due on such returns and
reports or on any assessment received shall have been paid, or
provisions shall have been made for the payment thereof. All of the
Acquired Fund's tax liabilities will have been adequately provided
for on its books. To the best of the Acquired Fund's knowledge, it
will not have had any tax deficiency or liability asserted against
it or question with respect thereto raised, and it will not be under
audit by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid;
(i) The Acquired Fund meets the requirements of subchapter M of the Code
for treatment as a "regulated investment company" within the meaning
of Section 851 of the Code, and will continue meeting such
requirements at all times through the Closing Date. The Acquired
Fund has not at any time since its inception been liable for nor is
now liable for any material income or excise tax pursuant to Section
852 or 4982 of the Code. The Acquired Fund has duly filed all
federal, state, local and foreign tax returns which are required to
have been filed, and all taxes of the Acquired Fund which are due
and payable have been paid except for amounts that alone or in the
aggregate would not reasonably be expected to have a material
adverse effect. The Acquired Fund is in compliance in all material
respects with applicable regulations of the Internal Revenue Service
pertaining to the
A-8
reporting of dividends and other distributions on and redemptions of
its capital stock and to withholding in respect of dividends and
other distributions to shareholders, and is not liable for any
material penalties which could be imposed thereunder;
(j) The authorized capital of the Acquired Fund consists of Class A
shares, Class B shares, Class C shares, Class D shares, Class G
shares and Class Z shares of common stock. All issued and
outstanding shares of the Acquired Fund are, and at the Closing Date
will be, duly and validly issued and outstanding, fully paid and
non-assessable (except as set forth in the Acquired Fund's then
current prospectus or prospectuses or statement or statements of
additional information (collectively, as amended or supplemented
from time to time, the "Acquired Fund Prospectus")) by the Acquired
Fund and will have been issued in compliance with all applicable
registration or qualification requirements of federal and state
securities laws. Except for Class B shares, which convert to Class A
shares after the expiration of a period of time, and Class G shares,
which convert to Class A shares after the expiration of a period of
time, no options, warrants or other rights to subscribe for or
purchase, or securities convertible into, any shares of common stock
of the Acquired Fund are outstanding and none will be outstanding on
the Closing Date;
(k) The Acquired Fund's investment operations from inception to the date
hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in its
prospectus or prospectuses and statement or statements of additional
information as in effect from time to time, except as previously
disclosed in writing to the Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has been
duly authorized by the Directors of the Acquired Fund, and, upon
approval thereof by the required majority of the shareholders of the
Acquired Fund, this Agreement will constitute the valid and binding
obligation of the Acquired Fund enforceable in accordance with its
terms except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the
A-9
enforcement of creditors' rights generally and other equitable
principles;
(m) The Acquisition Shares to be issued to the Acquired Fund pursuant to
paragraph 1 will not be acquired for the purpose of making any
distribution thereof other than to the Acquired Fund Shareholders as
provided in paragraph 1.3;
(n) The information provided by the Acquired Fund for use in the
Registration Statement and Prospectus/Proxy Statement referred to in
paragraph 5.3 shall be accurate and complete in all material
respects and shall comply with federal securities and other laws and
regulations as applicable thereto;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement,
except such as may be required under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act and state insurance,
securities or "Blue Sky" laws (which terms used herein shall include
the laws of the District of Columbia and of Puerto Rico);
(p) At the Closing Date, the Trust, on behalf of the Acquired Fund, will
have good and marketable title to its assets to be transferred to
the Acquiring Fund pursuant to paragraph 1.1 and will have full
right, power and authority to sell, assign, transfer and deliver the
Investments (as defined below) and any other assets and liabilities
of the Acquired Fund to be transferred to the Acquiring Fund
pursuant to this Agreement. At the Closing Date, subject only to the
delivery of the Investments and any such other assets and
liabilities and payment therefor as contemplated by this Agreement,
the Acquiring Fund will acquire good and marketable title thereto
and will acquire the Investments and any such other assets and
liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof,
except as previously disclosed to the Acquiring Fund. As used in
this Agreement, the term "Investments" shall mean the Acquired
Fund's investments shown on the schedule of its investments as of
August 31, 2004, referred to in subparagraph 4.1(f) hereof, as
supplemented with such changes in the portfolio as the Acquired Fund
shall make, and changes resulting from stock
A-10
dividends, stock split-ups, mergers and similar corporate actions
through the Closing Date;
(q) At the Closing Date, the Acquired Fund will have sold such of its
assets, if any, as are necessary to assure that, after giving effect
to the acquisition of the assets of the Acquired Fund pursuant to
this Agreement, the Acquiring Fund will remain a "diversified
company" within the meaning of Section 5(b)(1) of the 1940 Act and
in compliance with such other mandatory investment restrictions as
are set forth in the Acquiring Fund Prospectus, as amended through
the Closing Date; and
(r) No registration of any of the Investments would be required if they
were, as of the time of such transfer, the subject of a public
distribution by either of the Acquiring Fund or the Acquired Fund,
except as previously disclosed by the Acquired Fund to the Acquiring
Fund.
4.2 The Trust, on behalf of the Acquiring Fund, represents and warrants
the following to the Acquired Fund as of the date hereof and agrees to
confirm the continuing accuracy and completeness in all material
respects of the following on the Closing Date:
(a) The Trust is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Massachusetts;
(b) The Trust is a duly registered investment company classified as a
management company of the open-end type and its registration with
the Securities and Exchange Commission as an investment company
under the 1940 Act is in full force and effect, and the Acquiring
Fund is a separate series thereof duly designated in accordance with
the applicable provisions of the Declaration of Trust of the Trust
and the 1940 Act;
(c) The Acquiring Fund Prospectus conforms in all material respects to
the applicable requirements of the 1933 Act and the rules and
regulations of the Securities and Exchange Commission thereunder and
does not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading, and there are no material
contracts to which the Acquiring Fund is a party that are not
A-11
referred to in such Prospectus or in the registration statement of
which it is a part;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
(e) The Trust is not in violation in any material respect of any
provisions of its Declaration of Trust or Bylaws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust is a party or by which the Acquiring
Fund is bound, and the execution, delivery and performance of this
Agreement will not result in any such violation;
(f) To the knowledge of such counsel, except as has been disclosed in
writing to the Acquired Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Trust or the
Acquiring Fund, any of their properties or assets, or any person
whom the Acquiring Fund may be obligated to indemnify in connection
with such liquidation, proceeding or investigation, and neither the
Trust nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
(g) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the schedule
of investments at, as of and for the year ended September 30, 2004,
of the Acquiring Fund, audited by PricewaterhouseCoopers, copies of
which have been furnished to the Acquired Fund, fairly reflect the
financial condition and results of operations of the Acquiring Fund
as of such dates and for the periods then ended in accordance with
generally accepted accounting principles consistently applied, and
the Acquiring Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on the statements of
assets referred to above or those incurred in the ordinary course of
its business since September 30, 2004;
(h) Since September 30, 2004, there has not been any material adverse
change in the Acquiring Fund's financial condition,
A-12
assets, liabilities or business (other than changes occurring in the
ordinary course of business), or any incurrence by the Acquiring
Fund of indebtedness. For the purposes of this subparagraph (h),
changes in portfolio securities, changes in the market value of
portfolio securities or net redemptions shall be deemed to be in the
ordinary course of business;
(i) As of the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law to have been filed by
such date (giving effect to extensions) shall have been filed, and
all federal and other taxes shown to be due on such returns and
reports or any assessments received shall have been paid, or
provisions shall have been made for the payment thereof. All of the
Acquiring Fund's tax liabilities will have been adequately provided
for on its books. To the best of the Acquiring Fund's knowledge, it
will not have not have had any tax deficiency or liability asserted
against it or question with respect thereto raised, and it will not
be under audit by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid;
(j) The Acquiring Fund meets the requirements of subchapter M of the
Code for treatment as a "regulated investment company" within the
meaning of Section 851 of the Code, and will continue meeting such
requirements at all times through the Closing Date. Neither the
Trust nor the Acquiring Fund has at any time since its inception
been liable for nor is now liable for any material income or excise
tax pursuant to Section 852 or 4982 of the Code. The Acquiring Fund
has duly filed all federal, state, local and foreign tax returns
which are required to have been filed, and all taxes of the
Acquiring Fund which are due and payable have been paid except for
amounts that alone or in the aggregate would not reasonably be
expected to have a material adverse effect. The Acquiring Fund is in
compliance in all material respects with applicable regulations of
the Internal Revenue Service pertaining to the reporting of
dividends and other distributions on and redemptions of its capital
stock and to withholding in respect of dividends and other
distributions to shareholders, and is not liable for any material
penalties which could be imposed thereunder;
(k) The authorized capital of the Trust consists of an unlimited number
of shares of beneficial interest, no par value, of such
A-13
number of different series as the Board of Trustees may authorize
from time to time. The outstanding shares of beneficial interest in
the Acquiring Fund are, and at the Closing Date will be, divided
into Class A shares, Class B shares, Class C Shares, Class G Shares,
Class T shares and Class Z shares, each having the characteristics
described in the Acquiring Fund Prospectus. All issued and
outstanding shares of the Acquiring Fund are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid
and non-assessable (except as set forth in the Acquiring Fund
Prospectus) by the Trust, and will have been issued in compliance
with all applicable registration or qualification requirements of
federal and state securities laws. Except for Class B shares and
Class G shares which convert to Class A shares and Class T shares,
respectively, no options, warrants or other rights to subscribe for
or purchase, or securities convertible into, any shares of
beneficial interest in the Acquiring Fund of any class are
outstanding and none will be outstanding on the Closing Date;
(l) The Acquiring Fund's investment operations from inception to the
date hereof have been in compliance in all material respects with
the investment policies and investment restrictions set forth in the
Acquiring Fund Prospectus;
(m) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Trust,
and this Agreement constitutes the valid and binding obligation of
the Trust and the Acquiring Fund enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles;
(n) The Acquisition Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement will at the Closing
Date have been duly authorized and, when so issued and delivered,
will be duly and validly issued Class A, Class B, Class C, Class G
and Class Z shares of beneficial interest in the Acquiring Fund, and
will be fully paid and non-assessable (except as set forth in the
Acquiring Fund Prospectus) by the Trust, and no shareholder of the
Trust will have any preemptive right of subscription or purchase in
respect thereof;
A-14
(o) The information to be furnished by the Acquiring Fund for use in the
Registration Statement and Prospectus/Proxy Statement referred to in
paragraph 5.3 shall be accurate and complete in all material
respects and shall comply with federal securities and other laws and
regulations applicable thereto; and
(p) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, the 1934 Act, the
1940 Act [and state insurance, securities or "Blue Sky" laws (which
term as used herein shall include the laws of the District of
Columbia and of Puerto Rico).]
5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND.
The Acquired Fund and the Trust, on behalf of the Acquiring Fund, each hereby
covenants and agrees with the other as follows:
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of
business will include regular and customary periodic dividends and
distributions.
5.2 The Acquired Fund will call a meeting of its shareholders to be held
prior to the Closing Date to consider and act upon this Agreement and
take all other reasonable action necessary to obtain the required
shareholder approval of the transactions contemplated hereby.
5.3 In connection with the Acquired Fund shareholders' meeting referred to
in paragraph 5.2, the Acquired Fund will prepare a Prospectus/Proxy
Statement for such meeting, to be included in a Registration Statement
on Form N-14 (the "Registration Statement") which the Trust will
prepare and file for the registration under the 1933 Act of the
Acquisition Shares to be distributed to the Acquired Fund shareholders
pursuant hereto, all in compliance with the applicable requirements of
the 1933 Act, the 1934 Act, and the 1940 Act.
5.4 The information to be furnished by the Acquired Fund for use in the
Registration Statement and the information to be furnished by the
Acquiring Fund for use in the Prospectus/Proxy Statement,
A-15
each as referred to in paragraph 5.3, shall be accurate and complete
in all material respects and shall comply with federal securities and
other laws and regulations thereunder applicable thereto.
5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any
time prior to the Closing Date the assets of the Acquired Fund include
any securities which the Acquiring Fund is not permitted to acquire.
5.6 Subject to the provisions of this Agreement, the Acquired Fund and the
Acquiring Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or
advisable to cause the conditions to the other party's obligations to
consummate the transactions contemplated hereby to be met or fulfilled
and otherwise to consummate and make effective such transactions.
5.7 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state securities or "Blue Sky" laws as it may deem
appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions provided for
herein shall be subject, at its election, to the performance by the Trust and
the Acquiring Fund of all the obligations to be performed by them hereunder on
or before the Closing Date and, in addition thereto, to the following further
conditions:
6.1 The Trust, on behalf of the Acquiring Fund, shall have delivered to
the Acquired Fund, a certificate executed in its name by its President
or Vice President and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and warranties of
the Trust on behalf of the Acquiring Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and that
the Trust and the Acquiring Fund have complied with all the covenants
and agreements and satisfied all of the conditions on their parts to
be performed or satisfied under this Agreement at or prior to the
Closing Date.
A-16
6.2 The Acquired Fund shall have received a favorable opinion of Ropes &
Gray LLP, counsel to the Trust for the transactions contemplated
hereby, dated the Closing Date and, in a form satisfactory to the
Trust, to the following effect:
(a) The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts and has power to
own all of its properties and assets and to carry on its business as
presently conducted, and the Acquiring Fund is a separate series
thereof duly constituted in accordance with the applicable
provisions of the 1940 Act and the Declaration of Trust and Bylaws
of the Trust;
(b) This Agreement has been duly authorized, executed and delivered on
behalf of the Acquiring Fund and, assuming the Registration
Statement and the Prospectus/Proxy Statement referred to in
paragraph 5.3 comply with applicable federal securities laws and
assuming the due authorization, execution and delivery of this
Agreement by the Acquired Fund is the valid and binding obligation
of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles;
(c) The Acquiring Fund has the power to assume the liabilities to be
assumed by it hereunder and upon consummation of the transactions
contemplated hereby the Acquiring Fund will have duly assumed such
liabilities;
(d) The Acquisition Shares to be issued for transfer to the Acquired
Fund Shareholders as provided by this Agreement are duly authorized
and upon such transfer and delivery will be validly issued and
outstanding and fully paid and nonassessable Class A, Class B, Class
C, Class G and Class Z shares of beneficial interest in the
Acquiring Fund, and no shareholder of the Acquiring Fund has any
preemptive right of subscription or purchase in respect thereof;
(e) The execution and delivery of this Agreement did not, and the
performance by the Trust and the Acquiring Fund of their respective
obligations hereunder will not, violate the Trust's Declaration of
Trust or Bylaws, or any provision of
A-17
any agreement known to such counsel to which the Trust or the
Acquiring Fund is a party or by which it is bound or, to the
knowledge of such counsel, result in the acceleration of any
obligation or the imposition of any penalty under any agreement,
judgment, or decree to which the Trust or the Acquiring Fund is a
party or by which either of them is bound;
(f) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the Trust or the Acquiring Fund of
the transactions contemplated by this Agreement except such as may
be required under state securities or "Blue Sky" laws or such as
have been obtained;
(g) Such counsel does not know of any legal or governmental proceedings
relating to the Trust or the Acquiring Fund existing on or before
the date of mailing of the Prospectus/ Proxy Statement referred to
in paragraph 5.3 or the Closing Date required to be described in the
Registration Statement which are not described as required;
(h) The Trust is registered with the Securities and Exchange Commission
as an investment company under the 1940 Act; and
(i) To the knowledge of such counsel, except as has been disclosed in
writing to the Acquired Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Trust or the
Acquiring Fund or any of their properties or assets or any person
whom the Acquired Fund may be obligated to indemnify in connection
with such litigation, proceeding or investigation, and neither the
Trust nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its
business or its ability to consummate the transaction contemplated
hereby.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided for
herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on
A-18
or before the Closing Date and, in addition thereto, to the following further
conditions:
7.1 The Acquired Fund shall have delivered to the Trust, on behalf of the
Acquiring Fund, a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Trust and dated as of the Closing Date,
to the effect that the representations and warranties of the Acquired
Fund made in this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and that the Acquired Fund have
complied with all the covenants and agreements and satisfied all of
the conditions on their parts to be performed or satisfied under this
Agreement at or prior to the Closing Date;
7.2 The Trust shall have received a favorable opinion of [ ],
counsel to the Acquired Fund, dated the Closing Date and in a form
satisfactory to the Trust, to the following effect:
(a) The Acquired Fund is a corporation duly organized and validly
existing under the laws of the State of Oregon and has power to own
all of its properties and assets and to carry on its business as
presently conducted;
(b) This Agreement has been duly authorized, executed and delivered on
behalf of the Acquired Fund and, assuming the Registration Statement
and the Prospectus/Proxy Statement referred to in paragraph 5.3
comply with applicable federal securities laws and assuming the due
authorization, execution and delivery of this Agreement by the Trust
on behalf of the Acquiring Fund, is the valid and binding obligation
of the Acquired Fund enforceable against the Acquired Fund in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles;
(c) The Acquired Fund has the power to sell, assign, transfer and
deliver the assets to be transferred by it hereunder, and, upon
consummation of the transactions contemplated hereby, the Acquired
Fund will have duly transferred such assets to the Fund;
(d) The execution and delivery of this Agreement did not, and the
performance by the Acquired Fund of their respective
A-19
obligations hereunder will not, violate the Acquired Fund's Articles
of Incorporation or Bylaws, or any provision of any agreement known
to such counsel to which the Acquired Fund is a party or by which it
is bound or, to the knowledge of such counsel, result in the
acceleration of any obligation or the imposition of any penalty
under any agreement, judgment, or decree to which the Acquired Fund
is a party or by which it is bound;
(e) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the Acquired Fund of the
transactions contemplated by this Agreement, except such as have
been obtained;
(f) Such counsel does not know of any legal or governmental proceedings
relating to the Acquired Fund existing on or before the date of
mailing of the Prospectus/Proxy Statement referred to in paragraph
5.3 or the Closing Date required to be described in the Registration
Statement which are not described as required;
(g) The Acquired Fund is registered with the Securities and Exchange
Commission as an investment company under the 1940 Act; and
(h) To the knowledge of such counsel, except as has been disclosed in
writing to the Acquiring Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Acquired Fund or
any of its properties or assets or any person whom the Acquiring
Fund may be obligated to indemnify in connection with such
litigation, proceeding or investigation, and the Acquired Fund is
not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body, which materially and
adversely affects its business or its ability to consummate the
transaction contemplated thereby.
7.3 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous dividends,
shall have the effect of distributing all of the Acquired Fund's
investment company taxable income for its taxable years ending on or
after August 31, 2004, and on or prior to the Closing Date (computed
without regard to any deduction for dividends
A-20
paid), and all of its net capital gains realized in each of its
taxable years ending on or after August 31, 2004, and on or prior to
the Closing Date.
7.4 The Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer of the Acquired Fund, as to the adjusted tax basis in the
hands of the Acquired Fund of the securities delivered to the
Acquiring Fund pursuant to this Agreement.
7.5 The custodian of the Acquired Fund shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the
Acquired Fund held by such custodian as of the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
The respective obligations of the Acquired Fund and the Trust hereunder are each
subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
received all necessary shareholder approvals at the meeting of
shareholders of the Acquired Fund referred to in paragraph 5.2.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought
to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated
hereby.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including
those of the Securities and Exchange Commission and of state "Blue
Sky" and securities authorities) deemed necessary by the Acquired Fund
or the Trust to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except
where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop order suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have
A-21
been instituted or be pending, threatened or contemplated under the
1933 Act.
8.5 The Acquired Fund shall have received a favorable opinion of Ropes &
Gray LLP satisfactory to the Acquired Fund, and the Trust, on behalf
of the Acquiring Fund, shall have received a favorable opinion of
Ropes & Gray LLP satisfactory to the Trust, each substantially to the
effect that, for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of the assets of the Acquired
Fund in exchange for the Acquiring Fund's assumption of the
liabilities and obligations of the Acquired Fund and issuance of the
Acquisition Shares, followed by the distribution by the Acquired
Fund of such Acquisition Shares to the shareholders of the Acquired
Fund in exchange for their shares of the Acquired Fund, all as
provided in paragraph 1 hereof, will constitute a reorganization
within the meaning of Section 368(a) of the Code, and the Acquired
Fund and the Acquiring Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund (i) upon the
transfer of its assets to the Acquiring Fund in exchange for the
Acquisition Shares and the assumption by the Acquiring Fund of the
liabilities of the Acquired Fund or (ii) upon the distribution of
the Acquisition Shares by the Acquired Fund to its shareholders in
liquidation, as contemplated in paragraph 1 hereof;
(c) No gain or loss will be recognized by the Acquiring Fund upon
receipt of the assets of the Acquired Fund in exchange for the
assumption of liabilities and obligations and issuance of the
Acquisition Shares as contemplated in paragraph 1 hereof;
(d) The tax basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be the same as the tax basis of such assets in
the hands of the Acquired Fund immediately prior to the transfer,
and the holding period of the assets of the Acquired Fund in the
hands of the Acquiring Fund will include the period during which
those assets were held by the Acquired Fund;
A-22
(e) The holding periods of the assets of the Acquired Fund in the hands
of the Acquiring Fund will include the periods during which such
assets were held by the Acquired Fund;
(f) No gain or loss will be recognized by the Acquired Fund shareholders
upon the exchange of all of their Acquired Fund shares for the
Acquisition Shares;
(g) The aggregate tax basis of the Acquisition Shares to be received by
each shareholder of the Acquired Fund will be the same as the
aggregate tax basis of the Acquired Fund shares exchanged therefor;
(h) An Acquired Fund shareholder's holding period for the Acquisition
Shares to be received will include the period during which the
Acquired Fund shares exchanged therefor were held, provided that the
shareholder held the Acquired Fund shares as a capital asset on the
date of the exchange; and
(i) The Acquiring Fund will succeed to and take into account the items
of the Acquired Fund described in Section 381(c) of the Code,
subject to the conditions and limitations specified in Sections 381,
382, 383 and 384 of the Code and the regulations thereunder.
The opinion and the confirming letter will be based on certain factual
certifications made by officers of the Acquired Fund and the Trust and
will also be based on customary assumptions. Neither the opinion nor
the confirming letter is a guarantee that the tax consequences of the
relevant Acquisition will be as described above.
Ropes & Gray LLP will express no view with respect to the effect of
the Acquisition 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.
8.6 At any time prior to the Closing, any of the foregoing conditions of
this Agreement may be waived jointly by the Board of Directors of the
Acquired Fund and the Board of Trustees of the Trust, if, in their
judgment, such waiver will not have a material adverse effect on the
interests of the shareholders of the Acquired Fund or the Acquiring
Fund.
A-23
9. BROKERAGE FEES AND EXPENSES.
9.1 The Acquired Fund and the Trust, on behalf of the Acquiring Fund, each
represents and warrants to the other that there are no brokers or
finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2 All fees paid to governmental authorities for the registration or
qualification of the Acquisition Shares and all transfer agency costs
related to the Acquisition Shares shall be allocated to [ ].
All fees and expenses related to printing, mailing, solicitation of
proxies and tabulation of votes of Acquired Fund shareholders shall be
allocated to [ ]. All of the other expenses of the
transactions, including without limitation, accounting, legal and
custodial expenses, contemplated by this Agreement shall be allocated
equally between [ ]. The expenses detailed above shall be
borne [ ].
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 The Acquired Fund and the Trust, on behalf of the Acquiring Fund,
agree that neither party has made any representation, warranty or
covenant not set forth herein and that this Agreement constitutes the
entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in
connection herewith shall not survive the consummation of the
transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5,
5.4, 9, 10, 13 and 14.
11. TERMINATION.
11.1 This Agreement may be terminated by the mutual agreement of the
Acquired Fund and the Trust. In addition, either the Acquired Fund or
the Trust may at its option terminate this Agreement at or prior to
the Closing Date because:
(a) Of a material breach by the other of any representation, warranty,
covenant or agreement contained herein to be performed by the other
party at or prior to the Closing Date;
(b) A condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears
that it will not or cannot be met; or
(c) Any governmental authority of competent jurisdiction shall have
issued any judgment, injunction, order, ruling or decree
A-24
or taken any other action restraining, enjoining or otherwise
prohibiting this Agreement or the consummation of any of the
transactions contemplated herein and such judgment, injunction,
order, ruling, decree or other action becomes final and
non-appealable; provided that the party seeking to terminate this
Agreement pursuant to this Section 11.1(c) shall have used its
reasonable best efforts to have such judgment, injunction, order,
ruling, decree or other action lifted, vacated or denied.
If the transactions contemplated by this Agreement have not been
substantially completed by December 31, 2005, this Agreement shall
automatically terminate on that date unless a later date is agreed to by
both the Acquired Fund and the Trust.
11.2 If for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to any other party for any
damages resulting therefrom, including without limitation
consequential damages.
12. AMENDMENTS.
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon in writing by the authorized officers of the Acquired Fund
and the Trust, on behalf of the Acquiring Fund; provided, however, that
following the shareholders' meeting called by the Acquired Fund pursuant to
paragraph 5.2 no such amendment may have the effect of changing the provisions
for determining the number of the Acquisition Shares to be issued to
shareholders of the Acquired Fund under this Agreement to the detriment of such
shareholders without their further approval.
13. NOTICES.
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to Columbia Growth Fund, Inc. or Columbia
Funds Trust XI, One Financial Center, Boston, Massachusetts 02111, Attention:
Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; NON-RECOURSE.
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
A-25
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of the Commonwealth of Massachusetts,
without giving effect to any choice or conflicts of law rule or
provision that would result in the application of the domestic
substantive laws of any other jurisdiction.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be
made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
14.5 A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that no trustee, officer, agent or employee of the Trust shall
have any personal liability under this Agreement, and that this
Agreement is binding only upon the assets and properties of the
Acquiring Fund.
A-26
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as a sealed instrument by its President or Treasurer and its corporate
seal to be affixed thereto and attested by its Secretary or Assistant Secretary.
COLUMBIA GROWTH FUND, INC.
By:
---------------------------------
Name:
-----------------------------
Title:
-------------------------------
ATTEST:
- ----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
COLUMBIA FUNDS TRUST XI
on behalf of its Columbia Large Cap
Growth Fund series
By:
---------------------------------
Name:
-----------------------------
Title:
-------------------------------
ATTEST:
- ----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
A-27
Solely for purposes of Paragraph 9.2
of the Agreement
COLUMBIA MANAGEMENT GROUP, INC.
By:
---------------------------------
Name:
-----------------------------
Title:
-------------------------------
ATTEST:
- ----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
A-28
APPENDIX B
FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE GROWTH FUND
For each class of the Growth Fund's shares entitled to vote at the Meeting, the
number of shares outstanding as of December 1, 2004, was as follows:
<Table>
<Caption>
NUMBER OF SHARES OUTSTANDING
FUND CLASS AND ENTITLED TO VOTE
- ---- ----- ----------------------------
Growth Fund A
B
C
D
G
Z
</Table>
OWNERSHIP OF SHARES
As of November 30, 2004, each of Trust XI and the Growth Fund believes that, as
a group, the Trustees, Directors, and officers, as the case may be, of the
respective Funds owned less than one percent of each class of shares of each
Fund and of Trust XI as a whole. As of December 1, 2004, the following
shareholders of record owned five percent or more of the outstanding shares of
the noted class of shares of the noted Fund:
<Table>
<Caption>
NUMBER OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
FUND NAME AND ADDRESS SHARES OF SHARES OF
AND CLASS OF SHAREHOLDER CLASS OWNED CLASS OWNED
- --------- ---------------- ----------- -------------
LARGE CAP GROWTH FUND
Class A
Class B
Class C
Class T
Class G
Class Z
GROWTH FUND
Class A
Class B
Class C
Class D
Class G
Class Z
</Table>
B-1
OWNERSHIP OF SHARES UPON CONSUMMATION OF ACQUISITION
As of December 1, 2004, the shareholders of record that owned five percent or
more of the outstanding shares of the noted class of shares of the noted Fund
would own the following percentage of the Large Cap Growth Fund upon
consummation of the Acquisition:
<Table>
<Caption>
PERCENTAGE OF
OUTSTANDING SHARES OF
CLASS OWNED UPON
FUND NAME AND ADDRESS CONSUMMATION OF
AND CLASS OF SHAREHOLDER ACQUISITION
- --------- ---------------- ---------------------
LARGE CAP GROWTH FUND
Class A
Class B
Class C
Class T
Class G
Class Z
</Table>
B-2
APPENDIX C
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of the
Columbia Growth Fund and the Columbia Large Cap Growth Fund as of October 29,
2004, and on a pro forma combined basis, giving effect to the acquisition of the
assets and liabilities of the Columbia Growth Fund by the Columbia Large Cap
Growth Fund at net asset value as of that date:
<Table>
<Caption>
COLUMBIA
COLUMBIA LARGE LARGE CAP
COLUMBIA CAP GROWTH GROWTH FUND
GROWTH FUND (ACQUIRING PRO FORMA PRO FORMA
FUND FUND) ADJUSTMENTS COMBINED(1)
------------ ---------------- ------------- --------------
CLASS A
Net asset value $ 4,951,791 $ 3,926,567 $ (274)(3) $ 8,878,084
Shares outstanding 190,920 207,442 70,664 469,026
Net asset value per share $ 25.94 $ 18.93 $ 18.93
- -------------------------------------------------------------------------------------------------
CLASS B
Net asset value $ 2,321,475 $ 3,310,293 $ (231)(3) $ 5,631,537
Shares outstanding 90,830 182,926 37,428 311,184
Net asset value per share $ 25.56 $ 18.10 $ 18.10
- -------------------------------------------------------------------------------------------------
CLASS C
Net asset value $ 263,945 $ 796,477 $ 128,102(2)(3) $ 1,188,524
Shares outstanding 10,350 43,950 11,289(2) 65,589
Net asset value per share $ 25.50 $ 18.12 $ 18.12
- -------------------------------------------------------------------------------------------------
CLASS D
Net asset value $ 128,158 $ -- $ (128,158)(2) $ --
Shares outstanding 5,010 -- (5,010) --
Net asset value per share $ 25.58 $ -- $ --
- -------------------------------------------------------------------------------------------------
CLASS G
Net asset value $ 13,215,946 $ 46,503,783 $ (3,250)(3) 59,716,479
Shares outstanding 516,157 2,652,438 237,747 3,406,342
Net asset value per share $ 25.60 $ 17.53 $ 17.53
- -------------------------------------------------------------------------------------------------
CLASS T
Net asset value $ -- $220,619,972 $ (15,417)(3) $ 220,604,555
Shares outstanding -- 11,723,988 -- 11,723,988
Net asset value per share $ -- $ 18.82 $ 18.82
- -------------------------------------------------------------------------------------------------
</Table>
C-1
<Table>
<Caption>
COLUMBIA
COLUMBIA LARGE LARGE CAP
COLUMBIA CAP GROWTH GROWTH FUND
GROWTH FUND (ACQUIRING PRO FORMA PRO FORMA
FUND FUND) ADJUSTMENTS COMBINED(1)
------------ ---------------- ------------- --------------
CLASS Z
Net asset value $775,585,516 $639,978,609 $ (44,721)(3) $1,415,519,404
Shares outstanding 29,702,292 33,260,941 10,608,806 73,572,039
Net asset value per share $ 26.11 $ 19.24 $ 19.24
- -------------------------------------------------------------------------------------------------
</Table>
(1) Assumes the Acquisition was consummated on October 29, 2004, and is for
information purposes only. No assurance can be given as to how many shares
of the Columbia Large Cap Growth Fund will be received by the shareholders
of the Columbia Growth Fund on the date the Acquisition takes place, and
the foregoing should not be relied upon to reflect the number of shares of
the Columbia Large Cap Growth Fund that actually will be received on or
after such date.
(2) Includes net assets and shares from Class D. Class D shareholders will
receive Class C shares in connection with the Acquisition.
(3) Adjustments reflect one time proxy, accounting, legal and other costs of
the reorganization of $0 and $63,949 to be borne by Columbia Growth Fund
and Columbia Large Cap Growth Fund, respectively.
C-2
APPENDIX D -- INFORMATION APPLICABLE TO CLASS A, CLASS B, CLASS C, CLASS G AND
CLASS Z SHARES OF THE LARGE CAP GROWTH FUND
HOW TO BUY SHARES
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. "Good form" means that you placed your order
with your financial advisor or your payment has been received and your
application is complete, including all necessary signatures. The USA Patriot Act
may require us to obtain certain personal information from you which we will use
to verify your identity. If you do not provide the information, we may not be
able to open your account. If we are unable to verify your customer information,
we reserve the right to close your account or take such other steps as we deem
reasonable.
<Table>
INVESTMENT MINIMUMS
Initial Investment $1,000
Subsequent Investments $ 50
Automatic Investment Plan* $ 50
Retirement Plan* $ 25
</Table>
* The initial investment minimum of $1,000 is waived on these plans.
The Fund reserves the right to change these investment minimums. The Fund also
reserves the right to refuse a purchase order for any reason, including if it
believes that doing so would be in the best interest of the Fund and its
shareholders.
Outlined below are the various options for buying shares:
<Table>
<Caption>
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
- -----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
- -----------------------------------------------------------------------------------
</Table>
D-1
<Table>
<Caption>
METHOD INSTRUCTIONS
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
- -----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Funds Distributor,
Inc. for shares of the same class of the Fund at no
additional cost. There may be an additional charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
- -----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
- -----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
- -----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
- -----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
You must have a current balance of at least $5,000 in the
fund the money is coming from. Exchanges will continue so
long as your fund balance is sufficient to complete the
transfers. You may terminate your program or change the
amount of the exchange (subject to the $100 minimum) by
calling 1-800-345-6611. Be sure to complete the appropriate
section of the account application for this feature.
- ---------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
</Table>
ELIGIBLE INVESTORS FOR CLASS Z SHARES
Only Eligible Investors may purchase Class Z shares of the Fund, directly or by
exchange. The Eligible Investors described below are subject to different
minimum initial investment requirements. Eligible Investors and their applicable
investment minimums are as follows:
D-2
$1,000 minimum initial investment
- - Any shareholder (as well as any family member of a shareholder or person
listed on an account registration for any account of the shareholder) of a
fund distributed by Columbia Funds Distributor, Inc. (i) who holds Class Z
shares; (ii) who holds Class A shares that were obtained by exchange of Class
Z shares; or (iii) who purchased certain no-load shares of funds merged with
funds distributed by Columbia Funds Distributor, Inc.;
- - Any trustee or director (or family member of a trustee or director) of any
fund distributed by Columbia Funds Distributor, Inc.; and
- - Any employee (or family member of an employee) of FleetBoston Financial
Corporation or its subsidiaries.
$100,000 minimum initial investment
- - Clients of broker-dealers or registered investment advisors that both
recommend the purchase of Fund shares and charge such clients an asset-based
fee; and
- - Any insurance company, trust company, bank, endowment, investment company or
foundation purchasing shares for its own account.
No minimum initial investment
- - Any client of Fleet National Bank or a subsidiary (for shares purchased
through an asset management, trust, retirement plan administration or similar
arrangement with Fleet National Bank or the subsidiary);
- - A retirement plan (or the custodian for such plan) with aggregate plan assets
of at least $5 million at the time of purchase and which purchases shares
directly from Columbia Funds Distributor, Inc. or through a third-party
broker-dealer;
- - Investors purchasing through Columbia Management Group state tuition plans
organized under Section 529 of the Internal Revenue Code; and
- - Any person investing all or part of the proceeds of a distribution, rollover
or transfer of assets into a Columbia Management Individual Retirement
Account, from any deferred compensation plan which was a shareholder of any of
the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on
September 29, 2000, in which the investor was a participant and through which
the investor invested in one or more of the funds of Columbia Acorn Trust
immediately prior to the distribution, transfer or rollover.
D-3
The Fund reserves the right to change the criteria for Eligible Investors and
the investment minimums. No minimum investment applies to accounts participating
in the automatic investment plan, however, each investment requires a $25
minimum purchase. The Fund also reserves the right to refuse a purchase order
for any reason, including if it believes that doing so would be in the best
interest of the Fund and its shareholders.
CLASS G SHARES
Class G shares are sold only to investors who received (and who have
continuously held) Class G shares in connection with the merger of certain
Galaxy Funds (formerly named Liberty Funds).
CHOOSING A SHARE CLASS
The Fund offers Class A, Class B, Class C, Class G, and Class Z shares in this
prospectus.
Each of Class A, Class B, and Class C has its own sales charge and expense
structure. Determining which of Class A, Class B, or Class C is best for you
depends on the dollar amount you are investing and the number of years for which
you are willing to invest. If your financial advisor does not participate in the
Class B discount program, purchases of $250,000 or more but less than $1 million
can be made only in Class A or Class C shares. Purchases of $1 million or more
can be made only in Class A shares. Based on your personal situation, your
financial advisor can help you decide which class of shares makes the most sense
for you.
The Fund offers Class G and Class Z shares, which are available exclusively to
certain institutional and other investors, through this prospectus. The Fund
also offers Class T shares, which are not available through this prospectus. In
general, anyone who is eligible to purchase Class Z shares, which do not incur
12b-1 fees or sales charges, should do so in preference over other classes.
SALES CHARGES FOR CLASS A, B, AND C SHARES
You may be subject to an initial sales charge when you purchase, or a contingent
deferred sales charge (CDSC) when you sell, shares of the Fund. These sales
charges are described below. In certain circumstances, the sales charge may be
waived, as described below and in the Statement of Additional Information.
Class A shares Your purchases of Class A shares are made at the public offering
price for these shares. This price includes a sales charge that is based on the
amount of your initial investment when you open your account.
D-4
The sales charge you pay on an additional investment is based on the total
amount of your purchase and the current value of your account. Shares you
purchase with reinvested dividends or other distributions are not subject to a
sales charge. A portion of the sales charge is paid as a commission to your
financial advisor on the sale of Class A shares. The amount of the sales charge
differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
<Table>
<Caption>
AS A % OF AS A % OF % OF OFFERING
THE PUBLIC YOUR PRICE RETAINED BY
AMOUNT PURCHASED OFFERING PRICE INVESTMENT FINANCIAL ADVISOR
Less than $50,000 5.75 6.10 5.00
- ----------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
- ----------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
- ----------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
- ----------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
- ----------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
</Table>
Class A shares bought without an initial sales charge in accounts aggregating $1
million to $25 million at the time of purchase are subject to a 1.00% CDSC if
the shares are sold within 18 months of the time of purchase. Subsequent Class A
share purchases that bring your account value above $1 million (but less than
$25 million) are subject to a CDSC if redeemed within 18 months of the date of
purchase. The 18-month period begins on the first day of the month in which the
purchase was made. The CDSC does not apply to retirement plans purchasing
through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a
cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
<Table>
<Caption>
AMOUNT PURCHASED COMMISSION %
Less than $3 million 1.00
- ---------------------------------------------------------------------------
$3 million to less than $5 million 0.80
- ---------------------------------------------------------------------------
$5 million to less than $25 million 0.50
- ---------------------------------------------------------------------------
$25 million or more 0.25
</Table>
D-5
The commission to financial advisors for Class A share purchases of $25 million
or more is paid over 12 months but only to the extent the shares remain
outstanding.
For Class A share purchases by participants in certain group retirement plans
offered through a fee-based program, financial advisors receive a 1.00%
commission from the distributor on all purchases of less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
Certain investments in Class A, B, C and G shares are subject to a CDSC, a sales
charge applied at the time you sell our shares. You will pay the CDSC only on
shares you sell within a certain amount of time after purchase. The CDSC
generally declines each year until there is no charge for selling shares. The
CDSC is applied to the net asset value at the time of purchase or sale,
whichever is lower. For purposes of calculating the CDSC, the start of the
holding period is the first day of the month in which the purchase was made.
Shares you purchase with reinvested dividends or other distributions are not
subject to a CDSC. When you place an order to sell shares, the Fund will
automatically sell first those shares not subject to a CDSC and then those you
have held the longest.
Reduced Sales Charges for Larger Investments You may pay a lower sales charge
when purchasing Class A shares through Rights of Accumulation. If the combined
value of the Fund accounts in all classes maintained by you, your spouse or your
minor children, together with the value of your current purchase, reaches a
sales charge discount level (according to the chart on the previous page), your
current purchase will receive the lower sales charge; provided that you have
notified your financial advisor in writing of the identity of such other
accounts and your relationship to the other account holders. You may also pay a
lower sales charge when purchasing Class A shares, by signing a Statement of
Intent within 90 days of your purchase. By doing so, you would be able to pay
the lower sales charge on all purchases by agreeing to invest a total of at
least $50,000 within 13 months. If your Statement of Intent purchases are not
completed within 13 months, you will be charged the applicable sales charge on
the amount you had invested to that date. In addition, certain investors may
purchase shares at a reduced sales charge or net asset value, which is the value
of a fund share excluding any sales charges. See the Statement of Additional
Information for a description of these situations. Upon request, a Statement of
Intent may be backdated to reflect purchases within 90 days.
Class B shares Your purchases of Class B shares are made at Class B's net asset
value. Class B shares have no front-end sales charge, but they do carry
D-6
a CDSC that is imposed only on shares sold prior to elimination of the CDSC as
shown in the applicable chart below. The CDSC generally declines each year and
eventually disappears over time. The distributor pays your financial advisor an
up-front commission on sales of Class B shares as described in the charts below.
PURCHASES OF LESS THAN $250,000:
CLASS B SALES CHARGES
<Table>
<Caption>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year.......................................... 5.00
- ------------------------------------------------------------------------------
Through second year......................................... 4.00
- ------------------------------------------------------------------------------
Through third year.......................................... 3.00
- ------------------------------------------------------------------------------
Through fourth year......................................... 3.00
- ------------------------------------------------------------------------------
Through fifth year.......................................... 2.00
- ------------------------------------------------------------------------------
Through sixth year.......................................... 1.00
- ------------------------------------------------------------------------------
Longer than six years....................................... 0.00
</Table>
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase. You
can pay a lower CDSC and reduce the holding period when making purchases of
Class B shares through a financial advisor that participates in the Class B
share discount program for larger purchases as described in the charts below.
Some financial advisors are not able to participate because their record keeping
or transaction processing systems are not designed to accommodate these
reductions. For non-participating financial advisors, purchases of Class B
shares must be less than $250,000. Consult your financial advisor to see whether
it participates in the discount program for larger purchases. For participating
financial advisors, Rights of Accumulation apply, so that if the combined value
of the Fund accounts in all classes maintained by you, your spouse or your minor
children, together with the value of your current purchase, is at or above a
discount level, your current purchase will be subject to the lower CDSC and the
applicable reduced holding period; provided that you have notified your
financial advisor in writing of the identity of such other accounts and your
relationship to the other account holders.
D-7
PURCHASES OF $250,000 TO LESS THAN $500,000:
CLASS B SALES CHARGES
<Table>
<Caption>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 3.00
- ------------------------------------------------------------------------------
Through second year 2.00
- ------------------------------------------------------------------------------
Through third year 1.00
- ------------------------------------------------------------------------------
Longer than three years 0.00
</Table>
Commission to financial advisors is 2.50%.
Automatic conversion to Class A shares occurs four years after purchase.
PURCHASES OF $500,000 TO LESS THAN $1 MILLION:
CLASS B SALES CHARGES
<Table>
<Caption>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 3.00
- ------------------------------------------------------------------------------
Through second year 2.00
- ------------------------------------------------------------------------------
Through third year 1.00
</Table>
Commission to financial advisors is 1.75%.
Automatic conversion to Class A shares occurs three years after purchase. If you
exchange into a fund participating in the Class B share discount program or
transfer your fund account from a financial advisor that does not participate in
the program to one that does, the exchanged or transferred shares will retain
the pre-existing CDSC but any additional purchases of Class B shares which,
together with the exchanged or transferred account, exceed the applicable
discount level will be subject to the lower CDSC and the reduced holding period
for amounts in excess of the discount level. Your financial advisor will receive
the lower commission for purchases in excess of the applicable discount level.
If you exchange from a participating fund or transfer your account from a
financial advisor that does participate in the program into a non-participating
fund or to a financial advisor that does not participate in the program, the
exchanged or transferred shares will retain the pre-existing CDSC schedule and
holding period but all additional purchases of Class B shares will be subject to
the higher CDSC and longer holding period of the non-participating fund or
applicable to the non-participating financial advisor.
D-8
Class C shares Your purchases of Class C shares are at Class C's net asset
value. Although Class C shares have no front-end sales charge, they carry a CDSC
of 1.00% that is applied to shares sold within the first year after they are
purchased. After holding shares for one year, you may sell them at any time
without paying a CDSC. The distributor pays your financial advisor an up-front
commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
<Table>
<Caption>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
- ------------------------------------------------------------------------------
Longer than one year 0.00
</Table>
SALES CHARGES FOR CLASS G SHARES
You may be subject to an initial sales charge when you purchase, or a contingent
deferred sales charge (CDSC) when you sell, shares of the Fund. In certain
circumstances, the sales charge may be waived, as described below and in the
Statement of Additional Information.
Class G shares Your purchases of Class G shares are made at Class G's net asset
value. Class G shares have no front-end sales charge, but they do carry a CDSC
that is imposed only on shares sold prior to elimination of the CDSC as shown in
the chart below. The CDSC generally declines each year and eventually disappears
over time. The distributor pays your financial advisor an up-front commission on
sales of Class G shares as described in the chart below.
CLASS G SALES CHARGES
<Table>
<Caption>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
- ------------------------------------------------------------------------------
Through second year 4.00
- ------------------------------------------------------------------------------
Through third year 4.00
- ------------------------------------------------------------------------------
Through fourth year 4.00
- ------------------------------------------------------------------------------
Through fifth year 3.00
- ------------------------------------------------------------------------------
Through sixth year 2.00
- ------------------------------------------------------------------------------
Through seventh year 1.00
- ------------------------------------------------------------------------------
Longer than seven years 0.00
</Table>
Commission to financial advisors is 4.00%.
D-9
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion
schedules applicable to Class G shares received in exchange for Retail B Shares
of the Galaxy Fund purchased or acquired prior to January 1, 2001.
SALES CHARGES FOR CLASS Z SHARES
Your purchases of Class Z shares are at net asset value, which is the value of a
Class Z share excluding any sales charge. Class Z shares are not subject to an
initial sales charge when purchased or a contingent deferred sales charge when
sold.
HOW TO EXCHANGE SHARES
You may exchange your shares for shares of the same share class (and in some
cases, certain other classes) of another fund distributed by Columbia Funds
Distributor, Inc. at net asset value. If your shares are subject to a CDSC, you
will not be charged a CDSC upon the exchange. However, when you sell the shares
acquired through the exchange, the shares sold may be subject to a CDSC,
depending upon when you originally purchased the shares you are exchanging. For
purposes of computing the CDSC, the length of time you have owned your shares
will be computed from the date of your original purchase and the applicable CDSC
will be the CDSC of the original fund.
You may exchange your Class G shares for Class B or Class G shares of another
fund distributed by Columbia Funds Distributor, Inc. at net asset value. If your
shares are subject to a CDSC, you will not be charged a CDSC upon the exchange.
However, when you sell the shares acquired through the exchange, the shares sold
may be subject to a CDSC, depending upon when you originally purchased the
shares you are exchanging. For purposes of computing the CDSC, the length of
time you have owned your shares will be computed from the date of your original
purchase and the applicable CDSC will be the CDSC of the original fund. Class B
shares acquired upon exchange of Class G shares may not be further exchanged for
Class G shares.
You may exchange your Class Z shares for Class Z or Class A (only if Class Z is
not offered) shares of another fund distributed by Columbia Funds Distributor,
Inc. at net asset value. Unless your account is part of a tax-deferred
retirement plan, an exchange is a taxable event, and you may realize a gain or a
loss for tax purposes. The Fund may terminate your exchange privilege if the
advisor determines that your exchange activity is
D-10
likely to adversely impact its ability to manage the Fund. See "Fund Policy on
Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call
1-800-422-3737. Please have your account and taxpayer identification numbers
available when calling.
HOW TO SELL SHARES
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the
NYSE is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. "Good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" also means (i) your letter has complete instructions, the proper
signatures and Medallion Signature Guarantees, (ii) you have included any
certificates for shares to be sold, and (iii) any other required documents are
attached. For additional documents required for sales by corporations, agents,
fiduciaries, surviving joint owners and other legal entities, please call
1-800-345-6611. Retirement plan accounts have special requirements; please call
1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in "good
form"). However, if you purchased your shares by check, the Fund may delay
sending the proceeds from the sale of your shares for up to 15 days after your
purchase to protect against checks that are returned. No interest will be paid
on uncashed redemption checks. Redemption proceeds may be paid in securities,
rather than in cash, under certain circumstances. For more information, see the
paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the
Statement of Additional Information.
YOUR ACCOUNT
Outlined below are the various options for selling shares:
<Table>
<Caption>
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
- -----------------------------------------------------------------------------------
</Table>
D-11
<Table>
<Caption>
METHOD INSTRUCTIONS
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Funds Distributor, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
- -----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
- -----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power
form along with any share certificates to be sold to the
address below. In your letter of instruction, note the
Fund's name, share class, account number, and the dollar
value or number of shares you wish to sell. All account
owners must sign the letter. Signatures must be guaranteed
by either a bank, a member firm of a national stock
exchange or another eligible guarantor that participates in
the Medallion Signature Guarantee Program for amounts over
$100,000 or for alternate payee or mailing instructions.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Funds Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
- -----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your telephone request. Be sure to
complete the appropriate section of the account application
for this feature.
- -----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. This feature is not
available if you hold your shares in certificate form. All
dividend and capital gains distributions must be
reinvested. Be sure to complete the appropriate section of
the account application for this feature.
- -----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
</Table>
FUND POLICY ON TRADING OF FUND SHARES
The interests of the Fund's long-term shareholders may be adversely affected by
certain short-term trading activity by Fund shareholders. Such
D-12
short-term trading activity, when excessive, has the potential to interfere with
efficient portfolio management, generate transaction and other costs, dilute the
value of Fund shares held by long-term shareholders and have other adverse
effects on the Fund. This type of excessive short-term trading activity is
referred to herein as "market timing". The Columbia Funds are not intended as
vehicles for market timing.
The Fund, directly and through its agents, takes various steps designed to deter
and curtail market timing. For example, if the Fund detects that any shareholder
has conducted two "round trips" (as defined below) in the Fund that are deemed
material by the Fund in any 28-day period, the Fund will generally reject the
shareholder's future purchase orders, including exchange purchase orders,
involving any Columbia Fund (other than a Money Market Fund). In addition, if
the Fund determines that any person, group or account has engaged in any type of
market timing activity (independent of the two-round-trip limit), the Fund may,
in its discretion, reject future purchase orders by the person, group or
account, including exchange purchase orders, involving the same or any other
Columbia Fund, and also retains the right to modify these market timing policies
at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any
of the limits mentioned above. However, certain Funds impose a redemption fee on
the proceeds of Fund shares that are redeemed or exchanged within 60 days of
their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia
Fund followed by a redemption, of any amount, by any means out of the same
Columbia Fund. Under this definition, an exchange into the Fund followed by an
exchange out of the Fund is treated as a single round trip. Also for these
purposes, where known, accounts under common ownership or control generally will
be counted together. Accounts maintained or managed by a common intermediary,
such as an adviser, selling agent or trust department, generally will not be
considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic
Investment Plan, Systematic Withdrawal Plan or similar automated plans generally
are not subject to the two-round-trip limit. The two-round-trip limit may be
modified for, or may not be applied to, accounts held by certain retirement
plans to conform to plan limits, considerations relating to the Employee
Retirement Income Security Act of 1974 or regulations of the Department of
Labor, and for certain asset allocation or wrap programs.
D-13
The practices and policies described above are intended to deter and curtail
market timing in the Fund. However, there can be no assurance that these
policies, individually or collectively, will be totally effective in this regard
because of various factors. In particular, a substantial portion of purchase,
redemption and exchange orders are received through omnibus accounts. Omnibus
accounts, in which shares are held in the name of an intermediary on behalf of
multiple beneficial owners, are a common form of holding shares among financial
intermediaries and retirement plans. The Fund typically is not able to identify
trading by a particular beneficial owner through an omnibus account, which may
make it difficult or impossible to determine if a particular account is engaged
in market timing. Certain financial intermediaries have different policies
regarding monitoring and restricting market timing in the underlying beneficial
owner accounts that they maintain through an omnibus account that may be more or
less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best
interests of Fund shareholders in making any judgments regarding market timing.
Neither the Fund nor its agents shall be held liable for any loss resulting from
rejected purchase orders or exchanges.
DISTRIBUTION AND SERVICE FEES
12B-1 PLAN The Fund has adopted a plan under Rule 12b-1 that permits it to pay
its distributor marketing and other fees to support the sale and distribution of
Class A, B, C and G shares and certain services provided to you by your
financial advisor. The annual service fee may equal up to 0.25% for each of
Class A, Class B and Class C shares. The annual distribution fee may equal up to
0.10% for Class A shares and 0.75% for each of Class B and Class C shares.
Distribution and service fees are paid out of the assets of these classes. The
Fund's Board of Trustees currently limits total payments under the Rule 12b-1
plan for Class A shares to 0.25%. Over time, these fees will reduce the return
on your investment and may cost you more than paying other types of sales
charges. Class B shares automatically convert to Class A shares after a certain
number of years, eliminating a portion of the distribution fee upon conversion.
Conversion may occur three, four or eight years after purchase, depending on the
program under which you purchased your shares. See above for the conversion
schedules applicable to Class B shares.
The annual fees for shareholder liaison services and administrative support may
equal up to 0.50% for Class G shares. The annual distribution fee may equal up
to 0.65% for Class G shares. The Fund does not intend to pay more than a total
of 0.95% for Class G shares in distribution and shareholder
D-14
service fees during the current fiscal year. The foregoing fees are paid out of
the assets of Class G. Over time, these fees will reduce the return on your
investment and may cost you more than paying other types of sales charges. Class
G shares automatically convert to Class T shares after a certain number of
years, eliminating a portion of these fees upon conversion. Conversion may occur
six or eight years after purchase, depending on the program under which you
purchased your shares. See above or the Statement of Additional Information for
the conversion schedules applicable to Class G shares.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in
this prospectus, the distributor, or its advisory affiliates, from their own
resources, may make cash payments to financial service firms that agree to
promote the sale of shares of funds that the distributor distributes. A number
of factors may be considered in determining the amount of those payments,
including the financial service firm's sales, client assets invested in the
funds and redemption rates, the quality of the financial service firm's
relationship with the distributor and/or its affiliates, and the nature of the
services provided by financial service firms to its clients. The payments may be
made in recognition of such factors as marketing support, access to sales
meetings and the financial service firm's representatives, and inclusion of the
Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation
to financial service firms and their representatives, including: (i) occasional
gifts (ii) occasional meals, or other entertainment; and/or (iii) support for
financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer
agent or their affiliates, may pay service, administrative or other similar fees
to broker/dealers, banks, third-party administrators or other financial
institutions (each commonly referred to as an "intermediary"). Those fees are
generally for subaccounting, sub-transfer agency and other shareholder services
associated with shareholders whose shares are held of record in omnibus or other
group accounts. The rate of those fees may vary and is generally calculated on
the average daily net assets of a Fund attributable to a particular
intermediary.
In some circumstances, the payments discussed above may create an incentive for
an intermediary or its employees or associated persons to recommend or sell
shares of the Fund. For further information about payments made by the
distributor and its affiliates to financial service firms and intermediaries,
please see the Statement of Additional Information. Please also contact your
financial service firm or intermediary for details about payments it may
receive.
D-15
OTHER INFORMATION ABOUT YOUR ACCOUNT
How the Fund's Share Price is Determined The price of each class of the Fund's
shares is based on its net asset value. The net asset value is determined at the
close of regular trading on the NYSE, usually 4:00 p.m. Eastern time, on each
business day that the NYSE is open for trading (typically Monday through
Friday). Shares are not priced the days on which the NYSE is closed for trading.
When you request a transaction, it will be processed at the net asset value
(plus any applicable sales charges) next determined after your request is
received in "good form" by the distributor. In most cases, in order to receive
that day's price, the distributor must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor, your financial advisor must receive your order by the close of trading
on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each
class's total net assets by the number of that class's outstanding shares. In
determining the net asset value, the Fund must determine the price of each
security in its portfolio at the close of each trading day. Because the Fund
holds securities that are traded on foreign exchanges, the value of the Fund's
securities may change on days when shareholders will not be able to buy or sell
Fund shares. This will affect the Fund's net asset value on the day it is next
determined. Securities for which market quotations are available are valued each
day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Fund may use other data to determine the fair value of the
securities.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the heading of "Columbia." You can find daily prices for
all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), your account may be subject to an annual fee of
$10. The Fund's transfer agent will send you written notification of any such
action and provide details on how you can add money to your account to avoid
this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares
offered by the Fund. If you currently hold previously issued share certificates,
you will not be able to sell your shares until you have endorsed your
certificates and returned them to the transfer agent.
D-16
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the
following distributions:
TYPES OF DISTRIBUTIONS
<Table>
Dividends Represents interest and dividends
earned from securities held by the
Fund, net of expenses incurred by the
Fund.
- ---------------------------------------------------------------------------------
Capital gains Represents net long-term capital
gains on sales of securities held for
more than 12 months and net
short-term capital gains, which are
gains on sales of securities held for
a 12-month period or less.
</Table>
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize
capital gains or losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
DISTRIBUTION OPTIONS The Fund distributes any dividends annually and any capital
gains (including short-term capital gains) at least annually. You can choose one
of the options listed in the table below for these distributions when you open
your account. To change your distribution option, call 1-800-345-6611.
DISTRIBUTION OPTIONS
<Table>
Reinvest all distributions in additional shares of your
current fund
- -----------------------------------------------------------------------
Reinvest all distributions in shares of another fund
- -----------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
- -----------------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
</Table>
- - send the check to your address of record
- - send the check to a third party address
- - transfer the money to your bank via electronic funds transfer
Distributions of $10 or less will automatically be reinvested in additional Fund
shares. If you elect to receive distributions by check and the check is returned
as undeliverable, or if you do not cash a distribution check within
D-17
six months of the check date, the distribution, and all subsequent
distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest
under a retirement account, regardless of whether you receive your distributions
in cash or reinvest them in additional Fund shares, all Fund distributions are
subject to federal income tax. Depending on where you live, distributions may
also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital
gains are taxable as ordinary income, unless such dividends are "qualified
dividend income" (as defined in the Internal Revenue Code) eligible for a
reduced rate of tax. Distributions of long-term capital gains are generally
taxable as such, regardless of how long you have held your Fund shares. You will
be provided with information each year regarding the amount of ordinary income
and capital gains distributed to you for the previous year and any portion of
your distribution which is exempt from state and local taxes. Your investment in
the Fund may have additional personal tax implications. Please consult your tax
advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling or exchanging shares of the
Fund. Such transactions also may be subject to federal, state and local income
tax.
MANAGING THE FUND
INVESTMENT ADVISOR
Columbia Management Advisors, Inc. (Columbia Management), located at 100 Federal
Street, Boston, Massachusetts 02110, is the Fund's investment advisor. The
investment advisor is responsible for the Fund's management, subject to
oversight by the Fund's Board of Trustees. In its duties as investment advisor,
Columbia Management runs the Fund's day-to-day business, including placing all
orders for the purchase and sale of the Fund's portfolio securities. Columbia
Management is a direct wholly owned subsidiary of Columbia Management Group,
Inc. (Columbia), which is an indirect wholly owned subsidiary of Bank of
America. Columbia Management, a registered investment advisor, has been an
investment advisor since 1969.
On April 1, 2003, several advisory subsidiaries of Columbia, including Fleet
Investment Advisors Inc. (Fleet), merged into Columbia Management (which
previously had been known as Columbia Management Company).
D-18
Before April 1, 2003, Fleet was the investment advisor to the Fund. As a result
of the merger, Columbia Management is now the investment advisor to the Fund.
For the 2003 fiscal year, aggregate advisory fees paid to Columbia Management by
the Fund, not including administration, pricing and bookkeeping, and other fees
paid to Columbia Management by the Fund, amounted to 0.73% of average daily net
assets of the Fund.
PORTFOLIO MANAGERS
PAUL J. BERLINGUET, co-head of the Large-Cap Growth Team of Columbia Management,
is a co-manager for the Fund and has co-managed the Fund since October, 2003.
Mr. Berlinguet has been associated with Columbia Management since October, 2003.
Prior to joining Columbia Management in October, 2003, Mr. Berlinguet was head
of the large-mid cap equity group and a portfolio manager at John Hancock Funds.
Prior to joining John Hancock Funds in April 2001, Mr. Berlinguet was head of
the Global Technology Investment Team and a large-cap growth portfolio manager
at Baring Asset Management.
ALEXANDER S. MACMILLAN, co-head of the Large-Cap Growth Team and a senior vice
president of Columbia Management, is a co-manager for the Fund and has
co-managed the Fund since July, 2003. Mr. Macmillan has been associated with
Columbia Management or its predecessors since 1989.
LITIGATION MATTERS
1. Columbia Management Advisors, Inc. ("CMA"), the Fund's adviser, and Columbia
Funds Distributor, Inc. ("CFDI") the distributor of the Fund's shares, and
certain of their affiliates (collectively, "Columbia") have received information
requests and subpoenas from various regulatory and law enforcement authorities
in connection with their investigations of late trading and market timing in
mutual funds. Columbia has not uncovered any instances where CMA or CFDI were
knowingly involved in late trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against CMA and CFDI, alleging that they had violated certain
provisions of the federal securities laws in connection with trading activity in
mutual fund shares. Also on February 24, 2004, the New York Attorney General
("NYAG") filed a civil complaint in New York Supreme Court, County of New York
against CMA and CFDI alleging that CMA and CFDI had violated certain New York
anti-fraud statutes. If either CMA or CFDI is unsuccessful in its defense of
these proceedings, it could be barred from serving as an investment adviser or
distributor for any
D-19
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent CMA,
CFDI or any company that is an affiliated person of CMA and CFDI from serving as
an investment adviser or distributor for any registered investment company,
including your fund. Your fund has been informed by CMA and CFDI that, if these
results occur, they will seek exemptive relief from the SEC to permit them to
continue to serve as your fund's investment adviser and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004, CMA and
CFDI entered into agreements in principle with the SEC Division of Enforcement
and NYAG in settlement of the charges. Under the agreements, CMA and CFDI
agreed, inter alia, to the following conditions: payment of $70 million in
disgorgement; payment of $70 million in civil penalties; an order requiring CMA
and CFDI to cease and desist from violations of the antifraud provisions and
other provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review CMA's and CFDI's compliance policies and
procedures. The agreement requires the final approval of the SEC. In a separate
agreement with the NYAG, Columbia and its affiliate Banc of America Capital
Management, LLC have agreed to collectively reduce mutual fund fees by $160
million over a five-year period. As a result of these matters or any adverse
publicity or other developments resulting from them, there may be increased
redemptions or reduced sales of Fund shares, which could increase transaction
costs or operating expenses, or have other adverse consequences for the Funds.
2. On April 1, 2004, FleetBoston Financial Corporation was acquired by Bank of
America Corporation. As a result of this acquisition, CMA and CFDI are now
indirect wholly-owned subsidiaries of Bank of America Corporation.
D-20
APPENDIX E -- FINANCIAL HIGHLIGHTS FOR COLUMBIA LARGE CAP GROWTH FUND
The financial highlights table below is intended to help you understand the
Fund's financial performance. Information is shown for the Fund's fiscal years
since inception, which run from October 1 to September 30, unless otherwise
indicated. Information for Class A shares and Class B shares prior to November
18, 2002, the date of reorganization, is for Prime A shares and Prime B shares,
respectively, of the Galaxy Equity Growth Fund. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that you would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been derived from the Fund's financial statements which, for the
year ended September 30, 2004, have been audited by PricewaterhouseCoopers LLP,
an independent registered public accounting firm, whose report, along with the
Fund's financial statements, is included in the Fund's annual report. The
information for the four years ended October 31, 2002, and for the period ended
September 30, 2003, has been derived from the Fund's financial statements which
have been audited by Ernst & Young LLP, an independent registered public
accounting firm, whose report expressed an unqualified opinion on those
financial statements and highlights. You can request a free annual report by
calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------------------------------
CLASS A SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999(D)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $17.59 $16.06 $19.74 $32.31 $28.95 $24.49
- -----------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.08)(e) (0.05)(e) 0.03(e) (0.02) (0.05)(e) (0.01)
Net realized and unrealized
gain (loss) on investments 1.06 1.61 (3.71) (8.92) 5.13 6.37
------ ------ ------- ------- ------ ------
Total from investment
operations 0.98 1.56 (3.68) (8.94) 5.08 6.36
- -----------------------------------------------------------------------------------------------------------------
Less distributions declared to
shareholders:
From net investment income -- (0.03) -- -- -- --
From net realized gains -- -- -- (3.63) (1.72) (1.90)
------ ------ ------- ------- ------ ------
Total distributions declared
to shareholders -- (0.03) -- (3.63) (1.72) (1.90)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.57 $17.59 $16.06 $19.74 $32.31 $28.95
Total return(f)(g) 5.57% 9.72%(h) (18.64)% (30.43)% 18.36% 27.30%
- -----------------------------------------------------------------------------------------------------------------
</Table>
E-1
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------------------------------
CLASS A SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999(D)
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/Supplemental data:
Expenses(i) 1.28% 1.30%(j) 1.12% 1.13% 1.12% 1.14%
Net investment income
(loss)(i) (0.40)% (0.30)%(j) 0.14% (0.10)% (0.17)% (0.05)%
Waiver/reimbursement --%(k) 0.02%(j) 0.05% 0.03% 0.11% 0.14%
Portfolio turnover rate 126% 91%(h) 43% 48% 54% 53%
Net assets, end of period
(000's) $3,867 $1,887 $56 $671 $142 $107
- -----------------------------------------------------------------------------------------------------------------
</Table>
(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Prime A shares were
redesignated Liberty Equity Growth Fund, Class A shares.
(d) The Fund began issuing Prime A shares on November 1, 1998.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
E-2
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------------------------------
CLASS B SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999(D)
- ---------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $16.96 $15.57 $19.32 $31.94 $28.84 $24.49
- ---------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (0.21)(e) (0.14)(e) (0.14)(e) (0.19) (0.29)(e) (0.10)
Net realized and
unrealized gain
(loss) on
investments 1.01 1.53 (3.61) (8.80) 5.11 6.35
------ ------ ------- ------- ------ ------
Total from investment
operations 0.80 1.39 (3.75) (8.99) 4.82 6.25
- ---------------------------------------------------------------------------------------------------------
Less distributions
declared to
shareholders:
From net realized
gains -- -- -- (3.63) (1.72) (1.90)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end
of period $17.76 $16.96 $15.57 $19.32 $31.94 $28.84
Total return(f)(g) 4.72% 8.93(h) (19.41)% (31.00)% 17.48% 26.79%
- ---------------------------------------------------------------------------------------------------------
Ratios to average net
assets/Supplemental
data:
Expenses(i) 2.03% 2.13%(j) 1.99% 1.95% 1.87% 1.87%
Net investment
loss(i) (1.15)% (0.97)%(j) (0.73)% (0.92)% (0.92)% (0.78)%
Waiver/reimbursement --%(k) 0.02%(j) 0.05% 0.03% 0.15% 0.32%
Portfolio turnover
rate 126% 91%(h) 43% 48% 54% 53%
Net assets, end of
period (000's) $3,195 $1,013 $207 $309 $450 $246
- ---------------------------------------------------------------------------------------------------------
</Table>
(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Prime B shares were
redesignated Liberty Equity Growth Fund, Class B shares.
(d) The Fund began issuing Prime B shares on November 1, 1998.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
E-3
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
CLASS C SHARES 2004(A) 2003(B)(C)
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.98 $16.04
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss(d) (0.21) (0.13)
Net realized and unrealized gain on investments 1.02 1.07
------ ------
Total from investment operations 0.81 0.94
- --------------------------------------------------------------------------------------------
Net asset value, end of period $17.79 $16.98
Total return(e)(f) 4.77% 5.86%(g)
- --------------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental data:
Expenses(h) 2.03% 2.00%(i)
Net investment loss(h) (1.15)% (0.92)%(i)
Waiver/reimbursement --%(j) 0.02%(i)
Portfolio turnover rate 126% 91%(g)
Net assets, end of period (000's) $780 $524
- --------------------------------------------------------------------------------------------
</Table>
(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class C shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming no contingent deferred sales
charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%
E-4
The financial highlights table below is intended to help you understand the
Fund's Class G financial performance. Information is shown for the Fund's last
five fiscal years, which run from October 1 to September 30, unless otherwise
indicated. Information for Class G shares prior to November 18, 2002, the date
of reorganization, is for the former Retail A and Retail B shares, respectively,
of the Galaxy Equity Growth Fund. Certain information reflects financial results
for a single Fund share. The total returns in the table represent the rate that
you would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
derived from the Fund's financial statements which, for the year ended September
30, 2004, have been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, whose report, along with the Fund's financial
statements, is included in the Fund's annual report. The information for the
four years ended October 31, 2002, and for the period ended September 30, 2003,
has been derived from the Fund's financial statements which have been audited by
Ernst & Young LLP, an independent registered public accounting firm, whose
report expressed an unqualified opinion on those financial statements and
highlights. You can request a free annual report by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, -----------------------------------------------------------
CLASS G SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $16.43 $15.11 $18.79 $31.22 $28.27 $24.07
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (0.20)(d) (0.15)(d) (0.17)(d) (0.21) (0.35)(d) (0.20)
Net realized and
unrealized gain (loss)
on investments 0.98 1.47 (3.51) (8.59) 5.02 6.30
------- ------- ------- ------- -------- -------
Total from investment
operations 0.78 1.32 (3.68) (8.80) 4.67 6.10
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions declared
to shareholders:
From net realized gains -- -- -- (3.63) (1.72) (1.90)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $17.21 $16.43 $15.11 $18.79 $31.22 $28.27
Total return(e)(f) 4.75% 8.66%(g) (19.49)% (31.16)% 17.29% 26.63%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
E-5
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, -----------------------------------------------------------
CLASS G SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/Supplemental data:
Expenses(h) 2.02% 2.31%(i) 2.18% 2.11% 2.07% 2.05%
Net investment loss(h) (1.14)% (1.02)%(i) (0.92)% (1.08)% (1.11)% (0.96)%
Waiver/reimbursement --%(j) 0.02%(i) 0.07% 0.02% 0.02% 0.03%
Portfolio turnover rate 126% 91%(g) 43% 48% 54% 53%
Net assets, end of period
(000's) $46,328 $54,850 $64,156 $92,292 $130,347 $71,525
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Retail B shares were
redesignated Liberty Equity Growth Fund, Class G shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%
E-6
The financial highlights table below is intended to help you understand the
Fund's Class Z financial performance. Information is shown for the last five
fiscal years, which run from October 1 to September 30, unless otherwise
indicated. Information for Class Z shares prior to November 18, 2002, the date
of reorganization, is for the former Trust shares of the Galaxy Equity Growth
Fund. Certain information reflects financial results for a single Class Z share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been derived from the Fund's financial
statements which, for the year ended September 30, 2004, have been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report. The information for the four years ended October 31, 2002,
and for the period ended September 30, 2003, has been derived from the Fund's
financial statements which have been audited by Ernst & Young LLP, an
independent registered public accounting firm, whose report expressed an
unqualified opinion on those financial statements and highlights. You can
request a free annual report by calling 1-800-426-3750.
E-7
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, --------------------------------------------------------------
CLASS Z SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $17.84 $16.28 $19.99 $32.61 $29.15 $24.52
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) (0.03)(d) 0.05(d) 0.07(d) 0.02 0.01(d) 0.03
Net realized and
unrealized gain
(loss) on investments 1.07 1.57 (3.78) (9.01) 5.18 6.50
-------- -------- -------- -------- ---------- ----------
Total from investment
operations 1.04 1.62 (3.71) (8.99) 5.19 6.53
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions
declared to shareholders:
From net investment
income (0.01) (0.06) -- -- (0.01) --
From net realized gains -- -- -- (3.63) (1.72) (1.90)
-------- -------- -------- -------- ---------- ----------
Total distributions
declared to
shareholders (0.01) (0.06) -- (3.63) (1.73) (1.90)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $18.87 $17.84 $16.28 $19.99 $32.61 $29.15
Total return(e) 5.83%(f) 9.93%(f)(g) (18.51)%(f) (30.29)%(f) 18.63% 28.07%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/Supplemental data:
Expenses(h) 1.03% 0.99%(i) 0.91% 0.93% 0.91% 0.94%
Net investment income
(loss)(h) (0.15)% 0.30%(i) 0.35% 0.10% 0.04% 0.15%
Waiver/reimbursement --%(j) 0.02%(i) 0.05% 0.01% -- --
Portfolio turnover rate 126% 91%(g) 43% 48% 54% 53%
Net assets, end of period
(000's) $634,710 $670,649 $699,215 $845,887 $1,258,399 $1,041,378
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Trust shares were
redesignated Liberty Equity Growth Fund, Class Z shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested.
E-8
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
E-9
APPENDIX F
COMPARISON OF A MASSACHUSETTS
BUSINESS TRUST WITH AN OREGON CORPORATION
As a series of Trust XI, a Massachusetts business trust, the Large Cap Growth
Fund is subject to the provisions of Trust XI's Declaration of Trust and Bylaws.
The provisions of Trust XI's Declaration of Trust and Bylaws differ in some
respects from the Growth Fund's Articles of Incorporation and Bylaws and Chapter
60 of the Oregon Revised Statutes ("ORS"), referred to as the Oregon Business
Corporations Act ("OBCA"), which governs Oregon corporations.
The following is a summary of significant differences between (i) the Growth
Fund's Articles of Incorporation and Bylaws and the OBCA and (ii) Trust XI's
Declaration of Trust and Bylaws and Massachusetts business trust law. For
additional information regarding all of the differences, shareholders of the
Growth Fund should refer directly to the Funds' organizational documents, copies
of which may be obtained by contacting the Large Cap Growth Fund at its address
listed on the cover of this Prospectus/Proxy Statement or toll-free at
[ ].
SHAREHOLDER LIABILITY. Under the OBCA, a shareholder of an Oregon corporation
who has fully paid the subscription price for his shares generally has no
personal liability in excess of his shares. Under Massachusetts law,
shareholders of a Massachusetts business trust could, in certain circumstances,
be held personally liable for the obligations of the trust. Trust XI's
Declaration of Trust, however, disclaims shareholder liability for acts or
obligations of Trust XI or the Large Cap Growth Fund and requires that every
note, bond, contract, instrument, certificate or undertaking made or issued by
any Trustees or Trustee or by any officers or officer shall recite that the
obligations of such instrument are not binding on the shareholders individually.
Trust XI's Declaration of Trust provides that a shareholder or former
shareholder held to be personally liable solely by reason his or her being or
having been a shareholder shall be entitled to be held harmless from and
indemnified against all loss and expense arising from such liability. Thus, the
risk of a shareholder's incurring financial loss from shareholder liability is
limited to circumstances in which Trust XI would be unable to meet its
obligations. The likelihood of such a circumstance is considered by the Large
Cap Growth Fund's advisor to be remote.
SHAREHOLDER VOTING RIGHTS, INTERESTS AND MEETINGS. Trust XI's Declaration of
Trust provides that meetings of
F-1
shareholders of the Trust or of any series or class thereof shall be called upon
written application by shareholders holding at least 10% of the outstanding
shares of the Trust (if shareholders of all series or classes are required to
vote in the aggregate), or 10% of the outstanding shares of any series or class
(if shareholders of such series or class are entitled to vote by individual
series or class at such meeting) provided that such application shall state the
purpose or purposes of such meeting and the matters proposed to be acted on.
The Growth Fund's Bylaws give holders of not less than one-tenth of all the
votes entitled to be cast on any issue proposed to be considered at the meeting
the right to call a special meeting for any purposes.
Directors of the Growth Fund may only be removed by the shareholders. A Trustee
of Trust XI may be removed (a) at any meeting called for such purpose by a vote
of two-thirds of the outstanding Shares, (b) by the holders of two-thirds of the
outstanding Shares by declaration in writing filed with the Custodian of the
securities of the Trust, or (c) by vote of a majority of the Trustees then in
office.
The shareholders of the Large Cap Growth Fund may vote together with
shareholders of other series of Trust XI on certain matters because of the
single trust structure, whereas the shareholders of the Growth Fund vote
separately from the shareholders of other funds because the funds are separate
corporations. Although any such combined voting would be subject to requirements
of the 1940 Act as to separate series or class voting rights, the shareholders
of Trust XI would still vote together on matters such as the election of
Trustees or ratification of auditors. Indeed, in an election of Trustees of
Trust XI, the shareholders of all funds that are series of Trust XI vote
together for a single Board of Trustees for Trust XI. By contrast, in an
election of directors of the Growth Fund, only shareholders of the Growth Fund
vote for a Board of Directors for that Fund because the Fund is a separate
corporation.
Neither Trust XI nor the Growth Fund is required to hold annual shareholder
meetings for matters such as the election of trustees or directors, although the
requirements of the 1940 Act may effectively require that Trust XI or the Growth
Fund call special shareholder meetings from time to time.
Except when otherwise required by the 1940 Act, Trust XI's Declaration of Trust
may be amended at any time by a majority of the Trustees then in office,
provided notice of any amendment (other than amendments having the purpose of
changing the Trust's name, supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or
F-2
inconsistent provision contained therein, or having any other purpose which is
ministerial or clerical in nature) shall be mailed promptly to Shareholders of
record at the close of business on the effective date of such amendment.
The Trustees may amend Trust XI's Bylaws (except for Articles IX and X thereof,
which may only be amended by shareholders) without shareholder consent. The
shareholders of Trust XI may also amend its bylaws. The shareholders or board of
directors of the Growth Fund may amend the Fund's Bylaws.
A termination of Trust XI or any series of Trust XI may be effected by action of
the Trustees by written notice to the shareholders. The shareholders of the
Growth Fund have the right to vote on a dissolution of the Fund, with a required
affirmative vote of the holders of more than 50% of the outstanding shares of
the Growth Fund.
The shareholders of the Large Cap Growth Fund have the right to vote on a
merger, consolidation or share exchange involving the Large Cap Growth Fund to
the extent required under the 1940 Act, with a required vote of a majority of
the outstanding shares. The shareholders of the Growth Fund have the right to
vote on a merger, consolidation, share exchange or sale of all or substantially
all assets, with a required affirmative vote of the holders of more than 50% of
the outstanding shares of the Growth Fund.
The shareholders of the Large Cap Growth Fund do not have dissenters' rights for
these types of extraordinary transactions. The OBCA provides that the
shareholders of the Growth Fund have dissenters' rights for these types of
extraordinary transactions, although such dissenters' rights may be preempted by
the 1940 Act.
Trust XI's Declaration of Trust provides that a majority consent is required for
a shareholder action taken without a meeting. The Growth Fund's Bylaws provide
that unanimous consent is required for a shareholder action taken without a
meeting.
Trust XI's Declaration of Trust provides that a quorum for a shareholder meeting
is 30% of the shares entitled to vote, except that if any provision of law or
the Declaration of Trust permits or requires that holders of any series or class
shall vote as a series or class, then 30% of the aggregate number of shares of
each series or class entitled to vote shall be necessary to constitute a quorum
for the transaction of business by that series or class. The Growth Fund's
Bylaws provide that a quorum for a shareholder meeting is a majority of the
shares entitled to vote at the meeting.
Trust XI's Declaration of Trust provides that notice of a shareholder meeting is
to be mailed, postage prepaid, not less than seven days before the
F-3
date of such meeting, to each shareholder entitled to vote at such meeting, at
his address as it appears on the records of the Trust. The Growth Fund's Bylaws
require that notice of shareholder meetings be mailed not earlier than sixty
days nor less than ten days prior to the meeting.
A shareholder of the Large Cap Growth Fund may put a voting proxy in place for a
duration of up to six months, compared with eleven months for shareholders of
the Growth Fund.
The Growth Fund must make available a list of all shareholders beginning two
business days after notice of the meeting is given and continuing through the
meeting. No such requirement is applicable to the Large Cap Growth Fund.
Trust XI's Declaration of Trust specifically disclaims any shareholder right to
partition of the assets of the Large Cap Growth Fund. No such disclaimer is
present in the Growth Fund's Articles of Incorporation, although Oregon law
limits shareholder rights in dissolution of the Growth Fund.
Director vacancies for the Growth Fund are filled by action of either the
shareholders, the Board of Directors, the remaining Directors if less than a
quorum (by the vote of a majority thereof) or by a sole remaining Director. A
Trustee vacancy for Trust XI may be filled by the Trustees, unless immediately
after filling any such vacancy, less than two-thirds of the Trustees then
holding office would have been elected to such office by the shareholders. The
Board of Trustees shall call a meeting of shareholders for the purpose of
electing Trustees whenever less than a majority of the Trustees have been
elected by shareholders.
Boards of directors or trustees form committees of subgroups of their number to
perform certain tasks. Such a committee formed by the directors of the Growth
Fund may not take certain actions including: authorizing distributions;
approving or proposing to the shareholders any actions which require shareholder
approval; filling vacancies on the board or any committees; amending the Fund's
Articles of Incorporation, to the extent Directors may do so without shareholder
consent; adopting, amending or repealing the Fund's Bylaws; approving a plan of
merger not requiring shareholder approval; authorizing or approving
reacquisition of shares unless within limits prescribed by the board; generally
authorizing or approving the issuance or sale of shares; or determining the
designation, rights, preferences, or limitations of any class or series of
shares. Trustee committees for Trust XI are not so limited.
DIVIDENDS. The OBCA imposes certain limitations on distributions in
circumstances where the corporation would be unable to pay its debts as
F-4
they become due in the ordinary course of business, or its total assets would be
less than its total liabilities and certain other obligations. No similar
limitations are contained in Trust XI's Declaration of Trust.
DIRECTOR AND TRUSTEE LIABILITY AND INDEMNIFICATION. Under the OBCA and the
Growth Fund's Amended and Restated Articles of Incorporation, the directors of
the Growth Fund are not personally liable for monetary damages to the Growth
Fund or its shareholders for their conduct as directors, but are personally
liable for: acts in breach of the director's duty of loyalty to the corporation
or its shareholders; acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of the law; an unlawful distribution
to shareholders; and transactions from which the director derived an improper
personal benefit. Under Trust XI's Declaration of Trust, Trust XI will not
indemnify Trustees against liability to the Trust or its Shareholders resulting
from the Trustee's willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct as Trustee. Oregon law provides
for mandatory indemnification of a corporation's directors against reasonable
expenses incurred in connection with a proceeding or claim with respect to which
the director is successful in defending. This mandatory indemnification also
extends to officers unless a fund's articles of incorporation provide otherwise.
In addition, the OBCA permits the Growth Fund to include a provision in its
Articles of Incorporation providing that it will indemnify an individual made
party to a proceeding because the individual is or was an officer or director
against liability (including obligations to pay a judgment, settlement, penalty,
fine and reasonable expenses of counsel) incurred in the proceeding provided
such persons:
- - acted in good faith;
- - reasonably believed that their conduct was in the best interests of the
corporation or at least not opposed to its interests; and
- - in a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
The Growth Fund now provides for such indemnification of current and former
officers and directors to the fullest extent not prohibited by law for any such
liability. No indemnification may be granted if such person is adjudged liable
(1) to the Fund in connection with a proceeding by or in right of the Fund or
(2) on the basis that personal benefit was improperly received. In addition, the
Fund shall pay for or reimburse the reasonable expenses incurred by any such
person in any such proceeding in advance of the final disposition of the
proceeding if the person sets forth in writing (i) the person's good faith
belief that the person is entitled to
F-5
indemnification and (ii) the person's agreement to repay all advances if it is
ultimately determined that the person is not entitled to indemnification.
Pursuant to Trust XI's Declaration of Trust, Trust XI will indemnify each of its
trustees and officers against all liabilities and expenses, including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties, and as
counsel fees, reasonably incurred by such person while in office or thereafter,
by reason of the indemnified person's service as a trustee or officer. Trust XI
will not indemnify its trustees and officers against any liability to the Trust
or to its Shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office. Legal expenses may be paid from
time to time by Trust XI in advance of the final disposition of any such
proceeding if Trust XI receives a written undertaking by the indemnified person
to reimburse Trust XI in the event it is subsequently determined that the
indemnified person is not entitled to such indemnification and (a) the
indemnified person shall provide security for his undertaking, or (b) the Trust
shall be insured against losses arising by reason of any lawful advances, or (c)
a majority of the disinterested, non-party trustees of the Trust or an
independent legal counsel, as expressed in a written opinion, shall determine,
based on a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the indemnified person ultimately
will be found entitled to indemnification.
F-6
APPENDIX G -- DISSENTERS' RIGHTS
(Right to Dissent and Obtain Payment for Shares)
60.551 DEFINITIONS FOR 60.551 TO 60.594. As used in ORS 60.551 to 60.594:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ORS 60.554 and who exercises that right when and in the
manner required by ORS 60.561 to 60.587.
(4) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder. [1987 c.52 sec.124; 1989 c.1040 sec.30]
60.554 RIGHT TO DISSENT. (1) Subject to subsection (2) of this section, a
shareholder is entitled to dissent from, and obtain payment of the fair value of
the shareholder's shares in the event of, any of the following corporate acts:
(a) Consummation of a plan of merger to which the corporation is a party if
shareholder approval is required for the merger by ORS 60.487 or the articles of
incorporation and the shareholder is entitled to vote on the merger or if the
corporation is a subsidiary that is merged with its parent under ORS 60.491;
G-1
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) Consummation of a sale or exchange of all or substantially all of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities; or
(B) Reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for cash under
ORS 60.141;
(e) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares; or
(f) Conversion to a noncorporate business entity pursuant to ORS 60.472.
(2) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under ORS 60.551 to 60.594 may not challenge the corporate action
creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(3) Dissenters' rights shall not apply to the holders of shares of any class or
series if the shares of the class or series were registered on a national
securities exchange or quoted on the National Association of Securities Dealers,
Inc. Automated Quotation System as a National Market System issue on the record
date for the meeting of shareholders at which the corporate action described in
subsection (1) of this section is to be approved or on the date a copy or
summary of the plan of merger is mailed to shareholders under ORS 60.491, unless
the articles of incorporation otherwise provide. [1987 c.52 sec.125; 1989 c.1040
sec.31; 1993 c.403 sec.9; 1999 c.362 sec.15]
G-2
60.557 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record shareholder may
assert dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf the shareholder asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares regarding which the shareholder dissents and the
shareholder's other shares were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held on
the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such shareholder
has power to direct the vote. [1987 c.52 sec.126]
(Procedure for Exercise of Rights)
60.561 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action creating
dissenters' rights under ORS 60.554 is submitted to a vote at a shareholders'
meeting, the meeting notice must state that shareholders are or may be entitled
to assert dissenters' rights under ORS 60.551 to 60.594 and be accompanied by a
copy of ORS 60.551 to 60.594.
(2) If corporate action creating dissenters' rights under ORS 60.554 is taken
without a vote of shareholders, the corporation shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send the shareholders entitled to assert dissenters' rights the dissenters'
notice described in ORS 60.567. [1987 c.52 sec.127]
60.564 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate action
creating dissenters' rights under ORS 60.554 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights
shall deliver to the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated and shall not vote such shares in favor of the
proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under this
chapter. [1987 c.52 sec.128]
G-3
60.567 DISSENTERS' NOTICE. (1) If proposed corporate action creating dissenters'
rights under ORS 60.554 is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of ORS 60.564.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action was taken, and shall:
(a) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement of the terms of the proposed corporate action to news media or to
shareholders and requires that the person asserting dissenters' rights certify
whether or not the person acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the corporation must receive the payment demand.
This date may not be fewer than 30 nor more than 60 days after the date the
subsection (1) of this section notice is delivered; and
(e) Be accompanied by a copy of ORS 60.551 to 60.594. [1987 c.52 sec.129]
60.571 DUTY TO DEMAND PAYMENT. (1) A shareholder sent a dissenters' notice
described in ORS 60.567 must demand payment, certify whether the shareholder
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to ORS 60.567 (2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's shares
under subsection (1) of this section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(3) A shareholder who does not demand payment or deposit the shareholder's share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for the shareholder's shares under this chapter. [1987
c.52 sec.130]
60.574 SHARE RESTRICTIONS. (1) The corporation may restrict the transfer of
uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
ORS 60.581.
G-4
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action. [1987 c.52 sec.131]
60.577 PAYMENT. (1) Except as provided in ORS 60.584, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with ORS 60.571, the amount the
corporation estimates to be the fair value of the shareholder's shares, plus
accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for that
year and the latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under ORS
60.587; and
(e) A copy of ORS 60.551 to 60.594. [1987 c.52 sec.132; 1987 c.579 sec.4]
60.581 FAILURE TO TAKE ACTION. (1) If the corporation does not take the proposed
action within 60 days after the date set for demanding payment and depositing
share certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under ORS 60.567 and repeat the payment demand procedure.
[1987 c.52 sec.133]
60.584 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold payment
required by ORS 60.577 from a dissenter unless the dissenter was the beneficial
owner of the shares before the date set forth in the dissenters' notice as the
date of the first announcement to news media or to shareholders of the terms of
the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares plus accrued interest and shall pay
G-5
this amount to each dissenter who agrees to accept it in full satisfaction of
such demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under ORS
60.587. [1987 c.52 sec.134]
60.587 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (1) A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and amount of interest due, and
demand payment of the dissenter's estimate, less any payment under ORS 60.577 or
reject the corporation's offer under ORS 60.584 and demand payment of the
dissenter's estimate of the fair value of the dissenter's shares and interest
due, if:
(a) The dissenter believes that the amount paid under ORS 60.577 or offered
under ORS 60.584 is less than the fair value of the dissenter's shares or that
the interest due is incorrectly calculated;
(b) The corporation fails to make payment under ORS 60.577 within 60 days
after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within 60 days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section unless the
dissenter notifies the corporation of the dissenter's demand in writing under
subsection (1) of this section within 30 days after the corporation made or
offered payment for the dissenter's shares. [1987 c.52 sec.135]
(Judicial Appraisal of Shares)
60.591 COURT ACTION. (1) If a demand for payment under ORS 60.587 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand under ORS 60.587 and petition the court under
subsection (2) of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within the
60-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
(2) The corporation shall commence the proceeding in the circuit court of the
county where a corporation's principal office is located, or if the principal
office is not in this state, where the corporation's registered office is
located. If the corporation is a foreign corporation without a registered office
in this state, it shall commence the proceeding in the county in this state
G-6
where the registered office of the domestic corporation merged with or whose
shares were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled parties to the proceeding as in an action
against their shares. All parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law.
(4) The jurisdiction of the circuit court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the court order appointing them, or in any amendment to the order. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(5) Each dissenter made a party to the proceeding is entitled to judgment for:
(a) The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation;
or
(b) The fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under ORS
60.584. [1987 c.52 sec.136]
60.594 COURT COSTS AND COUNSEL FEES. (1) The court in an appraisal proceeding
commenced under ORS 60.591 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under ORS
60.587.
(2) The court may also assess the fees and expenses of counsel and experts of
the respective parties in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of ORS 60.561 to 60.587; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
G-7
are assessed acted arbitrarily, vexatiously or not in good faith with respect to
the rights provided by this chapter.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to counsel reasonable fees to be paid out of the amount awarded the
dissenters who were benefited. [1987 c.52 sec.137]
G-8
COLUMBIA FUNDS TRUST XI
COLUMBIA LARGE CAP GROWTH FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
___________, 2004
This Statement of Additional Information (the "SAI") relates to the
proposed Acquisition (the "Acquisition") of the Columbia Growth Fund, Inc. (the
"Acquired Fund") by Columbia Large Cap Growth Fund (the "Acquiring Fund"), a
series of Columbia Funds Trust XI. This SAI contains information which may be of
interest to shareholders but which is not included in the combined
Prospectus/Proxy Statement dated _________, 2004 (the "Prospectus/Proxy
Statement") which relates to the Acquisition. As described in the
Prospectus/Proxy Statement, the Acquisition would involve the transfer of all
the assets of the Acquired Fund in exchange for shares of the Acquiring Fund and
the assumption of all the liabilities of the Acquired Fund. The Acquired Fund
would distribute the Acquiring Fund shares it receives to its shareholders in
complete liquidation of the Acquired Fund. The Acquiring Fund will be the
survivor for accounting purposes. This SAI is not a prospectus and should be
read in conjunction with the Prospectus/Proxy Statement. The Prospectus/Proxy
Statement has been filed with the Securities and Exchange Commission and is
available upon request and without charge by writing to your Fund at One
Financial Center, Boston, Massachusetts 02111-2621, or by calling
1-800-426-3750.
-1-
TABLE OF CONTENTS
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND
AND THE ACQUIRED FUND ................................................ 3
FINANCIAL STATEMENTS .................................................... 3
APPENDIX A .............................................................. A-1
-2-
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND AND THE ACQUIRED FUND.
Attached hereto as Appendix A is the Statement of Additional Information of the
Acquiring Fund dated February 1, 2004, as supplemented through November 1, 2004.
Further information about the Acquired Fund is contained in the Statement of
Additional Information for the Acquired Fund dated January 1, 2004, as
supplemented through October 21, 2004, which is available upon request and
without charge by writing to the Acquired Fund at One Financial Center, Boston,
Massachusetts 02111-2621, or by calling 1-800-426-3750.
FINANCIAL STATEMENTS.
The Annual Report for the twelve months ended September 30, 2004, of the
Acquiring Fund, which contains historical financial information regarding the
Acquiring Fund, has been filed with the Securities and Exchange Commission and
is incorporated herein by reference.
The Annual Report for the twelve months ended August 31, 2004, of the Acquired
Fund, which contains historical financial information regarding the Acquired
Fund, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference.
Pro forma financial statements of the Acquiring Fund for the Acquisition are
provided on the following pages.
-3-
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 (UNAUDITED)
NOTE 1. ORGANIZATION
Columbia Large Cap Growth Fund (the "Acquiring Fund"), a series of Columbia
Trust XI (the "Trust") is a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
INVESTMENT GOAL
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
FUND SHARES
The Fund may issue an unlimited number of shares. The Fund offers six classes of
shares: Class A, Class B, Class C, Class G, Class T and Class Z shares. Each
share class has its own expense structure.
NOTE 2. BASIS OF COMBINATION
The accompanying pro-forma financial statements are presented to show the effect
of the proposed merger of Columbia Growth Fund ("Target Fund"), by the Acquiring
Fund as if such merger had occurred on October 1, 2004.
Under the terms of the merger, the combination of the Target Fund and Acquiring
Fund will be accounted for by the method of accounting for tax-free mergers of
investment companies. The merger will be accomplished by a combination of the
net assets of the Target Fund into the Acquiring Fund in exchange for new shares
of the Acquiring Fund at net asset value.
The Investment Portfolio and Statement of Assets and Liabilities of the Target
and Acquiring Funds have been combined to reflect balances as of September 30,
2004. The Statement of Operations of the Target and Acquiring Funds has been
combined to reflect twelve months ended September 30, 2004.
Following the merger the Acquiring Fund will be the accounting survivor. In
accordance with accounting principles generally accepted in the United States of
America, the historical cost of investment securities will be carried forward to
the Acquiring Fund and the results of operations for pre-combined periods will
not be re-stated.
The accompanying pro-forma financial statements should be read in conjunction
with the financial statements of the Acquiring Fund and the Target Fund included
within their respective annual shareholder reports dated September 30, 2004 and
August 31, 2004, respectively.
The following notes refer to the accompanying pro-forma financial statements as
if the above mentioned merger of the Target Fund by the Acquiring Fund had
occurred on October 1, 2004.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Funds in the preparation of their financial statements.
SECURITY VALUATION
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
REPURCHASE AGREEMENTS
The Funds may engage in repurchase agreement transactions with institutions that
each Fund's investment advisor has determined are creditworthy. Each Fund,
through its custodian, receives delivery of underlying securities
collateralizing a repurchase agreement. Collateral is at least equal, at all
times, to the value of the repurchase obligation including interest. A
repurchase agreement transaction involves certain risks in the event of default
or insolvency of the counterparty. These risks include possible delays or
restrictions upon each Fund's ability to dispose of the underlying securities
and a possible decline in the value of the underlying securities during the
period while the Fund seeks to assert its rights.
DETERMINATION OF CLASS NET ASSET VALUES
All income, expenses (other than class-specific expenses, as shown on the
Statement of Operations), and realized and unrealized gains (losses), are
allocated to each class of each Fund on a daily basis, based on the relative net
assets of each class, for purposes of determining the net asset value of each
class.
FEDERAL INCOME TAX STATUS
Each Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable income, if any, for its tax year, and as such
will not be subject to federal income taxes. In addition, each Fund intends to
distribute in each calendar year substantially all of its net investment income,
capital gains and certain other amounts, if any, such that the Fund should not
be subject to federal excise tax. Therefore, no federal income or excise tax
provision is recorded.
NOTE 4. CAPITAL SHARES
The pro-forma combining net asset value per share assumes the issuance of
Acquiring Fund shares to Target Fund shareholders in connection with the
proposed merger. The number of shares assumed to be issued is equal to the net
asset value of the Target Fund divided by the net asset value per share of the
Acquiring Fund as of September 30, 2004. The pro-forma number of shares
outstanding, by class, for the combined entity consists of the following at
September 30, 2004.
<Table>
<Caption>
Shares of Additional Shares Total Shares
Acquiring Fund Assumed Issued Outstanding
Class of Shares Pre-Combination with Merger Post Combination
- --------------- --------------- ----------------- ----------------
Class A 208,236 260,805 469,041
Class B 179,878 128,930 308,808
Class C 43,857 24,085 67,942
Class G 2,692,113 761,790 3,453,903
Class Z 33,634,867 41,633,459 75,268,326
</Table>
NOTE 5. LEGAL PROCEEDINGS
Columbia, the Distributor, and certain of their affiliates (collectively, "The
Columbia Group") have received information requests and subpoenas from various
regulatory and law enforcement authorities in connection with their
investigations of late trading and market timing in mutual funds as well as
other industry wide issues. The Columbia Group has not uncovered any instances
where Columbia or the Distributor were knowingly involved in late trading of
mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group and its affiliate Banc
of America Capital Management, LLC have agreed to collectively reduce mutual
fund fees by $160 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
derivative actions under various sections of the Investment Company Act of 1940,
as amended, alleging, among other things, that the fees and expenses paid by
those funds are excessive. The funds and the other defendants to these actions,
including Columbia and various of its affiliates, certain other mutual funds
advised by Columbia and its affiliates, and various directors of such funds,
have denied these allegations and are contesting the plaintiffs' claims. These
suits and certain regulatory investigations are ongoing, however, based on
currently available information, Columbia believes that these lawsuits are
without merit, that the likelihood they will have a material adverse impact on
any fund is remote, and that the lawsuits are not likely to materially affect
its ability to provide investment management services to its clients, including
the funds.
For the twelve months ended September 30, 2004, Columbia has assumed legal,
consulting services and Trustees' fees incurred by the Funds in connection with
these matters.
Pro-forma Combining
Statement of Assets & Liabilities
As of September 30, 2004 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Columbia Columbia
Growth Large Cap Growth
Fund Fund
Pro Forma Pro Forma
Target Fund Acquiring Fund Adjustments Combined
--------------- --------------- -------------- ---------------
ASSETS:
Investments, at cost $ 691,089,316 $ 786,800,382 $ -- $ 1,477,889,698
--------------- --------------- -------------- ---------------
Investments, at value $ 804,558,533 $ 910,147,591 $ -- $ 1,714,706,124
Cash 974 593 -- 1,567
Receivable for:
Investments sold 24,018,709 17,058,429 -- 41,077,138
Fund shares sold 403,030 851,997 -- 1,255,027
Interest 122 418 -- 540
Dividends 468,973 510,275 -- 979,248
Foreign tax reclaims 22,956 24,721 -- 47,677
Expense reimbursement due from Investment Advisor -- -- -- --
Deferred Trustees' compensation plan 9,253 49,291 -- 58,544
Other receivables 79 -- -- 79
--------------- --------------- -------------- ---------------
TOTAL ASSETS 829,482,629 928,643,315 -- 1,758,125,944
--------------- --------------- -------------- ---------------
LIABILITIES:
Payable to custodian bank -- -- -- --
Payable for:
Investments purchased 12,858,437 14,867,948 27,726,385
Fund shares repurchased 9,518,881 4,681,197 -- 14,200,078
Investment advisory fee 408,300 545,839 -- 954,139
Administration fee -- 50,415 -- 50,415
Transfer agent fee 196,673 252,485 -- 449,158
Pricing and bookkeeping fees 13,813 7,525 -- 21,338
Trustees' fees -- 2,639 -- 2,639
Custody fee 2,907 2,884 -- 5,791
Distribution and service fees 5,875 95,062 -- 100,937
Deferred compensation plan 9,253 49,291 -- 58,544
Other liabilities 100,694 79,148 63,949 (f) 243,791
--------------- --------------- -------------- ---------------
TOTAL LIABILITIES 23,114,833 20,634,433 63,949 43,813,215
--------------- --------------- -------------- ---------------
NET ASSETS $ 806,367,796 $ 908,008,882 $ (63,949)(f) $ 1,714,312,729
=============== =============== ============== ===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 1,054,607,884 $ 925,969,281 -- $ 1,980,577,165
Accumulated investment loss (36,454) (31,890) $ (63,949)(f) (132,293)
Accumulated net realized loss (361,672,851) (141,275,718) -- (502,948,569)
Unrealized appreciation on investments 113,469,217 123,347,209 -- 236,816,426
--------------- --------------- -------------- ---------------
NET ASSETS $ 806,367,796 $ 908,008,882 $ (63,949)(f) $ 1,714,312,729
=============== =============== ============== ---------------
CLASS A: (a)
Net assets $ 4,842,911 $ 3,866,530 $ (272) $ 8,709,169
Shares outstanding 190,346 208,236 260,805 (g) 469,041
=============== =============== ===============
Net asset value per share (c) $ 25.44 $ 18.57 $ 18.57
=============== =============== ===============
Maximum sales charge 5.75% 5.75% 5.75%
Maximum offering price per share (d) $ 26.99 $ 19.70 $ 19.70
CLASS B: (a)
Net assets $ 2,290,412 $ 3,195,171 $ (225) $ 5,485,358
Shares outstanding 91,304 179,878 128,930 (g) 308,808
=============== =============== ===============
Net asset value and offering price per share (c) $ 25.09 $ 17.76 $ 17.76
=============== =============== ===============
CLASS C: (a) (b)
Net assets $ 258,095 $ 780,155 $ 170,338 $ 1,208,588
Shares outstanding 10,312 43,857 24,085 (g) 67,942
=============== =============== ===============
Net asset value and offering price per share (c) $ 25.03 $ 17.79 $ 17.79
=============== =============== ===============
CLASS D: (b)
Net assets $ 170,393 $ -- $ (170,393) $ --
Shares outstanding 6,786 -- (6,786) --
=============== =============== ===============
Net asset value and offering price per share (c) $ 25.11 $ -- $ --
=============== =============== ===============
CLASS G: (a)
Net assets $ 13,112,717 $ 46,327,886 $ (3,263) $ 59,437,340
Shares outstanding 521,804 2,692,113 761,790 (g) 3,453,903
=============== =============== ===============
Net asset value and offering price per share (c) $ 25.13 $ 17.21 $ 17.21
=============== =============== ===============
CLASS T:
Net assets $ -- $ 219,128,845 $ (15,433) $ 219,113,412
Shares outstanding -- 11,870,378 -- 11,870,378
=============== =============== ===============
Net asset value per share (c) $ -- $ 18.46 $ 18.46
=============== =============== ===============
Maximum sales charge 5.75% 5.75%
Maximum offering price per share (d) 19.59 19.59
CLASS Z: (a)
Net assets $ 785,693,268 $ 634,710,295 $ (44,701) $ 1,420,358,862
Shares outstanding 30,681,826 33,634,867 41,633,459 (g) 75,268,326
=============== =============== ===============
Net asset value, offering and
redemption price per share (e) $ 25.61 $ 18.87 $ 18.87
=============== =============== ===============
</Table>
(a) Class A, B, C, G and Z shares of Columbia Growth Fund are exchanged for new
Class A, B, C, G and Z shares of Columbia Large Cap Growth Fund, respectively,
based on the net asset value per share of Columbia Large Cap Growth Fund's Class
A,B,C, G and Z shares, respectively, at the time of the merger.
(b) Class D shares of Columbia Growth Fund are exchanged for new Class C shares
of Columbia Large Cap Growth Fund, based on the net asset value per share of
Columbia Large Cap Growth Fund's Class C shares at the time of the merger.
(c) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(d) On sales of $50,000 or more the offering price is reduced.
(e) Redemption price per share is equal to net asset value less any applicable
redemption fees.
(f) Adjustment reflects one time proxy, accounting, legal and other costs of the
reorganization as approved by the Board of Trustees of $ 0 and $63,949 to be
borne by Columbia Growth Fund and Columbia Large Cap Growth Fund, respectively.
(g) Reflects estimated shares issued to Target Fund shareholders at the time of
the merger.
Pro - forma Combining
Statement of Operations
For the Twelve Months Ended September 30, 2004 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Columbia Columbia
Growth Large Cap Growth
Fund Fund
Pro Forma Pro Forma
Target Fund Acquiring Fund Adjustments Combined
------------ -------------- ------------ ---------------
INVESTMENT INCOME:
Dividends $ 8,004,506 $ 8,595,842 $ -- $ 16,600,348
Interest 45,974 73,121 -- 119,095
Foreign taxes withheld (89,970) (98,072) -- (188,042)
------------ ------------ ------------ ---------------
Total Investment Income 7,960,510 8,570,891 -- 16,531,401
------------ ------------ ------------ ---------------
EXPENSES:
Investment advisory fee 5,436,566 7,131,628 283,276 12,851,470 (a)
Administration fee -- 657,017 610,564 1,267,581 (a)
Distribution fee:
Class B 14,484 17,951 -- 32,435 (a)
Class C 920 5,054 2,031 8,005 (a) ( c)
Class D 2,031 -- (2,031) -- (c)
Class G 93,664 346,467 -- 440,131 (a)
Service fee:
Class A 12,329 8,125 -- 20,454 (a)
Class B 4,828 5,973 -- 10,801 (a)
Class C 307 1,685 682 2,674 (a) (c)
Class D 682 -- (682) -- (c)
Class G 43,230 159,908 -- 203,138 (a)
Shareholder services fee - Class T -- 718,452 (387) 718,065 (a)
Transfer agent fee:
Class A 10,742 6,178 (2,519) 14,401 (b)
Class B 4,478 4,643 (1,504) 7,617 (b)
Class C 271 1,285 326 1,882 (b) (c)
Class D 563 -- (563) -- (c)
Class G 29,863 120,377 (31,180) 119,060 (b)
Class T -- 489,583 (68,597) 420,986 (b)
Class Z 1,813,632 1,301,556 (351,573) 2,763,615 (b)
Pricing and bookkeeping fees 155,924 112,216 (132,321) 135,819 (b)
Trustees' fees 14,394 28,288 (4,798) 37,884 (b)
Custody fee 37,034 42,175 -- 79,209 (b)
Non-recurring costs (see Note 5) 42,776 -- -- 42,776
Other expenses 429,586 292,721 (163,844) 558,463 (b)
------------ ------------ ------------ ---------------
Total Operating Expenses 8,148,304 11,451,282 136,880 19,736,466
Fees and expenses waived or reimbursed
by Investment Advisor -- (21,381) (2,722,070) (2,743,451)(d)
Custody earnings credit (149) (711) -- (860)
Non-recurring costs assumed by
Investment Advisor (see Note 5) (42,776) -- -- (42,776)
------------ ------------ ------------ ---------------
Net Expenses 8,105,379 11,429,190 (2,585,190) 16,949,379
------------ ------------ ------------ ---------------
Net Investment loss (144,869) (2,858,299) 2,585,190 (417,978)
------------ ------------ ------------ ---------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments 92,843,671 35,926,964 -- 128,770,635
Net change in unrealized
appreciation/depreciation on investments (33,596,474) 24,493,437 -- (9,103,037)
------------ ------------ ------------ ---------------
Net Gain 59,247,197 60,420,401 -- 119,667,598
------------ ------------ ------------ ---------------
Net Increase in Net Assets from Operations $ 59,102,328 $ 57,562,102 $ 2,585,190 $ 119,249,620
------------ ------------ ------------ ---------------
</Table>
(a) Based on the contract in effect for Columbia Large Cap Growth Fund, the
surviving fund.
(b) Reflects elimination of duplicate expenses achieved as a result of merging
funds.
(c) Class D shares of Columbia Growth Fund are exchanged for new Class C shares
of Columbia Large Cap Growth Fund.
(d) Expense limit set at lowest pre-merger expense ratio, expected to be
contractual at date of merger.
Pro-Forma Combining
Investment Portfolio
September 30, 2004 (unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
COLUMBIA
COLUMBIA LARGE CAP
GROWTH FUND GROWTH FUND
% OF NET
ASSETS TARGET FUND ACQUIRING FUND PRO-FORMA COMBINED
------------------------------------------------------------------------------------------------
COMMON STOCKS 98.6% SHARES VALUE SHARES VALUE SHARES VALUE
--------- ------------- --------- ------------- -------- -------------
CONSUMER DISCRETIONARY 14.9%
HOTELS, RESTAURANTS & LEISURE 2.2%
Carnival Corp. 151,600 $ 7,169,164 169,500 $ 8,015,655 321,100 $ 15,184,819
Marriott International,
Inc., Class A 200,600 10,423,176 228,800 11,888,448 429,400 22,311,624
------------- ------------- -------- -------------
17,592,340 19,904,103 750,500 37,496,443
------------- ------------- -------- -------------
INTERNET & CATALOG RETAIL 1.2%
eBay, Inc. (a) 107,300 9,865,162 120,200 11,051,188 227,500 20,916,350
------------- ------------- -------------
9,865,162 11,051,188 20,916,350
------------- ------------- -------------
MEDIA 1.7%
Omnicom Group 76,800 5,611,008 87,100 6,363,526 163,900 11,974,534
XM Satellite Radio Holdings,
Inc., Class A (a) 247,800 7,686,756 302,300 9,377,346 550,100 17,064,102
------------- ------------- -------------
13,297,764 15,740,872 29,038,636
------------- ------------- -------------
SPECIALTY RETAIL 8.0%
Bed Bath & Beyond, Inc. (a) 195,060 7,238,677 278,500 10,335,135 473,560 17,573,812
Best Buy Co., Inc. 221,560 12,017,414 251,930 13,664,683 473,490 25,682,097
Chico's FAS, Inc. (a) 301,700 10,318,140 337,300 11,535,660 639,000 21,853,800
Home Depot, Inc. 144,900 5,680,080 159,200 6,240,640 304,100 11,920,720
Lowe's Companies, Inc. 264,380 14,369,053 311,500 16,930,025 575,880 31,299,078
Staples, Inc. 459,200 13,693,344 504,200 15,035,244 963,400 28,728,588
------------- ------------- -------------
63,316,708 73,741,387 137,058,095
------------- ------------- -------------
TEXTILES & APPAREL 1.8%
Coach, Inc. (a) 194,600 8,254,932 216,900 9,200,898 411,500 17,455,830
NIKE, Inc., Class B 83,500 6,579,800 93,300 7,352,040 176,800 13,931,840
------------- ------------- -------------
14,834,732 16,552,938 31,387,670
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 10.3%
BEVERAGES 1.8%
PepsiCo, Inc. 293,040 14,256,396 319,300 15,533,945 612,340 29,790,341
------------- ------------- -------------
14,256,396 15,533,945 29,790,341
------------- ------------- -------------
FOOD & STAPLES RETAILING 2.1%
Costco Wholesale Corp. 230,000 9,558,800 290,600 12,077,336 520,600 21,636,136
Sysco Corp. 239,010 7,151,179 257,500 7,704,400 496,510 14,855,579
------------- ------------- -------------
16,709,979 19,781,736 36,491,715
------------- ------------- -------------
FOOD PRODUCTS 1.0%
Bunge Ltd. 50,100 2,002,998 64,700 2,586,706 114,800 4,589,704
Hershey Foods Corp. 125,100 5,843,421 138,000 6,445,980 263,100 12,289,401
------------- ------------- -------------
7,846,419 9,032,686 16,879,105
------------- ------------- -------------
HOUSEHOLD PRODUCTS 1.8%
Procter & Gamble Co. 273,200 14,786,666 305,200 16,517,424 578,400 31,304,090
------------- ------------- -------------
14,786,666 16,517,424 31,304,090
------------- ------------- -------------
PERSONAL PRODUCTS 2.5%
Alberto-Culver Co., Inc. 223,945 9,737,129 250,800 10,904,784 474,745 20,641,913
Avon Products, Inc. 239,500 10,461,360 261,800 11,435,424 501,300 21,896,784
------------- ------------- -------------
20,198,489 22,340,208 42,538,697
------------- ------------- -------------
TOBACCO 1.1%
Altria Group, Inc. 197,700 9,299,808 213,700 10,052,448 411,400 19,352,256
------------- ------------- -------------
9,299,808 10,052,448 19,352,256
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY 1.6%
ENERGY EQUIPMENT & SERVICES 1.0%
National-Oilwell, Inc. (a) 127,500 4,189,650 142,400 4,679,264 269,900 8,868,914
Smith International, Inc. (a) 54,900 3,334,077 60,800 3,692,384 115,700 7,026,461
------------- ------------- -------------
7,523,727 8,371,648 15,895,375
------------- ------------- -------------
OIL & GAS 0.6%
EOG Resources, Inc. 76,000 5,004,600 82,300 5,419,455 158,300 10,424,055
------------- ------------- -------------
5,004,600 5,419,455 10,424,055
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIALS 8.8%
CAPITAL MARKETS 1.7%
Goldman Sachs Group, Inc. 65,400 6,097,896 73,100 6,815,844 138,500 12,913,740
Merrill Lynch & Co., Inc. 160,900 7,999,948 179,900 8,944,628 340,800 16,944,576
------------- ------------- -------------
14,097,844 15,760,472 29,858,316
------------- ------------- -------------
COMMERCIAL BANKS 1.4%
North Fork Bancorporation, Inc. 72,700 3,231,515 81,300 3,613,785 154,000 6,845,300
Wells Fargo & Co. 137,800 8,217,014 153,900 9,177,057 291,700 17,394,071
------------- ------------- -------------
11,448,529 12,790,842 24,239,371
------------- ------------- -------------
CONSUMER FINANCE 1.8%
American Express Co. 222,000 11,424,120 239,600 12,329,816 461,600 23,753,936
MBNA Corp. 133,300 3,359,160 149,100 3,757,320 282,400 7,116,480
------------- ------------- -------------
14,783,280 16,087,136 30,870,416
------------- ------------- -------------
DIVERSIFIED FINANCIAL
SERVICES 1.0%
Citigroup, Inc. 182,726 8,061,871 196,300 8,660,756 379,026 16,722,627
------------- ------------- -------------
8,061,871 8,660,756 16,722,627
------------- ------------- -------------
INSURANCE 2.9%
American International
Group, Inc. 124,200 8,444,358 133,400 9,069,866 257,600 17,514,224
Chubb Corp. 64,700 4,547,116 70,700 4,968,796 135,400 9,515,912
Progressive Corp. 29,300 2,483,175 32,800 2,779,800 62,100 5,262,975
RenaissanceRe Holdings Ltd. 157,600 8,129,008 176,100 9,083,238 333,700 17,212,246
------------- ------------- -------------
23,603,657 25,901,700 49,505,357
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE 23.3%
BIOTECHNOLOGY 2.8%
Amgen, Inc. (a) 123,400 6,994,312 134,100 7,600,788 257,500 14,595,100
Biogen Idec, Inc. (a) 73,100 4,471,527 79,100 4,838,547 152,200 9,310,074
Genentech, Inc. (a) 213,000 11,165,460 234,700 12,302,974 447,700 23,468,434
------------- ------------- -------------
22,631,299 24,742,309 47,373,608
------------- ------------- -------------
HEALTH CARE EQUIPMENT &
SUPPLIES 8.9%
Alcon, Inc. 107,900 8,653,580 119,900 9,615,980 227,800 18,269,560
Boston Scientific Corp. (a) 233,440 9,274,571 256,100 10,174,853 489,540 19,449,424
Kinetic Concepts, Inc. (a) 88,900 4,671,695 96,500 5,071,075 185,400 9,742,770
St. Jude Medical, Inc. (a) 166,700 12,547,509 176,200 13,262,574 342,900 25,810,083
Thermo Electron Corp. (a) 267,700 7,233,254 323,700 8,746,374 591,400 15,979,628
Varian Medical Systems,
Inc. (a) 402,000 13,897,140 441,400 15,259,198 843,400 29,156,338
Zimmer Holdings, Inc. (a) 197,600 15,618,304 235,900 18,645,536 433,500 34,263,840
------------- ------------- -------------
71,896,053 80,775,590 152,671,643
------------- ------------- -------------
HEALTH CARE PROVIDERS &
SERVICES 2.1%
Anthem, Inc. (a) 66,500 5,802,125 109,100 9,518,975 175,600 15,321,100
Caremark Rx, Inc. (a) 311,600 9,993,012 343,100 11,003,217 654,700 20,996,229
------------- ------------- -------------
15,795,137 20,522,192 36,317,329
------------- ------------- -------------
PHARMACEUTICALS 9.5%
Eli Lilly and Co. 126,400 7,590,320 139,300 8,364,965 265,700 15,955,285
Johnson & Johnson 458,500 25,827,305 512,200 28,852,226 970,700 54,679,531
Pfizer, Inc. 861,433 26,359,850 962,400 29,449,440 1,823,833 55,809,290
Teva Pharmaceutical Industries
Ltd., ADR 653,846 16,967,304 755,100 19,594,845 1,408,946 36,562,149
------------- ------------- -------------
76,744,779 86,261,476 163,006,255
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS 10.1%
COMMERCIAL SERVICES & SUPPLIES 0.9%
Cendant Corp. 351,900 7,601,040 394,000 8,510,400 745,900 16,111,440
------------- ------------- -------------
7,601,040 8,510,400 16,111,440
------------- ------------- -------------
ELECTRICAL EQUIPMENT 0.8%
Rockwell Automation, Inc. 177,800 6,880,860 195,200 7,554,240 373,000 14,435,100
------------- ------------- -------------
6,880,860 7,554,240 14,435,100
------------- ------------- -------------
INDUSTRIAL CONGLOMERATES 5.4%
3M Co. 122,600 9,804,322 137,000 10,955,890 259,600 20,760,212
General Electric Co. 431,285 14,482,550 483,400 16,232,572 914,685 30,715,122
Tyco International Ltd. 637,510 19,546,057 712,240 21,837,279 1,349,750 41,383,336
------------- ------------- -------------
43,832,929 49,025,741 92,858,670
------------- ------------- -------------
MACHINERY 3.0%
Ingersoll-Rand Co., Class A 136,100 9,250,717 148,200 10,073,154 284,300 19,323,871
ITT Industries, Inc. 186,500 14,918,135 202,300 16,181,977 388,800 31,100,112
------------- ------------- -------------
24,168,852 26,255,131 50,423,983
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY 24.8%
COMMUNICATIONS EQUIPMENT 4.7%
Avaya, Inc. (a) 308,300 4,297,702 336,300 4,688,022 644,600 8,985,724
Cisco Systems, Inc. (a) 1,105,075 20,001,858 1,204,500 21,801,450 2,309,575 41,803,308
Motorola, Inc. 160,400 2,893,616 174,900 3,155,196 335,300 6,048,812
QUALCOMM, Inc. 297,300 11,606,592 332,100 12,965,184 629,400 24,571,776
------------- ------------- -------------
38,799,768 42,609,852 81,409,620
------------- ------------- -------------
COMPUTERS & PERIPHERALS 4.6%
Dell, Inc. (a) 385,290 13,716,324 415,700 14,798,920 800,990 28,515,244
EMC Corp. (a) 331,400 3,824,356 361,200 4,168,248 692,600 7,992,604
International Business
Machines Corp. 139,500 11,960,730 150,500 12,903,870 290,000 24,864,600
Lexmark International, Inc.,
Class A (a) 96,600 8,115,366 107,600 9,039,476 204,200 17,154,842
------------- ------------- -------------
37,616,776 40,910,514 78,527,290
------------- ------------- -------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS 1.5%
Flextronics International
Ltd. (a) 325,500 4,312,875 346,000 4,584,500 671,500 8,897,375
Samsung Electronics Co.,
Ltd., GDR (b) 40,000 7,920,000 44,700 8,850,600 84,700 16,770,600
------------- ------------- -------------
12,232,875 13,435,100 25,667,975
------------- ------------- -------------
INTERNET SOFTWARE & SERVICES 1.2%
Yahoo!, Inc. (a) 289,900 9,830,509 315,700 10,705,387 605,600 20,535,896
------------- ------------- -------------
9,830,509 10,705,387 20,535,896
------------- ------------- -------------
IT SERVICES 1.2%
Cognizant Technology Solutions
Corp., Class A (a) 309,500 9,442,845 358,000 10,922,580 667,500 20,365,425
------------- ------------- -------------
9,442,845 10,922,580 20,365,425
------------- ------------- -------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT 4.0%
Altera Corp. (a) 203,500 3,982,495 224,300 4,389,551 427,800 8,372,046
Broadcom Corp., Class A (a) 113,218 3,089,719 125,300 3,419,437 238,518 6,509,156
Intel Corp. 716,470 14,372,388 798,000 16,007,880 1,514,470 30,380,268
Linear Technology Corp. 53,800 1,949,712 59,200 2,145,408 113,000 4,095,120
Marvell Technology Group Ltd. (a) 246,100 6,430,593 274,100 7,162,233 520,200 13,592,826
Microchip Technology, Inc. 90,300 2,423,652 101,000 2,710,840 191,300 5,134,492
------------- ------------- -------------
32,248,559 35,835,349 68,083,908
------------- ------------- -------------
SOFTWARE 7.6%
Amdocs Ltd. (a) 271,300 5,922,479 297,700 6,498,791 569,000 12,421,270
Microsoft Corp. 1,501,300 41,510,945 1,620,000 44,793,000 3,121,300 86,303,945
Oracle Corp. (a) 658,990 7,433,407 733,800 8,277,264 1,392,790 15,710,671
SAP AG, ADR 106,000 4,128,700 118,500 4,615,575 224,500 8,744,275
Symantec Corp. (a) 63,300 3,473,904 67,400 3,698,912 130,700 7,172,816
------------- ------------- -------------
62,469,435 67,883,542 130,352,977
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
MATERIALS 4.8%
CHEMICALS 2.5%
Praxair, Inc. 474,700 20,288,678 532,300 22,750,502 1,007,000 43,039,180
------------- ------------- -------------
20,288,678 22,750,502 43,039,180
------------- ------------- -------------
METALS & MINING 2.3%
Alcoa, Inc. 338,900 11,383,651 366,800 12,320,812 705,700 23,704,463
Phelps Dodge Corp. 79,890 7,352,277 89,260 8,214,598 169,150 15,566,875
------------- ------------- -------------
18,735,928 20,535,410 39,271,338
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 797,744,293 892,476,259 1,690,220,552
------------- ------------- -------------
PREFERRED STOCK 0.7%
CONSUMER DISCRETIONARY 0.7%
MEDIA 0.7%
News Corp., Ltd., ADR 128,000 4,010,240 264,400 8,158,332 392,400 12,168,572
------------- ------------- -------------
4,010,240 8,158,332 12,168,572
------------- ------------- -------------
SHORT-TERM OBLIGATIONS 0.7% PAR PAR PAR
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with
State Street
Bank & Trust Co., dated
09/30/04, due
10/01/04 at 1.580%,
collateralized by a
U.S. Treasury Bond,
maturing 02/15/31,
market value $9,707,958
(repurchase proceeds $9,513,418) $ -- -- $9,513,000 9,513,000 $9,513,000 9,513,000
------------- ------------- -------------
Repurchase agreement with
State Street
Bank & Trust Co., dated
09/30/04, due
10/01/04 at 1.570%,
collateralized by a
U.S. Treasury Note,
maturing 08/15/12,
market value $2,865,200
(repurchase proceeds
$2,804,122) 2,804,000 2,804,000 -- -- 2,804,000 2,804,000
------------- ------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
AT MARKET AND COST 2,804,000 9,513,000 12,317,000
------------- ------------- -------------
TOTAL INVESTMENTS AT MARKET 100.0% 804,558,533 910,147,591 1,714,706,124
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES,
NET 0.0% 1,809,263 (2,202,658) (393,395)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.0% $ 806,367,796 $ 907,944,933 $ 1,714,312,729
------ ============= ============= ===============
TOTAL INVESTMENTS AT COST $ 691,089,316 (c) $ 786,800,382 (d) $ 1,477,889,698
============= ============= ===============
NOTES TO INVESTMENT PORTFOLIO:
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) Non-income producing security.
(b) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. This security may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At September 30, 2004, the value of this security represents 1.0% of
net assets.
(c) Cost for both financial statement and federal income tax purposes is
the same.
(d) Cost for federal tax purposes is $798,246,142.
ACRONYM NAME
------- ----
ADR American Depositary Receipt
GDR Global Depositary Receipt
APPENDIX A
Columbia Funds Trust I
Columbia High Yield Opportunity Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Tax-Managed Growth Fund II
Columbia Tax-Managed Value Fund
Columbia Tax-Managed Aggressive Growth Fund
Columbia Funds Trust II
Columbia Newport Greater China Fund
Columbia Money Market Fund
Columbia Funds Trust III
Columbia Mid Cap Value Fund
Columbia Liberty Fund
Columbia Global Equity Fund
Columbia Contrarian Income Fund
Columbia Intermediate Government Income Fund
Columbia Quality Plus Bond Fund
Columbia Corporate Bond Fund
Columbia Federal Securities Fund
Columbia Funds Trust IV
Columbia Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Municipal Money Market Fund
Columbia Funds Trust V
Columbia California Tax-Exempt Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Large Company Index Fund
Columbia U.S. Treasury Index Fund
Columbia Intermediate Tax-Exempt Bond Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia Florida Intermediate Municipal Bond Fund
Columbia Pennsylvania Intermediate Municipal Bond Fund
Columbia Funds Trust VI
Columbia Growth & Income Fund
Columbia Small Cap Value Fund
Columbia Newport Asia Pacific Fund
Columbia Funds Trust VII
Columbia Newport Tiger Fund
Columbia Europe Fund
Columbia Funds Trust VIII
Columbia Income Fund
Columbia Intermediate Bond Fund
A-1
Columbia Funds Trust IX
Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
Columbia Funds Trust XI
Columbia Young Investor Fund
Columbia Growth Stock Fund
Columbia Global Thematic Equity Fund
Columbia European Thematic Equity Fund
Columbia Asset Allocation Fund
Columbia Dividend Income Fund
Columbia Large Cap Core Fund
Columbia International Equity Fund
Columbia Large Cap Growth Fund
Columbia Disciplined Value Fund
Columbia Small Cap Fund
Columbia Small Company Equity Fund
The Funds listed above are referred to collectively as the "Funds" and the
Trusts listed above are referred to collectively as the "Trusts."
Supplement to the Statements of Additional Information
Under the heading "HOW TO BUY SHARES", the seventh paragraph is deleted and
replaced with the following:
In addition to the commissions specified in a Fund's prospectus and this SAI,
CFD, or its advisory affiliates, from their own resources, may make cash
payments to FSFs that agree to promote the sale of shares of funds that CFD
distributes. A number of factors may be considered in determining the amount of
those payments, including the FSF's sales, client assets invested in the funds
and redemption rates, the quality of the FSF's relationship with CFD and/or its
affiliates, and the nature of the services provided by FSFs to its clients. The
payments may be made in recognition of such factors as marketing support, access
to sales meetings and the FSF's representatives, and inclusion of the Fund on
focus, select or other similar lists.
Subject to applicable rules, CFD may also pay non-cash compensation to FSFs and
their representatives, including: (i) occasional gifts (ii) occasional meals, or
other entertainment; and/or (iii) support for FSF educational or training
events.
In addition, CFD, and/or the Fund's investment advisor, transfer agent or their
affiliates, may pay service, administrative or other similar fees to
broker/dealers, banks, third-party administrators or other financial
institutions (each commonly referred to as an "intermediary"). Those fees are
generally for subaccounting, sub-transfer agency and other shareholder services
associated with shareholders whose shares are held of record in omnibus or other
group accounts. The rate of those fees may vary and is generally calculated on
the average daily net assets of a Fund attributable to a particular
intermediary.
In some circumstances, the payments discussed above may create an incentive for
an intermediary or its employees or associated persons to recommend or sell
shares of a Fund.
As of the date of this Supplement, CFD and its affiliates anticipate that the
FSFs and intermediaries that will receive the additional compensation described
above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
A-2
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
A-3
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
A-4
Webster Investment Services
Wells Fargo
Wilmington Trust
Please contact your FSF or intermediary for details about payments it may
receive.
G-35/554T-1004 November 1, 2004
A-5
COLUMBIA FUNDS TRUST I
Columbia High Yield Opportunity Fund
Columbia Strategic Income Fund
COLUMBIA FUNDS TRUST II
Columbia Money Market Fund
COLUMBIA FUNDS TRUST III
Columbia Global Equity Fund
Columbia Contrarian Income Fund
Columbia Intermediate Government Income Fund
Columbia Quality Plus Bond Fund
Columbia Corporate Bond Fund
COLUMBIA FUNDS TRUST IV
Columbia Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Municipal Money Market Fund
COLUMBIA FUNDS TRUST V
Columbia Large Company Index Fund
Columbia U.S. Treasury Index Fund
Columbia Small Company Index Fund
COLUMBIA FUNDS TRUST VIII
Columbia Income Fund
Columbia Intermediate Bond Fund
The funds listed above are all referred to collectively as the "Funds" and the
Trusts listed above are all referred to collectively as the "Trusts."
SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION
The disclosure following the caption "Trustees and Officers" located in the
section "Management of the Funds" in Part 2 of the Statement of Information is
restated in its entirety:
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names,
addresses and ages of the Trustees and officers of the Fund Complex, the year
each was first elected or appointed to office,
A-6
their principal business occupations during at least the last five years, the
number of portfolios overseen by each Trustee and other directorships they hold
are shown below.
DISINTERESTED TRUSTEES
<Table>
<Caption>
Number of
Portfolios
Year First in
Elected or Fund
Appointed Complex Other
Position to Office Principal Occupation(s) Overseen Directorships
Name, Address and Age with Funds (1) During Past Five Years By Trustee Held by Trustee
- -------------------------- ------------ ------------ ----------------------------- ------------ ------------------
Douglas A. Hacker Trustee 1996 Executive Vice President - 118 Orbitz, Inc.
(Age 48) Strategy of United Airlines (on-line travel
P.O. Box 66100 Chicago, (airline) from December, company)
IL 60666 2002 (formerly President
of UAL Loyalty Services
(airline) from September,
2001 to December, 2002;
Executive Vice President
and Chief Financial Officer
of United Airlines from
March, 1999 to September,
2001; Senior Vice
President-Finance from
March, 1993 to July, 1999).
Janet Langford Kelly Trustee 1996 Private Investor since 118 None
(Age 46) March, 2004 (formerly Chief
9534 W. Gull Lake Drive Administrative Officer and
Richland, MI 49083-8530 Senior Vice President,
Kmart Holding Corporation
(consumer goods), from
September, 2003 to March,
2004; Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003; Senior Vice
President, Secretary and
General Counsel, Sara Lee
Corporation (branded,
packaged, consumer-products
manufacturer) from January,
1995 to September, 1999).
Richard W. Lowry Trustee 1995 Private Investor since 120(3) None
(Age 68) August, 1987 (formerly
10701 Charleston Drive Chairman and Chief
Vero Beach, FL 32963 Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer)).
Charles R. Nelson Trustee 1981 Professor of Economics, 118 None
(Age 62) University of Washington,
Department of Economics since January, 1976; Ford
University of Washington and Louisa Van Voorhis
Seattle, WA 98195 Professor of Political
Economy, University of
Washington,
</Table>
A-7
<Table>
since September, 1993
(formerly Director,
Institute for Economic
Research, University of
Washington from September,
2001 to June, 2003) Adjunct
Professor of Statistics,
University of Washington,
since September, 1980;
Associate Editor, Journal
of Money Credit and
Banking, since September,
1993; consultant on
econometric and statistical
matters.
John J. Neuhauser Trustee 1985 Academic Vice President and 121(3),(4) Saucony, Inc.
(Age 61) Dean of Faculties since (athletic
84 College Road August, 1999, Boston footwear)
Chestnut Hill, MA 02467-3838 College (formerly Dean, Boston
College School of
Management from September,
1977 to September, 1999).
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 118 None
(Age 60) L.L.P. (law firm).
1120 N.W. Couch Street
Tenth Floor
Portland, OR 97209-4128
Thomas E. Stitzel Trustee 1998 Business Consultant since 118 None
(Age 68) 1999 (formerly Professor of
2208 Tawny Woods Place Finance from 1975 to 1999,
Boise, ID 83706 College of Business, Boise
State University);
Chartered Financial Analyst.
Thomas C. Theobald Trustee 1996 Partner and Senior Advisor, 118 Anixter
(Age 67) (5) and Chicago Growth Partners International
303 W. Madison Suite Chairman (private equity investing) (network support
2500 Chicago, IL 60606 of the since September, 2004 equipment
Board (formerly Managing distributor);
Director, William Blair Ventas, Inc.
Capital Partners (private (real estate
equity investing) from investment
September, 1994 to trust);
September, 2004). Jones Lang
LaSalle
(real estate
management
services)
and MONY Group
(life
insurance)
</Table>
A-8
<Table>
Anne-Lee Verville Trustee 1998 Retired since 1997 119(4) Chairman of the
(Age 59) (formerly General Manager, Board of
359 Stickney Hill Road Global Education Industry, Directors, Enesco
Hopkinton, NH 03229 IBM Corporation (computer Group,
and technology) from 1994 Inc.(designer,
to 1997). importer and
distributor of
giftware and
collectibles)
Richard L. Woolworth Trustee 1991 Retired since December 2003 118 Northwest
(Age 63) (formerly Chairman and Natural Gas Co.
100 S.W. Market Street Chief Executive Officer, (natural gas
#1500 The Regence Group (regional service provider)
Portland, OR 97207 health insurer); Chairman
and Chief Executive
Officer, BlueCross
BlueShield of Oregon;
Certified Public
Accountant, Arthur
Young & Company)
</Table>
INTERESTED TRUSTEE
<Table>
<Caption>
Year
First Number of
Elected Portfolios
or in
Appointed Fund
to Complex Other
Position Office Principal Occupation(s) Overseen Directorships
Name, Address and Age with Funds (1) During Past Five Years By Director Held by Director
- --------------------------- ------------ ---------- ------------------------------ ------------ ------------------
William E. Mayer(2) Trustee 1994 Managing Partner, Park 120(3) Lee Enterprises
(Age 64) Avenue Equity Partners (print media),
399 Park Avenue (private equity) since WR Hambrecht +
Suite 3204 February, 1999 (formerly Co. (financial
New York, NY 10022 Founding Partner, service
Development Capital LLC from provider); First
November 1996 to February, Health
1999). (healthcare);
Reader's Digest
(publishing);
OPENFIELD
Solutions
(retail industry
technology
provider)
</Table>
(1) In October 2003, the trustees of the Liberty Funds and Stein Roe Funds
(both as defined in Part 1 of this SAI) were elected to the boards of the
Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard
L. Woolworth, who had been directors/trustees of the Columbia Funds were
appointed to serve as trustees of the Liberty Funds and Stein Roe Funds.
A-9
The date shown is the earliest date on which a trustee/director was elected or
appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the
All-Star Funds (as defined in Part 1 of this SAI).
(4) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
(5) Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
OFFICERS
<Table>
<Caption>
Year First
Elected or
Position with Appointed Principal Occupation(s)
Name, Address and Age Funds to Office During Past Five Years
- ------------------------------- ----------------- ------------ ------------------------------------------
Christopher L. Wilson President 2004 President of the Columbia Funds, Liberty
(Age 47) Funds and Stein Roe Funds since October,
One Financial Center 2004 (formerly President and Chief
Boston, MA 02111 Executive Officer, CDC IXIS Asset
Management Services, Inc. from
September, 1998 to August, 2004).
J. Kevin Connaughton Treasurer Since 2000 Treasurer of the Columbia Funds since
(Age 39) October, 2003 and of the Liberty Funds,
One Financial Center Stein Roe Funds and All-Star Funds since
Boston, MA 02111 December, 2000; Vice President of the
Advisor since April, 2003 (formerly
President of the Columbia Funds, Liberty
Funds and Stein Roe Funds from February,
2004 to October, 2004; Chief Accounting
Officer and Controller of the Liberty Funds
and of the All-Star Funds from February,
1998 to October, 2000); Treasurer of the
Galaxy Funds since September, 2002;
Treasurer, Columbia Management
Multi-Strategy Hedge Fund, LLC since
December, 2002 (formerly Vice President of
Colonial Management Associates, Inc. from
February, 1998 to October, 2000).
</Table>
A-10
<Table>
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief
(Age 54) President and Compliance Officer of the Columbia
40 West 57th Street Chief Funds, Liberty Funds and Stein Roe Funds
New York, NY 10019 Compliance since August, 2004; Chief Compliance
Officer Officer of the All-Star Funds since
2004; Counsel, Carter, Ledyard & Milburn
LLP from November, 1999 to December,
2000; Vice President and Counsel,
Equitable Life Assurance Society of the
United States from April, 1998 to
November, 1999).
Michael G. Clarke Chief 2004 Chief Accounting Officer of the Columbia
(Age 34) Accounting Funds, Liberty Funds, Stein Roe Funds
One Financial Center Officer and All-Star Funds since October, 2004
Boston, MA 02111 (formerly Controller of the Columbia
Funds, Liberty Funds, Stein Roe Funds and
All-Star Funds from May, 2004 to October,
2004; Assistant Treasurer from June, 2002
to May, 2004; Vice President, Product
Strategy & Development of the Liberty Funds
and Stein Roe Funds from February, 2001 to
June, 2002; Assistant Treasurer of the
Liberty Funds, Stein Roe Funds and the
All-Star Funds from August, 1999 to
February, 2001; Audit Manager, Deloitte &
Touche LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman Controller 2004 Controller of the Columbia Funds,
(Age 34) Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004
Boston, MA 02111 (formerly Vice President of CDC IXIS
Asset Management Services, Inc. and
Deputy Treasurer of the CDC Nvest Funds
and Loomis Sayles Funds from February, 2003
to September, 2004; Assistant Vice
President of CDC IXIS Asset Management
Services, Inc. and Assistant Treasurer of
the CDC Nvest Funds from August, 2000 to
February, 2003; Tax Manager of PFPC, Inc.
from November, 1996 to August, 2000).
David A. Rozenson Secretary 2003 Secretary of the Columbia Funds, Liberty
(Age 50) Funds, Stein Roe Funds
One Financial Center and All-Star Funds since December, 2003;
Boston, MA 02111 Senior Counsel, Bank of America
Corporation (formerly FleetBoston Financial
Corporation) since January, 1996; Associate
General Counsel, Columbia Management Group
since November, 2002.
</Table>
G-35/296T-1004 October 15, 2004
COLUMBIA FUNDS TRUST I
Columbia Tax-Managed Growth Fund
Columbia Tax-Managed Growth Fund II*
Columbia Tax-Managed Value Fund
Columbia Tax-Managed Aggressive Growth Fund
COLUMBIA FUNDS TRUST II
Columbia Newport Greater China Fund
COLUMBIA FUNDS TRUST III
Columbia Mid Cap Value Fund
Columbia Liberty Fund
Columbia Federal Securities Fund
COLUMBIA FUNDS TRUST V
Columbia California Tax-Exempt Fund*
Columbia Connecticut Tax-Exempt Fund*
Columbia Massachusetts Tax-Exempt Fund*
Columbia New York Tax-Exempt Fund*
Columbia Intermediate Tax-Exempt Bond Fund*
Columbia Massachusetts Intermediate Municipal Bond Fund*
Columbia Connecticut Intermediate Municipal Bond Fund*
Columbia New Jersey Intermediate Municipal Bond Fund*
Columbia New York Intermediate Municipal Bond Fund*
Columbia Rhode Island Intermediate Municipal Bond Fund*
Columbia Florida Intermediate Municipal Bond Fund*
Columbia Pennsylvania Intermediate Municipal Bond Fund*
COLUMBIA FUNDS TRUST VI
Columbia Growth & Income Fund
Columbia Small Cap Value Fund
Columbia Newport Asia Pacific Fund
COLUMBIA FUNDS TRUST VII
Columbia Newport Tiger Fund
Columbia Europe Fund*
COLUMBIA FUNDS TRUST VIII
Columbia High Yield Municipal Fund*
Columbia Managed Municipals Fund*
COLUMBIA FUNDS TRUST IX
Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
COLUMBIA FUNDS TRUST XI
Columbia Young Investor Fund
Columbia Growth Stock Fund
Columbia Global Thematic Equity Fund*
Columbia European Thematic Equity Fund*
Columbia Asset Allocation Fund*
A-11
Columbia Dividend Income Fund*
Columbia Large Cap Core Fund*
Columbia International Equity Fund*
Columbia Large Cap Growth Fund*
Columbia Disciplined Value Fund*
Columbia Small Cap Fund*
Columbia Small Company Equity Fund*
The funds listed above are all referred to collectively as the "Funds" and the
Trusts listed above are all referred to collectively as the "Trusts".
SUPPLEMENT TO THE STATEMENTS OF ADDITIONAL INFORMATION
(REPLACING SUPPLEMENT DATED MARCH 31, 2004
Each Fund's Statement of Additional Information is amended as follows:
1. Effective March 1, 2004, PricewaterhouseCoopers LLP, located at 125
High Street, Boston, Massachusetts 02110-1707, replaced Ernst & Young
LLP as independent accountants for all of the Funds.
PricewaterhouseCoopers LLP provides audit and tax return review
services, and assistance and consultation in connection with the review
of various Securities and Exchange Commission filings. (Relevant to
funds with asterisk.)
2. Effective June 18, 2003, Salvatore Macera retired as a Trustee from
the Board of Trustees/Managers.
3. At the June, 2003 Board of Trustees meeting the Trustees approved
the following changes to the compensation for the Trustees:
The Trustees serve as trustees of all open-end funds managed by
Columbia Management Advisors, Inc. for which each Trustee will receive an annual
retainer of $45,000 and attendance fees of $9,500 for each regular and special
joint board meeting and $1,000 for each special telephonic joint board meeting.
The Chairman of the Board receives an annual retainer of $40,000. All committee
chairs, except the Audit Committee chair, receive an annual retainer of $5,000
and Committee chairs receive $1,500 for each special committee meeting attended
on a day other than a regular joint board meeting day. The Audit Committee chair
receives an annual retainer of $10,000 and receives $2,000 for each Audit
Committee meeting. Committee members receive $1,500 for each special committee
meeting attended on a day other than a regular joint board meeting day.
Two-thirds of the Trustee fees are allocated among the Funds based on each
Fund's relative net assets and one-third of the fees is divided equally among
the Funds.
4. Each of the committees listed under the section TRUSTEES AND
TRUSTEES' FEES have had a change in the committee members. The
following changes were effective October 8, 2003:
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of
the Audit Committee of the Board of Trustees of the Funds. Prior to October 8,
2003, Ms. Verville and Messrs. Hacker, Nelson and Neuhauser were members of the
Audit Committee of the Board of Trustees of the Funds.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the
Governance Committee of the Board of Trustees of the Funds. Prior to October 8,
2003, Ms. Verville and Messrs. Hacker, Lowry, Mayer and Theobald were members of
the Governance Committee of the Board of Trustees of the Funds.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the
Advisory Fees and Expenses Committee of the Board of Trustees of the Funds.
Prior to October 8, 2003, Ms. Kelly and Messrs. Mayer, Neuhauser, Stitzel and
Theobald were members of the Advisory Fees and Expenses Committee of the Board
of Trustees of the Funds.
5. The paragraph Trading Oversight Committee under the section TRUSTEES
AND TRUSTEES' FEES is replaced with the following:
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each Trustee of the Funds also began serving on an Investment
Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an
ongoing basis, a select group of funds in the Fund Complex and gives particular
consideration to such matters as the Funds' adherence to their investment
mandates, historical performance, changes in investment processes and personnel,
and proposed changes to investment objectives. Investment personnel who manage
the Funds attend IOC meetings from time to time to assist each IOC in its review
of the Funds. Each IOC meets four times a year. The following are members of the
respective IOCs and the general categories of funds in the Fund Complex which
they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible
for reviewing funds in the following asset
categories: Large Growth Diversified, Large Growth
Concentrated, Small Growth, Outside Managed (i.e.,
sub-advised), Municipal and Bank Loan.
IOC #2: Mr. Hacker and Ms. Verville are responsible for
reviewing funds in the following asset categories:
Large Blend, Small Blend, Foreign Stock, Fixed Income
- Multi Sector, Fixed Income - Core and Young
Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are
responsible for reviewing funds in the following
asset categories: Large Value, Mid Cap Value, Small
Value, Asset Allocation, High Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible
for reviewing funds in the following asset
categories: Large/Multi-Cap Blend, Mid Cap Growth,
Small Growth, Asset Allocation, Specialty Equity and
Taxable Fixed Income.
6. On October 7, 2003 the Board of Trustees/Managers of the Trusts
elected Patrick J. Simpson and Richard L. Woolworth as new trustees of
the Trusts.
A-12
7. The following table sets forth the compensation paid to Messrs.
Simpson and Woolworth in their capacities as Trustees of the Columbia
Board:
<Table>
<Caption>
Trustee Total Compensation from the Columbia Funds Complex
Paid to the Trustees for the Calendar Year Ended
December 31, 2003
Patrick J. Simpson $64,234
Richard L. Woolworth 64,234
</Table>
8. As of December 31, 2003, Messrs. Simpson and Woolworth did not own
any shares of the Funds. Under the heading SHARE OWNERSHIP under the
section TRUSTEES AND TRUSTEES' FEES the column "Aggregate Dollar Range
of Equity Securities Owned in All Funds Overseen by Trustee in Columbia
Funds Complex" is revised as follows:
The following table shows the dollar range of equity securities beneficially
owned by each Trustee as of December 31, 2003 (i) in each Fund and (ii) in the
funds in the Fund Complex:
DISINTERESTED TRUSTEES
<Table>
<Caption>
Name of Trustee Aggregate Dollar Range of Equity Securities Owned
in All Funds Overseen by Trustee in Fund Complex
Patrick J. Simpson $50,001-$100,000
Richard L. Woolworth Over $100,000
</Table>
9. The disclosure following the caption "Trustees and Officers" located
in the section "Management of the Funds" in Part 2 of the Statement of
Information is restated in its entirety:
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names,
addresses and ages of the Trustees and officers of the Fund Complex, the year
each was first elected or appointed to office, their principal business
occupations during at least the last five years, the number of portfolios
overseen by each Trustee and other directorships they hold are shown below.
DISINTERESTED TRUSTEES
<Table>
<Caption>
Number of
Portfolios
in
Year First Fund
Elected or Complex Other
Appointed Overseen Directorships
Position to Office Principal Occupation(s) During By Held by
Name, Address and Age with Funds (1) Past Five Years Trustee Trustee
- ------------------------- ------------ ------------ ----------------------------------- ---------- --------------
Douglas A. Hacker Trustee 1996 Executive Vice President - 118 Orbitz, Inc.
(Age 48) Strategy of United Airlines (on-line
P.O. Box 66100 (airline) from December, 2002 travel
Chicago, IL 60666 (formerly President company)
of UAL Loyalty Services
(airline) from September,
2001 to December, 2002;
Executive Vice President
and Chief Financial Officer
of United Airlines from
March, 1999 to September,
2001; Senior Vice
President-Finance from
March, 1993 to July, 1999).
Janet Langford Kelly Trustee 1996 Private Investor since March, 118 None
(Age 46) 2004 (formerly Chief
9534 W. Gull Lake Drive Administrative Officer and Senior
Richland, MI 49083-8530 Vice President, Kmart Holding
Corporation (consumer
goods), from September,
2003 to March, 2004;
Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003; Senior Vice
President, Secretary and
General Counsel, Sara Lee
Corporation (branded,
packaged, consumer-products
manufacturer) from January,
1995 to September, 1999).
Richard W. Lowry Trustee 1995 Private Investor since August, 120(3) None
(Age 68) 1987 (formerly Chairman and Chief
10701 Charleston Drive Executive Officer, U.S. Plywood
Vero Beach, FL 32963 Corporation
(building products manufacturer)).
Charles R. Nelson Trustee 1981 Professor of Economics, 118 None
(Age 62) University of Washington, since
Department of Economics January, 1976; Ford and Louisa
University of Washington Van Voorhis Professor of
Seattle, WA 98195 Political Economy,
University of Washington, since
September, 1993 (formerly
Director, Institute for Economic
Research, University of
Washington from
September, 2001 to June, 2003)
Adjunct Professor of Statistics,
University of Washington, since
September, 1980; Associate
Editor, Journal of Money Credit
and Banking, since September,
1993; consultant on econometric
and statistical matters.
John J. Neuhauser Trustee 1985 Academic Vice President and Dean 121(3), Saucony, Inc.
(Age 61) of Faculties since August, 1999, (4) (athletic
84 College Road Boston College (formerly Dean, footwear)
Chestnut Hill, MA 02467-3838 Boston College School of
Management from September,
1977 to September, 1999).
</Table>
A-13
<Table>
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie L.L.P. (law 118 None
(Age 60) firm).
1120 N.W. Couch Street
Tenth Floor
Portland, OR 97209-4128
Thomas E. Stitzel Trustee 1998 Business Consultant since 1999 118 None
(Age 68) (formerly Professor of Finance
2208 Tawny Woods Place from 1975 to 1999, College of
Boise, ID 83706 Business, Boise State
University); Chartered Financial
Analyst.
Thomas C. Theobald Trustee 1996 Partner and Senior Advisor, 118 Anixter
(Age 67)(5) and Chicago Growth Partners (private International
303 W. Madison Suite Chairman equity investing) since (network
2500 Chicago, IL 60606 of the September, 2004 (formerly support
Board Managing Director, William Blair equipment
Capital Partners (private equity distributor);
investing) from September, 1994 Ventas, Inc.
to September, 2004). (real estate
investment
trust);
Jones Lang
LaSalle
(real estate
management
services)
and MONY
Group (life
insurance)
Anne-Lee Verville Trustee 1998 Retired since 1997 (formerly 119(4) Chairman of
(Age 59) General Manager, Global Education the Board of
359 Stickney Hill Road Industry, IBM Corporation Directors,
Hopkinton, NH 03229 (computer and technology) from Enesco
1994 to 1997). Group,
Inc.(designer,
importer and
distributor
of
giftware and
collectibles)
Richard L. Woolworth Trustee 1991 Retired since December 2003 118 Northwest
(Age 63) (formerly Chairman and Chief Natural Gas
100 S.W. Market Street Executive Officer, The Regence Co. (natural
#1500 Group (regional health insurer); gas service
Portland, OR 97207 Chairman provider)
and Chief Executive Officer,
BlueCross BlueShield of Oregon;
Certified Public Accountant,
Arthur Young & Company)
</Table>
INTERESTED TRUSTEE
<Table>
<Caption>
Year
First Number of
Elected Portfolios
or in Other
Appointed Fund Director-
to Complex ships
Position Office Principal Occupation(s) During Overseen By Held by
Name, Address and Age with Funds (1) Past Five Years Director Director
- -------------------------- ----------- ---------- ------------------------------------ ------------- -----------
William E. Mayer(2) Trustee 1994 Managing Partner, Park Avenue 120(3) Lee
(Age 64) Equity Partners (private equity) Enterprises
399 Park Avenue since February, 1999 (formerly (print
Suite 3204 Founding Partner, Development media),
New York, NY 10022 Capital LLC from November 1996 to WR
February, 1999). Hambrecht
+ Co.
(financial
service
provider);
First
Health
(healthcare);
Reader's
Digest
(publishing);
OPENFIELD
Solutions
(retail
industry
technology
provider)
</Table>
1. In October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both
as defined in Part 1 of this SAI) were elected to the boards of the Columbia
Funds; simultaneous with that election, Patrick J. Simpson and Richard L.
Woolworth, who had been directors/trustees of the Columbia Funds were appointed
to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is
the earliest date on which a trustee/director was elected or appointed to the
board of a Fund in the Fund Complex.
2. Mr. Mayer is an "interested person" (as defined in the Investment Company Act
of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
A-14
3. Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the
All-Star Funds (as defined in Part 1 of this SAI).
4. Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
5. Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
OFFICERS
<Table>
<Caption>
Year First
Elected or
Position with Appointed Principal Occupation(s)
Name, Address and Age Funds to Office During Past Five Years
- ------------------------------- ----------------- ------------ ------------------------------------------
Christopher L. Wilson President 2004 President of the Columbia Funds, Liberty
(Age 47) Funds and Stein Roe Funds since October,
One Financial Center 2004 (formerly President and Chief
Boston, MA 02111 Executive Officer, CDC IXIS Asset
Management Services, Inc. from
September, 1998 to August, 2004).
J. Kevin Connaughton Treasurer Since 2000 Treasurer of the Columbia Funds since
(Age 39) October, 2003 and of the Liberty Funds,
One Financial Center Stein Roe Funds and All-Star Funds since
Boston, MA 02111 December, 2000; Vice President of the
Advisor since April, 2003 (formerly
President of the Columbia Funds, Liberty
Funds and Stein Roe Funds from February,
2004 to October, 2004; Chief Accounting
Officer and Controller of the Liberty Funds
and of the All-Star Funds from February,
1998 to October, 2000); Treasurer of the
Galaxy Funds since September, 2002;
Treasurer, Columbia Management
Multi-Strategy Hedge Fund, LLC since
December, 2002 (formerly Vice President of
Colonial Management Associates, Inc. from
February, 1998 to October, 2000).
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief
(Age 54) President and Compliance Officer of the Columbia
40 West 57th Street Chief Funds, Liberty Funds and Stein Roe Funds
New York, NY 10019 Compliance since August, 2004; Chief Compliance
Officer Officer of the All-Star Funds since
2004; Counsel, Carter, Ledyard & Milburn
LLP from November, 1999 to December,
2000; Vice President and Counsel,
Equitable Life Assurance Society of the
United States from April, 1998 to
November, 1999).
Michael G. Clarke Chief 2004 Chief Accounting Officer of the Columbia
(Age 34) Accounting Funds, Liberty Funds, Stein Roe Funds
One Financial Center Officer and All-Star Funds since October, 2004
Boston, MA 02111 (formerly Controller of the Columbia
Funds, Liberty Funds, Stein Roe Funds and
All-Star Funds from May, 2004 to October,
2004; Assistant Treasurer from June, 2002
to May, 2004; Vice President, Product
Strategy & Development of the Liberty Funds
and Stein Roe Funds from February, 2001 to
June, 2002; Assistant Treasurer of the
Liberty Funds, Stein Roe Funds and the
All-Star Funds from August, 1999 to
February, 2001; Audit Manager, Deloitte &
Touche LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman Controller 2004 Controller of the Columbia Funds,
(Age 34 ) Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004
Boston, MA 02111 (formerly Vice President of CDC IXIS
Asset Management Services, Inc. and Deputy
Treasurer of the CDC Nvest Funds and Loomis
Sayles Funds from February, 2003 to
September, 2004; Assistant Vice President
of CDC IXIS Asset Management Services, Inc.
and Assistant Treasurer of the CDC Nvest
Funds from August, 2000 to February, 2003;
Tax Manager of PFPC, Inc. from November,
1996 to August, 2000).
David A. Rozenson Secretary 2003 Secretary of the Columbia Funds, Liberty
(Age 50) Funds, Stein Roe Funds and All-Star Funds
One Financial Center since December, 2003; Senior Counsel, Bank
Boston, MA 02111 of America Corporation (formerly FleetBoston
Financial Corporation) since January, 1996;
Associate General Counsel, Columbia Management
Group since November, 2002.
</Table>
October 15, 2004
A-15
COLUMBIA FUNDS TRUST I
Columbia High Yield Opportunity Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Tax-Managed Growth Fund II
Columbia Tax-Managed Value Fund
Columbia Tax-Managed Aggressive Growth Fund
COLUMBIA FUNDS TRUST II
Columbia Newport Greater China Fund
Columbia Money Market Fund
COLUMBIA FUNDS TRUST III
Columbia Mid Cap Value Fund
Columbia Liberty Fund
Columbia Global Equity Fund
Columbia Contrarian Income Fund
Columbia Intermediate Government Income Fund
Columbia Quality Plus Bond Fund
Columbia Corporate Bond Fund
Columbia Federal Securities Fund
COLUMBIA FUNDS TRUST IV
Columbia Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Municipal Money Market Fund
COLUMBIA FUNDS TRUST V
Columbia California Tax-Exempt Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Large Company Index Fund
Columbia U.S. Treasury Index Fund
Columbia Small Company Index Fund
Columbia Intermediate Tax-Exempt Bond Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia Florida Intermediate Municipal Bond Fund
Columbia Pennsylvania Intermediate Municipal Bond Fund
A-16
COLUMBIA FUNDS TRUST VI
Columbia Growth & Income Fund
Columbia Small Cap Value Fund
Columbia Newport Asia Pacific Fund
COLUMBIA FUNDS TRUST VII
Columbia Newport Tiger Fund
Columbia Europe Fund
COLUMBIA FUNDS TRUST VIII
Columbia Income Fund
Columbia Intermediate Bond Fund
COLUMBIA FUNDS TRUST IX
Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
COLUMBIA FUNDS TRUST XI
Columbia Young Investor Fund
Columbia Growth Stock Fund
Columbia Global Thematic Equity Fund
Columbia European Thematic Equity Fund
Columbia Asset Allocation Fund
Columbia Dividend Income Fund
Columbia Large Cap Core Fund
Columbia International Equity Fund
Columbia Large Cap Growth Fund
Columbia Disciplined Value Fund
Columbia Small Cap Fund
Columbia Small Company Equity Fund
COLUMBIA FLOATING RATE FUND
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
COLUMBIA FLOATING RATE ADVANTAGE FUND
A-17
The Funds listed above are referred to collectively as the "Funds" and the
Trusts listed above are referred to collectively as "Trusts."
SUPPLEMENT TO THE STATEMENTS OF ADDITIONAL INFORMATION
Effective July 1, 2004, the paragraph entitled "Exchanges for Clients
of Affiliates of Investment Advisor" in the section "PROGRAMS FOR REDUCING OR
ELIMINATING SALES CHARGES" of Part II of the Statements of Additional
Information is deleted.
G-35/244S-0604 July 1, 2004
A-18
COLUMBIA ASSET ALLOCATION FUND
COLUMBIA LARGE CAP GROWTH FUND
COLUMBIA DISCIPLINED VALUE FUND
COLUMBIA LARGE CAP CORE FUND
COLUMBIA INTERNATIONAL EQUITY FUND
COLUMBIA SMALL CAP FUND
COLUMBIA SMALL COMPANY EQUITY FUND
COLUMBIA DIVIDEND INCOME FUND
SERIES OF COLUMBIA FUNDS TRUST XI
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2004
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectuses of Columbia
Asset Allocation Fund, Columbia Large Cap Growth Fund, Columbia Disciplined
Value Fund, Columbia Large Cap Core Fund, Columbia International Equity Fund,
Columbia Small Cap Fund, Columbia Small Company Equity Fund and Columbia
Dividend Income Fund (each a Fund and collectively, the Funds). This SAI is not
a prospectus and is authorized for distribution only when accompanied or
preceded by a Prospectus of a Fund dated February 1, 2004, as applicable. This
SAI should be read together with a Prospectus of the Funds and the most recent
Annual Report dated September 30, 2003. Investors may obtain a free copy of a
Prospectus and the Annual Report from Columbia Funds Distributor, Inc. (CFD),
One Financial Center, Boston, MA 02111-2621, or by calling 1-800-426-3750. The
Financial Statements and Report of Independent Auditors appearing in each Fund's
September 30, 2003 Annual Report are incorporated in this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2
includes information about the funds distributed by CFD generally and additional
information about certain securities and investment techniques described in the
Funds' Prospectuses.
TABLE OF CONTENTS
PART 1 PAGE
Definitions........................................................ A-20
Organization and History........................................... A-20
Investment Goal and Policies....................................... A-21
Fundamental and Non-Fundamental Investment Policies................ A-22
Portfolio Turnover................................................. A-28
Fund Charges and Expenses.......................................... A-28
Custodian of the Funds............................................. A-67
Independent Auditors of the Funds.................................. A-67
PART 2
Miscellaneous Investment Practices................................. A-68
Taxes.............................................................. A-90
Management of the Funds............................................ A-94
Determination of Net Asset Value................................... A-105
How to Buy Shares.................................................. A-106
Special Purchase Programs/Investor Services........................ A-107
Programs for Reducing or Eliminating Sales Charges................. A-110
How to Sell Shares................................................. A-113
Distributions...................................................... A-117
How to Exchange Shares............................................. A-117
Suspension of Redemptions.......................................... A-117
Shareholder Liability.............................................. A-117
Shareholder Meetings............................................... A-118
Appendix I......................................................... A-119
A-19
PART 1
COLUMBIA ASSET ALLOCATION FUND
COLUMBIA LARGE CAP GROWTH FUND
COLUMBIA DISCIPLINED VALUE FUND
COLUMBIA LARGE CAP CORE FUND
COLUMBIA INTERNATIONAL EQUITY FUND
COLUMBIA SMALL CAP FUND
COLUMBIA SMALL COMPANY EQUITY FUND
COLUMBIA DIVIDEND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2004
DEFINITIONS
"Asset Allocation Fund" or "Fund" Columbia Asset Allocation Fund
"Growth Fund" or "Fund" Columbia Large Cap Growth Fund
"Value Fund" or "Fund" Columbia Disciplined Value Fund
"Large Cap Fund" or "Fund" Columbia Large Cap Core Fund
"International Fund" or "Fund" Columbia International Equity Fund
"Small Cap Fund" or "Fund" Columbia Small Cap Fund
"Small Company Fund" or "Fund" Columbia Small Company Equity Fund
"Dividend Fund" or "Fund" Columbia Dividend Income Fund
"Predecessor Fund" or "Predecessor Funds" See below under "Organization and History"
"Trust" Columbia Funds Trust XI
"Advisor" Columbia Management Advisors, Inc., the Funds' investment advisor
"CFD" Columbia Funds Distributor, Inc., the Funds' distributor
"CFS" Columbia Funds Services, Inc., the Funds' shareholder services and transfer agent
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1987. Each Fund is an
open-end, management investment company that represents the entire interest in a
separate series of the Trust and is a diversified series of the Trust. Each Fund
is the successor to a separate series of The Galaxy Fund, a Massachusetts
business trust organized on March 31, 1986. On November 18, 2002, November 25,
2002 and December 9, 2002, the series of The Galaxy Fund to which the Funds
succeeded (the "Predecessor Funds") were reorganized as separate series of the
Trust. Class A shares of the Funds were issued in exchange for Prime A Shares of
the Predecessor Funds, Class B shares of the Funds were issued in exchange for
Prime B Shares of the Predecessor Funds, Class T shares of the Funds were issued
in exchange for Retail A Shares of the Predecessor Funds, Class G shares of the
Funds were issued in exchange for Retail B Shares of the Predecessor Funds and
Class Z shares of the Funds were issued in exchange for Trust Shares of the
Predecessor Funds. (Prime A and B shares, Retail A and B shares and Trust Shares
together are referred to herein as to the "Predecessor Classes") Information
provided with respect to each Fund for periods prior to such Fund's inception
relates to the Fund's Predecessor Fund. Further, information provided with
respect to each class of each Fund relates to the Predecessor classes of such
class.
The Asset Allocation Fund commenced operations on December 30, 1991; the Growth
Fund commenced operations on December 14, 1990; the Value Fund commenced
operations on September 1, 1988; the International Fund commenced operations
December 30, 1991; the Small Company Fund commenced operations on December 30,
1991; and the Dividend Fund commenced operations on March 4, 1998.
The Large Cap Fund and Small Cap Fund commenced operations on December 14, 1992,
as separate portfolios (the "Predecessor Large Cap Fund" and "Predecessor Small
Cap Fund," respectively, and collectively, the "Predecessor Shawmut Funds") of
The Shawmut Funds. On December 4, 1995, the Predecessor Shawmut Funds were
reorganized as new portfolios of The Galaxy Fund. Prior to the reorganization,
the Predecessor Shawmut Funds offered and sold shares of beneficial interest
that were similar to The Galaxy Fund's Trust Shares and Retail A Shares.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Each whole share (or fractional
share) outstanding on the record date established in accordance with the Trust's
By-Laws shall be entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or fractional share)
in United States dollars determined at the close of business on the record date
(for example, a share having a net asset value of $10.50 would be entitled to
10.5 votes). Shares of the Fund and any other series of the Trust that may be in
existence from time to time generally vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See Part 2 of this SAI for more information.
A-20
On February 1, 1996, the name of the Trust was changed to separate "SteinRoe"
into two words. The name of the Trust was changed on October 18, 1999, from
"Stein Roe Investment Trust" to "Liberty Stein-Roe Investment Trust." On October
13, 2003, the name of the Trust was changed from "Liberty-Stein Roe Investment
Trust" to its current name.
On October 13, 2003, each of the Funds changed their names as follows:
FORMER NAME: CURRENT NAME:
LIBERTY ASSET ALLOCATION FUND COLUMBIA ASSET ALLOCATION FUND
LIBERTY EQUITY GROWTH FUND COLUMBIA LARGE CAP GROWTH FUND
LIBERTY EQUITY VALUE FUND COLUMBIA DISCIPLINED VALUE FUND
LIBERTY LARGE CAP CORE FUND COLUMBIA LARGE CAP CORE FUND
LIBERTY INTERNATIONAL EQUITY FUND COLUMBIA INTERNATIONAL EQUITY FUND
LIBERTY SMALL CAP FUND COLUMBIA SMALL CAP FUND
LIBERTY SMALL COMPANY EQUITY FUND COLUMBIA SMALL COMPANY EQUITY FUND
LIBERTY STRATEGIC EQUITY FUND COLUMBIA DIVIDEND INCOME FUND*
*On October 13, 2003, the Liberty Strategic Equity Fund changed its name to
Columbia Strategic Equity Fund. On October 27, 2003, the Fund changed to its
current name.
INVESTMENT GOAL AND POLICIES
Each Prospectus describes the investment goal and investment strategies and
risks of each Fund to which it pertains. Part 1 of this SAI includes additional
information concerning, among other things, the fundamental investment policies
of the Funds. Part 2 contains, among other things, additional information about
the following securities and investment techniques that may be utilized by the
Funds, unless otherwise noted, subject to any restrictions described in Part 1
of this SAI:
Custody Receipts and Trust Certificates (the Asset Allocation Fund only)
Short-Term Trading
Small Companies (the Small Cap and Small Company Funds only)
Common Stock, Preferred Stock and Warrants
Foreign Securities
Other Investment Companies
Money Market Instruments
Securities Loans
Forward Commitments
"When-Issued" Securities (the Large Cap Core, Dividend, International
and Small Cap Funds only)
"Delayed Delivery" Securities (the Large Cap Core, Dividend and Small
Cap Funds only)
Mortgage Dollar Rolls (the Asset Allocation Fund only)
REITs
Mortgage-Backed Securities (the Asset Allocation Fund only)
Non-Agency Mortgage-Backed Securities (the Asset Allocation Fund only)
Asset-Backed Securities (the Asset Allocation Fund only)
Repurchase Agreements
Reverse Repurchase Agreements
Options on Securities
Futures Contracts and Related Options
Swap Agreements (Swaps, Caps, Collars and Floors)
Foreign Currency Transactions
Rule 144A Securities
Variable and Floating Rate Obligations
Convertible Securities
Yankee Obligations
American, European, Continental and Global Depositary Receipts
(except that only the Large Cap Core, International, Small Cap and
Dividend Funds may invest in GDRs)
Except as indicated below under "Fundamental and Non-Fundamental Investment
Policies," the Funds' investment policies are not fundamental, and the Trustees
may change the policies without shareholder approval.
A-21
FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
In addition to each Fund's investment goal as stated in its Prospectuses, the
following investment limitations are matters of fundamental policy and may not
be changed with respect to a Fund without the affirmative vote of the holders of
a majority of its outstanding shares. A "vote of the holders of a majority of
the outstanding shares" of a particular Fund means the affirmative vote of the
holders of the lesser of (a) more than 50% of the outstanding shares of such
Fund, or (b) 67% or more of the shares of such Fund present at a meeting if more
than 50% of the outstanding shares of such Fund are represented at the meeting
in person or by proxy.
Each of the Asset Allocation Fund, Large Cap Fund, Dividend Fund, Value Fund,
Growth Fund, International Fund, Small Cap Fund and Small Company Fund may not:
1. Borrow money, issue senior securities or mortgage, pledge or hypothecate
its assets except to the extent permitted by the 1940 Act.
2. Make any investment inconsistent with the Fund's classification as a
diversified series of an open-end investment company under the 1940 Act.
3. Concentrate its investments in the securities of one or more issuers
conducting their principal business activities in the same industry (other
than securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities).
4. Make loans except to the extent permitted by the 1940 Act.
5. Underwrite securities of other issuers, except insofar as the Fund
technically may be deemed to be an underwriter under the Securities Act of
1933 in connection with the purchase and sale of its portfolio securities.
6. Purchase or sell real estate, except that the Fund may purchase securities
of issuers which deal or invest in real estate and may purchase securities
which are secured by real estate or interests in real estate.
7. Purchase or sell commodities or commodity contracts except that the Fund
may, to the extent consistent with its investment objective and policies,
purchase and sell financial futures contracts and related options and
foreign currency forward contracts, futures contracts and related options.
With respect to Investment Limitation No. 1 above, the 1940 Act currently
permits a Fund to borrow from any bank, provided that immediately after any such
borrowing, there is an asset coverage of at least 300% for all borrowings of the
Fund. In addition, a Fund may engage in certain securities trading practices,
such as reverse repurchase agreements, that are deemed to be borrowings under
the 1940 Act, provided that the Fund maintains in a segregated custodial account
liquid assets equal to the repurchase price (including accrued interest).
Mortgage dollar rolls and U.S. Treasury rolls entered into by the Asset
Allocation Fund that are not accounted for as financings shall not constitute
borrowings.
With respect to Investment Limitation No. 2 above, the 1940 Act currently
prohibits a diversified Fund from purchasing the securities of any one issuer if
immediately after such purchase more than 5% of the value of its total assets
would be invested in the securities of such issuer or the Fund would own more
than 10% of the outstanding voting securities of such issuer, except that (a) up
to 25% of the value of the Fund's total assets may be invested without regard to
these limitations and (b) the Fund may invest in U.S. Government obligations
without regard to these limitations.
With respect to Investment Limitation No. 4 above, the 1940 Act currently
permits a Fund to lend its portfolio securities against collateral having a
value equal at all times to at least 100% of the value of the securities loaned.
However, no portfolio securities loan shall be made on behalf of a Fund if, as a
result, the aggregate value of all securities loaned by the Fund would exceed
33-1/3% of the value of its total assets (including the value of the collateral
for the loans) at the time of the loan. In addition, a Fund may engage in
certain securities trading practices, such as repurchase agreements, that are
deemed to be loans under the 1940 Act.
NON-FUNDAMENTAL INVESTMENT POLICIES
The following investment limitation with respect to the Funds may be changed by
the Board of Trustees without shareholder approval:
8. A Fund may not sell securities short, maintain a short position, or
purchase securities on margin, except for such short-term credits as are
necessary for the clearance of transactions.
A-22
The following investment limitations with respect to the Asset Allocation Fund,
Dividend Fund, Value Fund, Growth Fund, International Fund and Small Company
Fund may be changed by the Board of Trustees without shareholder approval:
9. A Fund may not write or sell put options, call options, straddles, spreads
or any combination thereof except that (i) each of the Value Fund, Growth
Fund, International Fund and Small Company Fund may, to the extent
consistent with its investment objective and policies, write covered call
options and purchase and sell other options, and (ii) the Asset Allocation
Fund and the Dividend Fund may buy and sell options, including without
limit buying or writing puts and calls, based on any type of security,
index or currency, including options on foreign exchanges and options not
traded on exchanges to the extent permitted by its investment objective
and policies.
10. A Fund may not purchase securities of companies for the purpose of
exercising control.
11. A Fund may not purchase securities of other investment companies except as
permitted by the 1940 Act, except that the Dividend Fund may, from time to
time, on a temporary basis, invest exclusively in one other investment
company similar to the Fund.
The following investment limitation with respect to the Asset Allocation Fund,
Dividend Fund, Value Fund, Growth Fund, International Fund and Small Company
Fund may be changed by the Board of Trustees without shareholder approval:
12. A Fund may not invest more than 15% of its net assets in illiquid
securities.
The following investment limitations with respect to the Large Cap Fund and
Small Cap Fund may be changed by the Board of Trustees without shareholder
approval:
13. The Funds may not invest more than 15% of their respective net assets in
securities subject to restrictions on resale under the Securities Act of
1933 (except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain securities which meet the criteria for
liquidity as established by the Board of Trustees).
14. Each Fund will limit its investments in other investment companies to not
more than 3% of the total outstanding voting stock of any investment
company; will invest no more than 5% of its total assets in any one
investment company; and will invest no more than 10% of its total assets
in investment companies in general. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation,
reorganization or acquisition of assets.
15. The Funds will purchase the securities of other investment companies only
in open market transactions involving only customary broker's commissions.
It should be noted that investment companies incur certain expenses such
as management fees, and therefore any investment by a Fund in shares of
another investment company would be subject to such duplicate expenses.
16. Neither Fund may purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Advisor, owning individually
more than 1/2 of 1% of the issuer's securities, together own more than 5%
of the issuer's securities.
17. Neither Fund may purchase or sell interests in oil, gas, or mineral
exploration or development programs or leases; except that the Funds may
purchase the securities of issuers which invest in or sponsor such
programs.
18. Neither Fund may purchase put options on securities, unless the securities
are held in the Fund's portfolio and not more than 5% of the value of the
Fund's total assets would be invested in premiums on open put option
positions.
19. Neither Fund may write call options on securities, unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment. Neither Fund may write call options in
excess of 5% of the value of its total assets.
20. Neither Fund will invest more than 15% of the value of its respective net
assets in illiquid securities, including repurchase agreements providing
for settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, and certain securities not
determined by the Board of Trustees to be liquid.
21. Neither Fund may invest in companies for the purpose of exercising
management or control.
22. Neither Fund may invest more than 5% of its net assets in warrants. No
more than 2% of this 5% may be warrants which are not listed on the New
York Stock Exchange.
A-23
With respect to Investment Limitation No. 11 above, the 1940 Act currently
prohibits a Fund, subject to certain exceptions, from acquiring the securities
of other investment companies if, as a result of such acquisition, (a) the Fund
owns more than 3% of the total outstanding voting stock of the investment
company; (b) securities issued by any one investment company represent more than
5% of the total assets of the Fund; or (c) securities (other than treasury
stock) issued by all investment companies represent more than 10% of the total
assets of the Fund.
Each Fund may purchase restricted securities, which are any securities in which
the Fund may otherwise invest pursuant to its investment objective and policies
but which are subject to restrictions on resale under the federal securities
laws. Certain restricted securities may be considered liquid pursuant to
guidelines established by the Board of Trustees. To the extent restricted
securities are deemed illiquid, each Fund will limit its purchase, together with
other securities considered to be illiquid, to 15% of its net assets.
Each of the Growth Fund and Small Company Fund may purchase put options and call
options on securities and securities indices. Neither of these Funds may
purchase options unless immediately after any such transaction the aggregate
amount of premiums paid for put or call options does not exceed 5% of its total
assets.
Each of the Value Fund, Growth Fund, International Fund and Small Company Fund
may engage in writing covered call options and may enter into closing purchase
transaction with respect to such options. Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation. The
aggregate value of the securities subject to such options written by these Funds
may not exceed 25% of the value of such Fund's net assets.
The International Fund may, for the purpose of hedging its portfolio, subject to
applicable securities regulations, purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges.
Each of the Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap
Fund may buy and sell options and futures contracts to manage their exposure to
changing interest rates, security prices and currency exchange rates. These
Funds may invest in options and futures based on any type of security, index, or
currency, including options and futures based on foreign exchanges and options
not traded on exchanges. These Funds will not hedge more than 20% of their
respective total assets (10% of net assets with respect to the Asset Allocation
Fund) by selling futures, buying puts, and writing calls under normal
conditions. These Funds will not buy futures or write puts whose underlying
value exceeds 20% of their respective total assets (10% of net assets with
respect to the Asset Allocation Fund), and will not buy calls with a value
exceeding 5% of their respective total assets. These Funds may utilize stock
index futures contracts, options, swap agreements, indexed securities, and
options on futures contracts for the purposes of managing cash flows into and
out of their respective portfolios and potentially reducing transaction costs,
subject to the limitation that the value of these futures contracts, swap
agreements, indexed securities, and options will not exceed 20% of the Funds'
respective total assets (10% of net assets with respect to the Asset Allocation
Fund). These Funds will not purchase put options to the extent that more than 5%
of the value of their respective total assets would be invested in premiums on
open put option positions. In addition, these Funds do not intend to invest more
than 5% of the market value of their respective total assets in each of the
following: futures contracts, swap agreements, and indexed securities. When one
of these Funds enters into a swap agreement, liquid assets of the Fund equal to
the value of the swap agreement will be segregated by that Fund. These Funds may
not use stock index futures contracts and options for speculative purposes.
As a means of reducing fluctuations in the net asset value of shares of the
Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap Fund, the
Funds may attempt to hedge all or a portion of their respective portfolios
through the purchase of listed put options on stocks, stock indices and stock
index futures contracts. These options will be used as a form of forward pricing
to protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates.
The Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap Fund may
only: (1) buy listed put options on stock indices and stock index futures
contracts; (2) buy listed put options on securities held in their respective
portfolios; and (3) sell listed call options either on securities held in their
respective portfolios or on securities which they have the right to obtain
without payment of further consideration (or have segregated cash in the amount
of any such additional consideration). Each of these Funds will maintain its
positions in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed or expired. Each of these Funds
may also enter into stock index futures contracts. A stock index futures
contract is a bilateral agreement which obligates the seller to deliver (and the
purchaser to take delivery of) an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of trading of the contract and the price at which the agreement is
originally made. There is no physical delivery of the stocks constituting the
index, and no price is paid upon entering into a futures contract.
None of the Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap
Fund will enter into futures contracts if, immediately thereafter, the sum of
its initial margin deposits on open contracts exceeds 5% of the market value of
its total assets. Further, these Funds will enter into stock index futures
contracts only for bona fide hedging purposes or such other purposes permitted
under Part 4 of the regulations promulgated by the Commodity Futures Trading
Commission. Also, these Funds may not enter into stock index futures contracts
and options to the extent that the value
A-24
of such contracts would exceed 20% of the Fund's total net assets and may not
purchase put options to the extent that more than 5% of the value of (10% of net
assets with respect to the Asset Allocation Fund) the Fund's total assets would
be invested in premiums on open put option positions.
As one way of managing their exposure to different types of investments, the
Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap Fund may
enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars, and floors.
Each Fund may buy and sell securities denominated in currencies other than the
U.S. dollar, and may receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Funds from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign currencies,
to convert foreign currencies to the U.S. dollar and to convert foreign
currencies to other foreign currencies.
Each of the Asset Allocation Fund, Value Fund, Growth Fund, International Fund,
Small Cap Fund and Small Company Fund may invest in securities issued by other
investment companies which invest in high quality, short-term debt securities
and which determine their net asset value per share based on the amortized cost
or penny-rounding method. The International Fund may also purchase shares of
investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting primarily of
securities of issuers located in one foreign country. The Funds may invest in
other investment companies primarily for the purpose of investing their
short-term cash which has not yet been invested in other portfolio instruments.
However, from time to time, on a temporary basis, each of the Large Cap Core
Fund, Dividend Fund and Small Cap Fund may invest exclusively in one other
investment company similar to the respective Fund.
All debt obligations, including convertible bonds, purchased by the Asset
Allocation Fund, Dividend Fund, Value Fund, Growth Fund and Small Company Equity
Fund are rated investment grade by Moody's (Aaa, Aa, A and Baa) or S&P (AAA, AA,
A and BBB), or, if not rated, are determined to be of comparable quality by the
Advisor. Debt securities rated Baa by Moody's or BBB by S&P are generally
considered to be investment grade securities although they have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher rated debt obligations.
The International Fund may only purchase debt securities rated A or higher by
Moody's or S&P, or if unrated, determined by the Advisor to be of comparable
quality. Issuers of commercial paper, bank obligations or repurchase agreements
in which the International Fund invests must have, at the time of investment,
outstanding debt rated A or higher by Moody's or S&P, or, if they are not rated,
the instrument purchased must be determined to be of comparable quality.
The Large Cap Fund and Small Cap Fund may purchase convertible bonds rated Ba or
higher by Moody's or BB or higher by S&P or Fitch at the time of investment.
Short-term money market instruments purchased by the Large Cap Fund and Small
Cap Fund must be rated in one of the top two rating categories by a nationally
recognized statistical rating agency, such as Moody's, S&P or Fitch.
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or the Advisor may determine that it
is appropriate for a Fund to continue to hold the obligation if retention is in
accordance with the interests of the particular Fund and applicable regulations
of the Securities and Exchange Commission ("SEC"). However, each Fund will sell
promptly any security that is not rated investment grade by either S&P or
Moody's if such securities exceed 5% of the Fund's net assets.
Loans of portfolio securities by the Funds will generally be short-term (except
in the case of the Large Cap Fund and Small Cap Fund, which may loan their
securities on a long-term or short-term basis or both), will be made only to
borrowers deemed by the Advisor to be of good standing and only when, in the
Advisor's judgment, the income to be earned from the loan justifies the
attendant risks. The Funds currently intend to limit the lending of their
portfolio securities so that, at any given time, securities loaned by a Fund
represent not more than one-third of the value of its total assets.
Each Fund will invest no more than 10% of its net assets in REITs.
Except as stated otherwise, if a percentage limitation is satisfied at the time
of investment, a later increase in such percentage resulting from a change in
the value of a Fund's portfolio securities generally will not constitute a
violation of the limitation. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity. With respect to borrowings, if a Fund's asset
coverage at any time falls below that required by the 1940 Act, the Fund will
reduce the amount of its borrowings in the manner required by the 1940 Act to
the extent necessary to satisfy the asset coverage requirement.
A-25
Each Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in the
Prospectuses and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act.
ASSET ALLOCATION FUND
The Asset Allocation Fund may invest up to 25% of its net assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") (EDRs are also known
as Continental Depositary Receipts ("CDRs")). Examples of supranational banks
include the International Bank for Reconstruction and Development ("World
Bank"), the Asian Development Bank and the InterAmerican Development Bank.
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that those
commitments will be undertaken or met in the future. See "Foreign Securities"
and "American, European, Continental and Global Depositary Receipts" in Part 2
of this SAI. The Fund may also invest in dollar-denominated high quality debt
obligations of U.S. corporations issued outside the United States. The Fund may
also buy and sell options and futures contracts, utilize stock index futures
contracts, options, swap agreements, indexed securities and options or futures
contracts, purchase asset-backed and mortgage-backed securities and enter into
foreign currency exchange contracts.
GROWTH FUND
Under normal circumstances, the Growth Fund invests at least 80% of its net
assets (plus any borrowings for investment purposes) in a broadly diversified
portfolio of equity securities, primarily common stocks and securities that can
be converted into common stocks. Convertible securities purchased by the Growth
Fund may include both debt securities and preferred stock. By investing in
convertible securities, the Fund will seek the opportunity, through the
conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible. See "Convertible Securities" in
Part 2 of this SAI. The Fund may also invest in common stock warrants.
The Fund may invest up to 20% of its total assets in foreign securities, either
directly or indirectly through the purchase of ADRs, EDRs and CDRs. In addition,
the Fund may invest in securities issued by foreign branches of U.S. banks and
foreign banks. See "Foreign Securities" and "American, European, Continental and
Global Depositary Receipts" in Part 2 of this SAI. The Fund may also purchase
put options and call options and write covered call options. See "Options on
Securities" in Part 2 of this SAI.
VALUE FUND
Under normal circumstances, the Value Fund invests at least 80% of its net
assets (plus any borrowings for investment purposes) in common stock, preferred
stock (including convertible preferred stock) and debt securities convertible
into common stock, mainly those that the Advisor believes to be undervalued.
Debt securities convertible into common stock are purchased primarily during
periods of relative market instability and are acquired principally for income
with the potential for appreciation being a secondary consideration. See
"Convertible Securities" in Part 2 of this SAI.
The Fund may also invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs, EDRs and CDRs. In addition, the Fund
may invest in securities issued by foreign branches of U.S. banks and foreign
banks. See "Foreign Securities" and
"American, European, Continental and Global Depositary Receipts" in Part 2 of
this SAI. The Fund may also write covered call options. See "Options on
Securities" in Part 2 of this SAI.
LARGE CAP FUND
Under normal market conditions, the Large Cap Fund will invest at least 80% of
its total assets in common stocks, preferred stocks, common stock warrants and
securities convertible into common stock. The Fund may purchase convertible
securities, including convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. See "Convertible Securities" in
Part 2 of this SAI. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Options on Securities" and
"Futures Contracts and Related Options" in Part 2 of this SAI.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs, CDRs and Global Depositary
Receipts ("GDRs"). Securities of a foreign issuer may present greater risks in
the form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund will
not invest in the securities of foreign issuers if any such risk appears to the
Advisor to be substantial. See "Foreign Securities" and "American, European,
Continental and Global Depositary Receipts" in Part 2 of this SAI.
A-26
INTERNATIONAL FUND
The Fund may invest in securities of issuers located in a variety of different
foreign regions and countries, including, but not limited to, Australia,
Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand
and the United Kingdom.
The Fund invests in common stock and may invest in other securities with equity
characteristics, consisting of trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities,
consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock. See "Convertible
Securities" in Part 2 of this SAI. The Fund invests in securities listed on
foreign or domestic securities exchanges and securities traded in foreign or
domestic over-the-counter markets, and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the Fund only
through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described below.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indexes listed on foreign and domestic stock exchanges. In addition, the
Fund may invest up to 100% of its total assets in securities of foreign issuers
in the form of ADRs, EDRs, CDRs or GDRs as described under "American, European,
Continental and Global Depositary Receipts" in Part 2 of this SAI. Furthermore,
the Fund may purchase and sell securities on a when-issued basis.
SMALL CAP FUND
Under normal circumstances, the Small Cap Fund invests at least 80% of its net
assets (plus any borrowings for investment purposes) in stocks of companies that
have market capitalizations similar in size to those companies in the Russell
2000 Index.. In addition to common stocks, the Small Cap Fund may purchase
convertible securities, including convertible preferred stock, convertible bonds
or debentures, units consisting of "usable" bonds and warrants or a combination
of the features of several of these securities. See "Convertible Securities" in
Part 2 of this SAI. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Options on Securities" and
"Futures Contracts and Related Options" in Part 2 of this SAI.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on U.S. securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs, CDRs and GDRs. Securities of
a foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to the Advisor to be
substantial. See "Foreign Securities" and "American, European, Continental and
Global Depositary Receipts" in Part 2 of this SAI.
SMALL COMPANY FUND
In addition to common stocks, the Small Company Fund may invest in preferred
stock, securities convertible into common stock, rights and warrants. Under
normal circumstances, at least 80% of the Fund's net assets (plus any borrowings
for investment purposes) will be invested in stocks of companies that have
market capitalizations similar in size to those companies in the Russell 2000
Growth Index. The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs, EDRs and CDRs. See
"Foreign Securities" and "American, European, Continental and Global Depositary
Receipts" in Part 2 of this SAI.
The Fund may purchase put options and call options and write covered call
options as a hedge against changes resulting from market conditions and in the
value of the securities held in the Fund or which it intends to purchase and
where the transactions are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. See "Options on Securities" in
Part 2 of this SAI.
DIVIDEND FUND
Under normal circumstances, the Dividend Fund invests at least 80% of its net
assets (plus any borrowings for investment purposes) in a diversified portfolio
of income-producing (dividend-paying) equity securities, which will consist
primarily of common stocks but may also include preferred stocks and convertible
securities. The Fund may invest up to 20% of its net asset in debt securities,
including lower-quality debt securities. . The Fund may invest up to 20% of its
total assets in foreign securities, either directly or indirectly through ADRs,
EDRs, CDRs and GDRs. See "Foreign Securities" and "American, European,
Continental and Global Depositary Receipts" in Part 2 of this SAI. The Fund may
also buy and sell options and futures contracts and utilize stock index futures
contracts, options, swap agreements, indexed securities and options on futures
contracts. See "Options on Securities" and "Futures Contracts and Related
Options" in Part 2 of this SAI.
A-27
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectuses under "Financial Highlights."
Each Fund may sell a portfolio investment soon after its acquisition if the
Advisor believes that such a disposition is consistent with the Fund's
investment goal. Portfolio investments may be sold for a variety of reasons,
such as a more favorable investment opportunity or other circumstances bearing
on the desirability of continuing to hold such investments. A portfolio turnover
rate of 100% or more is considered high, although the rate of portfolio turnover
will not be a limiting factor in making portfolio decisions. High portfolio
turnover may cause the Funds to realize capital gains which, if realized and
distributed by the Funds, may be taxable to shareholders as ordinary income.
High portfolio turnover may result in correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds.
For the Value Fund, during the fiscal year ending September 30, 2003, the
turnover decreased from 99% in the prior year to 50%. Part of the decrease was
because of a change in the fiscal year end, resulting in a shortened measurement
period. The remainder of the decline was due to a combination of 1) the
portfolio being well positioned during the end of 2002 and the first part of
2003 and requiring little change, and 2) some enhancements to the investment
process that incorporate an increased focus on risk which has the effect of at
times of lowering turnover. We expect that prospectively turnover will generally
range between 80% and 100%.
For the Growth Fund, during the fiscal year ending September 30, 2003, the
Growth Fund experienced a higher rate of portfolio turnover than during the
previous fiscal year. This was due largely to the repositioning of the Growth
Fund during the fiscal year ending September 30, 2003. The manager sold stocks
of companies with lower projected growth rates and lower price/earnings ratios.
Those securities were replaced with stocks of higher growth companies that the
manager expects will benefit over the long-term from the improving economic
environment.
FUND CHARGES AND EXPENSES
Prior to November 1, 2003, the Advisor was entitled to receive advisory fees,
computed daily and paid monthly, at the annual rate of 0.75% of the average
daily net assets of each Fund other than the International Fund. Effective
November 1, 2003, the Board of Trustees approved a new management fee structure
for the Funds, excluding the International Fund and Small Company Fund, as
follows: 0.75% of the first $500 million of average daily net assets, plus 0.70%
of the next $500 million of average daily net assets, plus 0.65% of the next
$500 million of average daily net assets, plus 0.60% of the next $500 million of
average daily net assets, plus 0.55% of average daily net assets in excess of $2
billion. Effective November 1, 2003, the new management fee structure for the
Small Company Fund is as follows: 0.75% of the first $500 million of average
daily net assets, plus 0.70% of the next $500 million of average daily net
assets, plus 0.65% of average daily net assets in excess of $1 billion. With
respect to the International Fund, the Advisor is entitled to receive advisory
fees, computed daily and paid monthly, at the annual rate of 1.15% of the first
$50 million of the Fund's average daily net assets, plus 0.95% of the next $50
million of such assets, plus 0.85% of net assets in excess of $100 million.
Prior to November 1, 2003, the Funds, other than the International Fund, had
been advised by the Advisor that, effective August 1, 2001, it intended to waive
advisory fees payable by the Funds so that advisory fees payable by the Funds
were as follows: 0.75% of the first $500 million of average daily net assets,
plus 0.70% of the next $500 million of average daily net assets, plus 0.65% of
the next $500 million of average daily net assets, plus 0.60% of the next $500
million of average daily net assets, plus 0.55% of average daily net assets in
excess of $2 billion. Effective November 1, 2003, the Advisor no longer intends
to waive its advisory fees payable to it by the Funds, excluding the
International Fund. For the International Fund, the Advisor has agreed to waive
fees in the amount of 0.25% annually of the average daily net assets for one
year from the date of acquisition of the Galaxy International Equity Fund.
Oechsle International Advisors, LLC ("Oechsle"), a Delaware limited liability
company with principal offices at One International Place, Boston, Massachusetts
02110, served as the sub-advisor to the International Fund until August 10,
2002. For the services provided and the expenses assumed pursuant to the
sub-advisory agreement between the Advisor and Oechsle, the Advisor paid a fee
to Oechsle, computed daily and paid quarterly, at the annual rate of 0.40% of
the first $50 million of the International Fund's average daily net assets, plus
0.35% of average daily net assets in excess of $50 million. The member manager
of Oechsle is Oechsle Group, LLC. FleetBoston Financial Corporation owns
approximately a 35% non-voting interest in Oechsle.
Under each Fund's administration agreement, the Fund pays the Advisor a monthly
fee at the annual rate of 0.0678% of the average daily net assets of the Fund.
Prior to November 26, 2002, the administration agreement was computed daily and
paid monthly at the annual rate of 0.09% of the first $2.5 billion of the
combined average daily net assets of the Funds and the other funds offered by
Galaxy, 0.085% of the next $2.5 billion of combined average daily net assets,
0.075% of the next $7 billion of combined average daily net assets, 0.065% of
the next $3 billion of combined average daily net assets, 0.06% of the next $3
billion of combined average daily net assets, 0.0525% of the next $9 billion of
combined average daily net assets and 0.05% of combined average daily net assets
in excess of $30 billion.
The Advisor is responsible for providing accounting and bookkeeping services to
the Fund pursuant to a pricing and bookkeeping agreement. Under a separate
agreement (outsourcing agreement), the Advisor has delegated those functions to
State Street Bank and Trust Company (State Street). The Advisor pays fees to
State Street under the outsourcing agreement.
A-28
Under its pricing and bookkeeping agreement with the Funds, the Advisor receives
from the Funds an annual fee based on the average daily net assets of each Fund
as follows: $25,000 under $50 million; $35,000 of $50 million but less than $200
million; $50,000 of $200 million but less than $500 million; $85,000 of $500
million but less than $1 billion and $125,000 in excess of $1 billion. The
annual fees for a Fund with more than 25% in non-domestic assets will be 150% of
the annual fees described above. In addition to the above-referenced fees, each
Fund pays an additional $10,000 per annum. Notwithstanding the above, for each
of the Funds, the Advisor waives fees payable to it under the agreement by $500
per month.
Under the shareholders' servicing and transfer agency fee arrangement between
CFS and the Funds, each Fund pays the following fees:
An annual open account fee of $28 per open account plus a Fund's
allocated share of reimbursement for the out-of-pocket expenses of CFS.
Prior to November 1, 2003, the Fund paid a shareholders' servicing and transfer
agency fee to CFS as follows:
- A new account set up charge of $5.00 per account; plus
- An account maintenance fee for each open non-networked account of
$14.00 per annum and for each networked account in the amount of
$100,000 accounts or less of $11.00 per annum and each networked
account in the amount of over $100,000 accounts of $8.00 per annum,
payable on a monthly basis, in an amount equal to 1/12 the per annum
charge; plus
- An account fee for each closed account in the amount of $100,000 or
less of $14.00 per annum and each closed account in the amount of 1
over $100,000 of $11.00 per annum, payable on a monthly basis, in an
amount equal to 1/12 the per annum charge; plus
- The Fund's allocated share of CFS' out-of-pocket expenses reasonably
incurred by CFS in performing its duties and responsibilities pursuant
to this arrangement.
There is a minimum annual fee per Fund of $5,000.
PFPC Inc. ("PFPC") (formerly known as First Data Investor Services Group, Inc.),
located at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, served as
the administrator (until July 2002) and transfer and dividend disbursing agent
(until July 2002) for the Predecessor Funds. PFPC also provided pricing and
bookkeeping services to the Predecessor Funds (until July 2002) and continued to
provide certain of these pricing and bookkeeping services until November 2002.
PFPC is an indirect majority-owned subsidiary of PNC Bank Corp. During the last
three fiscal years, no administration fees were waived by PFPC.
A-29
RECENT FEES PAID TO THE ADVISOR, PFPC AND OTHER SERVICE PROVIDERS (DOLLARS IN
THOUSANDS)
The following tables present recent fees paid to the Advisor, PFPC
and other service providers by the relevant Predecessor Funds.
ASSET ALLOCATION FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- -------------- ------------- ------------
Advisory fee $3,366 $4,135 $5,223 $5,784
Administration fee 301 362 460 546
Bookkeeping fee 138 115 126 123
Shareholder service and transfer agent fee 1,235 1,111 1,142 1,235
12b-1 fees:
Service fee (A Shares)(b) 1 0 0 0
Service fee (B Shares)(c) 2 1 1 1
Service fee (C Shares) (d) (e) (e) (e)
Service fee (G Shares)(f) 180 277 301 277
Service fee (T Shares)(g) 507 723 42 12
Distribution fee (A Shares)(b) 0 (d) (d) 1
Distribution fee (B Shares)(c) 7 3 3 4
Distribution fee (C Shares) 1 (e) (e) (e)
Distribution fee (G Shares)(f) 394 613 662 650
Fees and expenses waived or
reimbursed by the Advisor (36) (33) (18) (17)
Fees waived by CFD (Class G) 0 (23) (7) 0
Fees waived by CFS 0 (20) (26) 0
(a) The Asset Allocation Fund changed its fiscal year end from October 31
to September 30 in 2003.
(b) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime A shares
were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime B shares
were redesignated Class B shares.
(d) Rounds to less than one.
(e) Class C shares were initially offered on November 18, 2002.
(f) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail B shares
were redesignated Class G shares.
(g) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail A shares
were redesignated Class T shares.
GROWTH FUND
Eleven months Years ended October 31,
ended September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ------------ -----------
Advisory fee $6,438 $9,319 $11,772 $13,911
Administration fee 575 816 1,047 1,317
Bookkeeping fee 87 132 140 138
Shareholder service and transfer agent fee 1,942 872 1,214 1,446
12b-1 fees:
Service fee (A Shares)(b) 1 0 0 0
Service fee (B Shares)(c) 1 684 930 1
Service fee (C Shares) 502 (d) (d) (d)
Service fee (G Shares)(e) 166 252 319 285
Service fee (T Shares)(f) 622 0 0 0
Distribution fee (A Shares)(b) 0 1 2 (g)
Distribution fee (B Shares)(c) 4 2 3 3
Distribution fee (C Shares) 2 (d) (d) (d)
Distribution fee (G Shares)(e) 359 558 726 697
Fees and expenses waived or reimbursed by the Advisor (200) (541) (160) (18)
Fees waived by CFD (Class G) 0 (26) (10) 0
Fees waived by CFS 0 (90) (47) 0
A-30
(a) The Equity Growth Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Galaxy Equity Growth Fund, Prime A shares
were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Prime B shares
were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Equity Growth Fund, Retail B shares
were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Equity Growth Fund, Retail A shares
were redesignated Class T shares.
(g) Rounds to less than one.
VALUE FUND
Eleven months Years ended October 31,
ended September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ------------ ------------
Advisory fee $2,267 $2,892 $2,974 $3,813
Administration fee 202 253 260 364
Bookkeeping fee 53 64 64 81
Shareholder service and transfer agent fee 675 481 586 688
12b-1 fees:
Service fee (A Shares) 1 (b) (b) (b)
Service fee (B Shares) (g) (c) (c) (c)
Service fee (C Shares) (g) (d) (d) (d)
Service fee (G Shares) (e) 41 71 80 81
Service fee (T Shares)(f) 329 0 0 0
Distribution fee (B Shares) 1 (c) (c) (c)
Distribution fee (C Shares) (g) (d) (d) (d)
Distribution fee (G Shares)(e) 89 160 188 205
Fees and expenses waived or reimbursed by the Advisor 0 (6) (7) (12)
Fees waived by CFD (Class G) 0 0 (4) 0
Fees waived by CFS (59) 0 (8) 0
(a) The Value Fund changed its fiscal year end from October 31 to September
30 in 2003.
(b) Class A shares were initially offered on November 25, 2002.
(c) Class B shares were initially offered on November 25, 2002.
(d) Class C shares were initially offered on November 25, 2002.
(e) On November 25, 2002, the Galaxy Equity Value Fund, Retail B shares
were redesignated Class G shares.
(f) On November 25, 2002, the Galaxy Equity Value Fund, Retail A shares
were redesignated Class T shares.
(g) Rounds to less than one.
LARGE CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ------------- -------------
Advisory fee 3,311 $5,470 $7,004 $5,900
Advisory fee waiver - 115 41 0
Administration fee 297 479 619 552
Bookkeeping fee
Shareholder service and transfer agent fee 13 667 634 434
12b-1 fees:
Distribution fee (Class A) N/A (g) (g) (g)
Distribution fee (Class B) 4 1 1 1
Distribution fee (Class G) 208 290 369 409
Distribution fee (Class C) 1 N/A N/A N/A
Service fee (Class B) 1 (g) (g) (g)
Service fee (Class G) ** 95 130 168 91
Service fee (Class C) ** (g) N/A N/A N/A
Service fee (Class T) ** 484 N/A N/A N/A
Fees waived by CFS 0 0 (29) 0
A-31
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(b) On November 18, 2002, the Galaxy Large Cap Core Fund, Prime A shares
were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy Large Cap Core Fund, Prime B shares
were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Large Cap Core Fund, Retail B shares
were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Large Cap Core Fund, Retail A shares
were redesignated Class T shares.
(g) Rounds to less than one.
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
---- ----------- ------------- -----------
Advisory fee $3,241 $4,760 $4,985 $5,508
Advisory fee waiver 900 1,341 1,994 2,212
Expense reimbursement by the Advisor N/A 0 0 0
Sub-advisory fee N/A 1,551 2,816 $3,121
Administration fee 241 3523 524 624
Bookkeeping fee
Shareholder service fee * (g) 152 175 282
12b-1 fees:
Distribution fee (Prime A Shares) N/A (g) (g) (g)
Distribution fee (Class B/Prime B Shares) (g) 2 3 4
Distribution fee (Class G/Retail B Shares) 28 42 47 40
Distribution fee (Class C Shares) (g) N/A N/A N/A
Service fee (Class B/Prime B Shares) (g) (g) (g) 1
Service fee (Class C) (g)
Service fee (Class T) 108
Service fee (Class G/Retail B Shares) ** 13 19 16 5
Fees waived by CFD (Class G) 0 (16) (5) 0
Fees waived by CFS (50) (70) (39) 0
(a) The International Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Galaxy International Equity Fund, Prime A
shares were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy International Equity Fund, Prime B
shares were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy International Equity Fund, Retail B
shares were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy International Equity Fund, Retail A
shares were redesignated Class T shares.
(g) Rounds to less than one.
A-32
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ -------------- -----------
Advisory fee $5,236 $4,741 $3,725 $2,844
Administration fee 468 415 328 269
Bookkeeping fee 87 105 88 71
Shareholder service and transfer agent fee 731 316 276 151
12b-1 fees:
Service fee (A shares)(b) 38 0 0 0
Service fee (B shares)(c) 8 (g) (g) (g)
Service fee (C shares) 6 (d) (d) (d)
Service fee (G shares)(e) 26 24 11 7
Service fee (T shares)(f) 319
Distribution fee (A Shares)(b) 0 (g) (g) (g)
Distribution fee (B Shares)(c) 23 2 2 1
Distribution fee (C shares) 19 (d) (d) (d)
Distribution fee (G Shares)(e) 57 54 25 16
Fees and expenses waived or reimbursed by the Advisor (121) (66) (13) (100)
Fees waived by CFD (Class G) 0 0 0 (4)
Fees waived by CFS 0 0 0 (93)
(a) The Small Cap Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime A shares
were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime B shares
were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail B shares
were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail A shares
were redesignated Class T shares.
(g) Rounds to less than one.
SMALL COMPANY FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------- ------------- ------------
Advisory fee $2,185 $2,956 $3,665 $4,110
Administration fee 195 257 323 389
Bookkeeping fee 54 70 88,332 98
Shareholder service and transfer agent fee 789 201 259 316
12b-1 fees:
Service fee (A shares)(b) (c) (d) (d) (d)
Service fee (B shares)(f) (c) (e) (e) (e)
Service fee (C shares)(g) (c) 0 0 0
Service fee (G shares)(h) 22 41 51 50
Service fee (T shares)(i) 156 0 0 0
Distribution fee (A shares)(b) 0 (d) (d) (d)
Distribution fee (B shares)(f) (c) (e) (e) (e)
Distribution fee (C shares)(g) (c) 0 0 0
Distribution fee (G shares)(h) 48 91 113 120
Fees and expenses waived or reimbursed by the Advisor 0 (58) (7) (4)
Fees waived by CFD (G shares) 0 (3) 0 (2)
Fees waived by CFS (26) (22) 0 0
A-33
(a) The Small Company Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime A
shares were redesignated Class A shares.
(c) Rounds to less than one.
(d) Prime A shares were not offered during the period.
(e) Prime B shares were not offered during the period.
(f) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime B
shares were redesignated Class B shares.
(g) Class C shares were initially offered on November 18, 2002.
(h) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail B
shares were redesignated Class G shares.
(i) On November 18, 2002, the Galaxy Small Company Equity Fund l Retail
A shares were redesignated Class T shares.
DIVIDEND FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- -------------- ------------- ------------
Advisory fee $1,227 $381 $643 $97
Advisory fee waiver (4) (102) (234) (181)
Bookkeeping Fee 41 40 0 0
Administration fee 109 33 77 64
Shareholder service and transfer agent fee N/A 24 20 8
12b-1 fees:
Distribution fee (Class A Shares) 0 (d) (d) (d)
Distribution fee (Class B Shares) 2 (d) (d) (d)
Distribution fee (Class C Shares) (e) (d) (d) (d)
Distribution fee (Class G Shares)(c) 61 16 12 9
Service fee (Class B Shares) (e) (d) (d) (d)
Service fee (Class C Shares) (e) (d) (d) (d)
Service fee (Class T Shares)(b) 246 N/A N/A N/A
Service fee (Class G Shares)(c) 28 7 5 2
Fees waived by CFD (G Shares) 0 (e) (e) 0
Fees waived by CFS (e) (4) (6) 0
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(b) On November 25, 2002, the Fund's Retail A shares were redesignated
Class T shares.
(c) On November 25, 2002, the Fund's Retail B shares were redesignated
Class G shares.
(d) Classes A, B and C shares were initially offered on November 25, 2002.
(e) Rounds to less than one.
Fleet Bank, an affiliate of FleetBoston Financial Corporation, was paid a fee
for Sub-Account Services performed with respect to Trust Shares of the
Predecessor Funds held by defined contribution plans. Pursuant to an agreement
between Fleet Bank and PFPC, Fleet Bank was paid $21.00 per year for each
defined contribution plan participant account. For the fiscal year ended October
31, 2002, Fleet Bank received $2,555,258 for Sub-Account Services. PFPC bore
this expense directly, and shareholders of Trust Shares of the Predecessor Funds
bore this expense indirectly through fees paid to PFPC for transfer agency
services.
BROKERAGE COMMISSIONS (DOLLARS IN THOUSANDS)
For the eleven months ended September 30, 2003 and the fiscal years ended
October 31, 2002, 2001 and 2000, the Funds paid brokerage commissions as shown
in the table below. During the eleven months ended September 30, 2003 and the
fiscal years ended October 31, 2002, 2001 and 2000, certain Funds effected a
portion of their portfolio transactions through Quick & Reilly Institutional
Trading ("Quick & Reilly"), a division of Fleet Securities, Inc., which is an
affiliate of the Advisor, and Robertson Stephens Inc. ("Robertson Stephens"),
also an affiliate of the Advisor. The table below discloses (1) the aggregate
amount of commissions paid to Quick & Reilly and Robertson Stephens by the Funds
during the eleven months ended September 30, 2003 and the fiscal years ended
October 31, 2002, 2001 and 2000, (2) the percentage of each Fund's aggregate
brokerage commissions for the eleven months ended September 30, 2003 and the
fiscal years ended October 31, 2002, 2001 and 2000, that was paid to Quick &
Reilly and Robertson Stephens, and (3) the percentage of each Fund's aggregate
dollar amount of transactions that involved payment of commissions that was
effected through Quick & Reilly and Robertson Stephens during the eleven months
ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and
2000. In addition, the table below discloses the soft dollar commissions paid by
the Funds during the eleven months ended September 30, 2003 and the fiscal year
ended October 31, 2002, 2001 and 2000.
A-34
ASSET ALLOCATION FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ----------- ------------ ------------
Total commissions $1,013 $438 $149 $262
Soft dollar commissions 18 100 6 0
Aggregate commissions to Quick & Reilly 0 0 69 173
and Robertson Stephens
% of aggregate commissions to Quick & 0.00% 0.00% 46.55% 0.00%
Reilly and Robertson Stephens
% of aggregate commission transactions 0.00% 0.00% 54.72% 0.00%
effected through Quick & Reilly and
Robertson Stephens
(a) The Asset Allocation Fund changed its fiscal year end from October 31
to September 30 in 2003.
GROWTH FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ----------- ------------
Total commissions $902 $1,925 $1,817 $1,911
Soft dollar commissions 73 123 182
Aggregate commissions to Quick & Reilly 0 0 37 98
and Robertson Stephens
% of aggregate commissions to Quick & 0.00% 0.00% 2.02% 0.00%
Reilly and Robertson Stephens
% of aggregate commission transactions 0.00% 0.00% 2.15% 0.00%
effected through Quick & Reilly
and Robertson Stephens
(a) The Growth Fund changed its fiscal year end from October 31 to
September 30 in 2003.
VALUE FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ------------ -----------
Total commissions $264 $1,515 $1,432 $976
Soft dollar commissions 20 405 195
Aggregate commissions to Quick & Reilly 0 0 700 653
and Robertson Stephens
% of aggregate commissions to Quick & 0.00% 0.00% 48.90% 0.00%
Reilly and Robertson Stephens
% of aggregate commission transactions 0.00% 0.00% 62.41% 0.00%
effected through Quick & Reilly
and Robertson Stephens
Aggregate commissions to Fleet 19 N/A N/A N/A
Securities, Inc.
% of aggregate commissions to Fleet 7.26% N/A N/A N/A
Securities, Inc.
% of aggregate commission transactions 13.67% N/A N/A N/A
effected through Fleet Securities, Inc.
(a) The Value Fund changed its fiscal year end from October 31 to September
30 in 2003.
A-35
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------------- ------------ ----------- -----------
Total commissions $948 $609 $749 $795
Soft dollar commissions 105 25 96
Aggregate commissions to Quick & Reilly and
Robertson Stephens 0 0 102 370
% of aggregate commissions to Quick & Reilly and
Robertson Stephens 0% 0.00% 13.66% 0.00%
% of aggregate commission transactions effected 0.00% 22.14% 0.00%
through Quick & Reilly and Robertson Stephens 0%
Aggregate commissions to Fleet Securities $281 N/a N/a N/a
% of aggregate commissions to Fleet Securities 6.38% N/a N/a N/a
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
INTERNATIONAL FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
-------------- ------------- ---------- ------------
Total commissions $1,579 $0 $1,516 $1,644
Soft dollar commissions 267 0 17
Aggregate commissions to Quick & Reilly N/A N/A N/A N/A
and Robertson Stephens
% of aggregate commissions to Quick & N/A N/A N/A N/A
Reilly and Robertson Stephens
% of aggregate commission transactions N/A N/A N/A N/A
effected through Quick & Reilly and
Robertson Stephens
(a) The Fund changed its fiscal year end from October 31 to September 30
in 2003.
SMALL CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ---------- -----------
Total commissions $1,246,500 $1,209,263 $ 740,498 $458,281
Soft dollar commissions 0 0 38,842
Aggregate commissions to Quick & Reilly and
Robertson Stephens 0 0 18,250 0
% of aggregate commissions to Quick & Reilly
and Robertson Stephens 0.00% 0.00% 2.46% 0.00%
% of aggregate commission transactions
effected through Quick & Reilly and Robertson
Stephens 0.00% 0.00% 2.06% 0.00%
(a) The Small Cap Fund changed its fiscal year end from October 31 to
September 30 in 2003.
A-36
SMALL COMPANY FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ----------- ---------- ----------
Total commissions $2,550 $1,839 $956 $950
Soft dollar commissions 5 12 71
Aggregate commissions to Quick & Reilly
and Robertson Stephens 0 0 0 10
% of aggregate commissions to Quick &
Reilly and Robertson Stephens 0.00% 0.00% 0.00% 0.00%
% of aggregate commission transactions
effected through Quick & Reilly and
Robertson Stephens 0.00% 0.00% 0.00% 0.00%
(a) The Small Company Fund changed its fiscal year end from October 31 to
September 30 in 2003.
DIVIDEND FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------------- ----------- ----------- ----------
Total commissions $76,363 $224 $362 $248
Soft dollar commissions 910 2 24 15
Aggregate commissions to Quick & Reilly 0 0 7 0
and Robertson Stephens
% of aggregate commissions to Quick & 0% 0.00% 0.51% 0%
Reilly and Robertson Stephens
% of aggregate commission transactions 0% 0.00% 1.94% 0%
effected through Quick & Reilly and
Robertson Stephens
Aggregate commissions to Fleet Securities 21 N/A N/A N/A
% of aggregate commissions to Fleet 0.29% N/A N/A N/A
Securities
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
The Trust is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during their most recent fiscal year. At
September 30, 2003, the Funds held securities of their regular brokers or
dealers as set forth below:
Name Broker/Dealer Value
---- ------------- -----
ASSET ALLOCATION FUND CitiGroup, Inc. $11,026
Goldman Sachs Group 2,759
JP Morgan Chase & Co. 2,345
Credit Suisse Group 831
State Street Corp. 653
Nomura Securities Co. LTD 275
Investors Financial Services Corp. 223
Janus Capital Group, Inc. 159
Jefferies Group, Inc. 138
Lehman Brothers Holdings, Inc. 131
Bear Stearns 127
A-37
Name Broker/Dealer Value
---- ------------- -----
VALUE FUND CitiGroup, Inc. $ 14,104
PNC Financial Services Group 6,419
Wachovia Corp. 5,178
Merrill Lynch & Co., Inc. 4,622
LaBrance & Co., Inc. 1,459
DIVIDEND FUND CitiGroup, Inc. $ 9,102
JP Morgan Chase & Co. 4,120
State Street Corp. 1,800
INTERNATIONAL FUND Credit Suisse Corp. $ 9,025
Nomura Securities Co. LTD 3,005
LARGE CAP FUND CitiGroup, Inc. $ 13,475
JP Morgan Chase & Co. 8,041
GROWTH FUND CitiGroup, Inc. $ 31,857
Goldman Sachs Group, Inc. 10,488
SMALL COMPANY FUND Investors Financial Services Corp. $ 4,475
Jefferies Group, Inc. 3,091
TRUSTEES AND TRUSTEES' FEES
Columbia Funds Complex consists of the following funds (the "Funds"):
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the
series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the
series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the
series of Columbia Funds Trust VII, the series of Liberty Variable Investment
Trust and 9 closed-end or interval management investment company portfolios.
(For purposes of this Trustees and Trustees' Fees section only, the "Liberty
Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Trust IX,
the series of Columbia Funds Trust XI, the series of SteinRoe Variable
Investment Trust and 3 closed-end management investment company portfolios. (For
purposes of this Trustees and Trustees' Fees section only, the "Stein Roe
Funds").
Two closed-end management investment company portfolios named Liberty All-Star
Equity Fund and Liberty All-Star Growth Fund, Inc. (For purposes of this
Trustees and Trustees' Fees section only, the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Common Stock Fund, Inc., Columbia Daily
Income Company, Columbia Fixed Income Securities Fund, Inc., Columbia Growth
Fund, Inc., Columbia High Yield Fund, Inc., Columbia International Stock Fund,
Inc., Columbia National Municipal Bond Fund, Inc., Columbia Oregon Municipal
Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia Short Term
Bond Fund, Inc., Columbia Small Cap Growth Fund, Inc., Columbia Mid Cap Growth
Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund,
Inc. and the series of CMG Fund Trust. (For purposes of this Trustees and
Trustees' Fees section only, the "Columbia Funds").
The series of The Galaxy Funds. (For purposes of this Trustees and Trustees'
Fees section only, the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust. (For
purposes of this Trustees and Trustees' fees section only, the "Acorn Funds" and
"WAT Funds," respectively).
A-38
The Advisor or its affiliates pay the compensation of all the officers of the
Funds in the Columbia Funds Complex, including Trustees who are affiliated with
the Advisor. For the fiscal year ended October 31, 2002, the Trustees did not
receive compensation from the Funds because the Funds had not yet commenced
investment operations. For the fiscal year ended September 30, 2003, and the
calendar year ended December 31, 2003, the Trustees received the following
compensation for serving as Trustees:
Aggregate
Compensation from Aggregate Aggregate Aggregate
Pension or the Asset Compensation Compensation from Compensation from
Retirement Allocation Fund from the Growth the Value Fund the Large Cap
Benefits for the Fiscal Fund for the for the Fiscal Fund for the
Trustee(a) Accrued as part Year Ended Fiscal Year Year Ended Fiscal Year Ended
of Fund September 30, Ended September 30, September 30, September 30,
Expenses(b) 2003(c) 2003(c) 2003(c) 2003(c)
----------- ------- ------- ------- -------
Douglas A. Hacker N/A $ 720 $ 984 $1,141 $ 815
Janet Langford Kelly N/A 584 772 1,022 676
Richard W. Lowry N/A 553 708 1,036 653
Salvatore Macera (d) N/A 414 536 683 488
William E. Mayer N/A 786 826 1,090 720
Charles R. Nelson N/A 730 995 1,146 829
John J. Neuhauser N/A 786 1,088 1,189 882
Joseph R. Palombo (e) N/A N/A N/A N/A N/A
Patrick J. Simpson N/A N/A N/A N/A N/A
Thomas E. Stitzel N/A 584 772 1,022 676
Thomas C. Theobald (f) N/A 624 826 1,090 720
Anne-Lee Verville (g) N/A 822 1,124 1,274 930
Richard L. Woolworth N/A N/A N/A N/A N/A
Aggregate Aggregate Aggregate
Aggregate Compensation Compensation from the Compensation from the Compensation from the
from the International Fund Small Cap Fund for the Small Company Fund for Dividend Fund for the
for the Fiscal Year Ended Fiscal Year Ended the Fiscal Year Ended Fiscal Year Ended
Trustee(a) September 30, 2003(c) September 30, 2003(c) September 30, 2003(c) September 30, 2003(c)
--------------------- --------------------- --------------------- ---------------------
Douglas A. Hacker $ 819 $1,007 $ 959 $ 594
Janet Langford Kelly 699 699 850 514
Richard W. Lowry 687 687 855 510
Salvatore Macera (d) 481 481 569 349
William E. Mayer 746 746 907 549
Charles R. Nelson 827 827 964 599
John J. Neuhauser 874 874 1,006 630
Joseph R. Palombo (e) N/A N/A N/A N/A
Patrick J. Simpson N/A N/A N/A N/A
Thomas E. Stitzel 699 699 850 514
Thomas C. Theobald (f) 746 746 907 549
Anne-Lee Verville (g) 925 925 1,074 669
Richard L. Woolworth N/A N/A N/A N/A
A-39
Total Compensation from the Columbia
Funds Complex Paid to the Trustees for
the Calendar Year Ended
Trustee(a) December 31, 2003(a)
--------------------
Douglas A. Hacker $115,500
Janet Langford Kelly 101,500
Richard W. Lowry 128,150
Salvatore Macera (d) 56,500
William E. Mayer 133,150
Charles R. Nelson 155,073
John J. Neuhauser 143,568
Joseph R. Palombo (e) N/A
Patrick J. Simpson 62,234
Thomas E. Stitzel 103,500
Thomas C. Theobald (f) 110,250
Anne-Lee Verville (g) 128,250
Richard L. Woolworth 64,234
(a) As of December 31, 2003, the Columbia Funds Complex consisted of 132
open-end and 15 closed-end management investment company portfolios.
Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth,
then directors/trustees of the Columbia Funds, were appointed to the board
of trustees of the Liberty Funds and Stein Roe Funds. Also effective
October 8, 2003, the trustees of the Liberty Funds and the Stein Roe Funds
were elected as directors/trustees of the Columbia Funds. A single
combined board of trustees/directors now oversees all of the Liberty
Funds, Stein Roe Funds and Columbia Funds. The All-Star Funds, the
Columbia Management Multi-Strategy Hedge Fund, LLC, the Galaxy Funds, the
Acorn Funds and the WAT Funds each have separate boards of
trustees/directors.
(b) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(c) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(d) Mr. Macera retired as a Trustee from the Board of Trustees effective June
18, 2003.
(e) Mr. Palombo does not receive compensation because he is an employee of the
Advisor.
(f) During the fiscal year ended September 30, 2003, and the calendar year
ended December 31, 2003, Mr. Theobald deferred $210 of his compensation
from the Asset Allocation Fund, $194 of his compensation from the Growth
Fund, $630 of his compensation from the Value Fund, $290 of his
compensation from the Large Cap Fund, $347 of his compensation from the
International Fund, $347 of his compensation from the Small Cap Fund, $499
of his compensation from the Small Company Fund and $274 of his
compensation from the Dividend Fund, and $53,250 of his total compensation
from the Columbia Funds Complex pursuant to the deferred compensation
plan. At December 31, 2003, the value of Mr. Theobald's account under that
plan was $55,587.
(g) During the fiscal year ended September 30, 2003, and the calendar year
ended December 31, 2003, Ms. Verville deferred $221 of her compensation
from the Asset Allocation Fund, $203 of her compensation from the Growth
Fund, $662 of her compensation from the Value Fund, $305 of her
compensation from the Large Cap Fund, $364 of her compensation from the
International Fund, $364 of her compensation from the Small Cap Fund, $524
of her compensation from the Small Company Fund and $287 of her
compensation from the Dividend Fund, and $53,250 of her total compensation
from the Columbia Funds Complex pursuant to the deferred compensation
plan. At December 31, 2003, the value of Ms. Verville's account under that
plan was $516,001.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and
supervision of the Fund's affairs and for protecting the interests of the
shareholders. The Trustees meet periodically throughout the year to oversee the
Fund's activities, review contractual arrangements with service providers for
the Fund and review the Fund's performance. The Trustees have created several
committees to perform specific functions for the Fund. Mr. Theobald was elected
Chairman of the Board of Trustees of the Liberty Funds, Stein Roe Funds and
Columbia Funds effective December, 2003.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit
Committee of the Board of Trustees of the Funds. Prior to October 2003, Ms.
Verville and Messrs. Hacker, Nelson and Neuhauser were members of the Audit
Committee of the Board of Trustees of the Fund. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection and
performance of the independent accountants, and reviewing matters relative to
accounting and auditing practices and procedures, accounting records, and the
internal accounting controls, of the Funds and certain service providers. For
the period November 1, 2002 through September 30, 2003, the Audit Committee
convened ten times.
A-40
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance
Committee of the Board of Trustees of the Funds. Prior to October 8, 2003, Ms.
Verville and Messrs. Hacker, Lowry, Mayer and Theobald were members of the
Governance Committee of the Board of Trustees of the Fund. The Governance
Committee's functions include recommending to the Trustees nominees for
independent Trustee positions and for appointments to various committees,
performing periodic evaluations of the effectiveness of the Board, reviewing and
recommending to the Board policies and practices to be followed in carrying out
the Trustees' duties and responsibilities and reviewing and making
recommendations to the Board regarding the compensation of the Trustees who are
not affiliated with the Funds' investment advisors. The Governance Committee
will consider candidates for Trustee recommended by shareholders. Written
recommendations with supporting information should be directed to the Committee,
in care of the Funds. For the period November 1, 2002 through September 30,
2003, the Governance Committee convened five times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory
Fees & Expenses Committee of the Board of Trustees of the Funds. Prior to
October 8, 2003, Ms. Kelly and Messrs. Mayer, Neuhauser, Stitzel and Theobald
were members of the Advisory Fees and Expenses Committee of the Board of
Trustees of the Fund. The Advisory Fees & Expenses Committee's functions include
reviewing and making recommendations to the Board as to contracts requiring
approval of a majority of the disinterested Trustees and as to any other
contracts that may be referred to the Committee by the Board. For the period
November 1, 2002 through September 30, 2003, the Advisory Fees & Expenses
Committee convened five times.
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each Trustee of the Funds also began serving on an Investment
Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an
ongoing basis, a select group of funds in the Columbia Funds Complex and gives
particular consideration to such matters as the Funds' adherence to their
investment mandates, historical performance, changes in investment processes and
personnel, and proposed changes to investment objectives. Investment personnel
who manage the Funds attend IOC meetings from time to time to assist each IOC in
its review of the Funds. Each IOC meets four times a year. The following are
members of the respective IOCs and the general categories of Funds which they
review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing
Funds in the following asset categories: Large Growth Diversified,
Large Growth Concentrated, Small Growth, Outside Managed (i.e.,
sub-advised), Municipal and Bank Loan.
IOC#2: Messrs. Hacker and Palombo and Ms. Verville are responsible for
reviewing Funds in the following asset categories: Large Blend,
Small Blend, Foreign Stock, Fixed Income -- Multi Sector and Fixed
Income - Core.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for
reviewing Funds in the following asset categories: Large Value,
Mid Cap Value, Small Value, Asset Allocation, High Yield and Money
Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for
reviewing Funds in the following asset categories: Large Blend,
Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity,
Taxable Fixed Income and Money Market.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee as of December 31, 2003 (i) in each Fund and (ii) in the
Funds in the Columbia Funds Complex.
A-41
Dollar Range of Equity Dollar Range of Equity Dollar Range of Equity Dollar Range of Equity
Securities Owned in the Securities Owned in Securities Owned in Securities Owned in
Name of Trustee Asset Allocation Fund the Growth Fund the Value Fund the Large Cap Fund
--------------- --------------------- --------------- -------------- ------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 $0 $0 $0
Janet Langford Kelly $0 $0 $0 $0
Richard W. Lowry $0 $0 $0 $0
Charles R. Nelson $50,001-$100,000 $0 $0 $0
John J. Neuhauser $0 $0 $0 $0
Patrick J. Simpson $0 $0 $0 $0
Thomas E. Stitzel $0 $0 $0 $0
Thomas C. Theobald $0 $0 $0 $0
Anne-Lee Verville (a) $0 $0 $0 $0
Richard L. Woolworth $0 $0 $0 $0
INTERESTED TRUSTEES
William E. Mayer $0 $0 $0 $0
Joseph R. Palombo $0 $0 $0 $0
Dollar Range of Equity Dollar Range of Equity Dollar Range of Equity Dollar Range of Equity
Securities Owned in the Securities Owned in Securities Owned in Securities Owned in
Name of Trustee International Fund the Small Cap Fund the Small Company Fund the Dividend Fund
--------------- ------------------ ------------------ ------------------ -------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 $0 $0 $0
Janet Langford Kelly $0 $0 $0 $0
Richard W. Lowry $0 $0 $0 $0
Charles R. Nelson $0 $0 $0 $0
John J. Neuhauser $0 $0 $0 $0
Patrick J. Simpson $0 $0 $0 $0
Thomas E. Stitzel $0 $0 $0 $0
Thomas C. Theobald $0 $0 $0 $0
Anne-Lee Verville (a) $0 $0 $0 $0
Richard L. Woolworth $0 $0 $0 $0
INTERESTED TRUSTEES
William E. Mayer $0 $0 $0 $0
Joseph R. Palombo $0 $0 $0 $0
A-42
Aggregate Dollar Range of Equity Securities
Owned in All Funds Overseen by Trustee in
Name of Trustee Columbia Funds Complex
- --------------- ----------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Over $100,000
Janet Langford Kelly Over $100,000
Richard W. Lowry Over $100,000
Charles R. Nelson Over $100,000
John J. Neuhauser Over $100,000
Patrick J. Simpson $50,001-$100,000
Thomas E. Stitzel $50,001-$100,000
Thomas C. Theobald Over $100,000
Anne-Lee Verville (a) Over $100,000
Richard L. Woolworth Over $100,000
INTERESTED TRUSTEES
William E. Mayer $50,001-$100,000
Joseph R. Palombo $1-$10,000
(a) Ms. Verville has elected to defer her compensation as a Trustee under the
deferred compensation plan for independent Trustees of the Columbia Funds
Complex. The value of her deferred compensation is determined as if the amounts
had been invested, as of the date of deferral, in shares of one or more funds in
the complex as specified by her. At December 31, 2003, the value of her deferred
compensation account exceeded $100,000.
OWNERSHIP OF THE FUNDS
As of record on December 31, 2003, the Trustees and officers of the Trust as a
group owned less than 1% of the outstanding shares of the Funds.
As of record on December 31, 2003, the following shareholders of record owned 5%
or more of the shares of the classes of the Funds noted below:
ASSET ALLOCATION FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
US Clearing Corp 8,102.9510 7.08
FBO 245-05958-10
26 Broadway
New York, NY 10004-1703
US Clearing Corp 6,134.1640 5.36
FBO 131-92787-17
26 Broadway
New York, NY 10004-1703
Clarence D. Williams 7,634.9650 6.67
443-5 St. Anns Avenue
Apt. 11A
Bronx, NY 10455
Columbia Trust Company Rollover IRA 5,993.4380 5.24
George B. OOsterwijk
306 W. El Norte Pkwy. #N410
Escondido, CA 92026-1960
A-43
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Citigroup Global Markets Inc. 2,346.4060 12.83
00112C59463
333 West 34th Street -- 3rd Floor
New York, NY 10001-2402
US Clearing Corp 1,091.5090 5.97
FBO 236-99556-18
26 Broadway
New York, NY 10004-1703
Raymond James & Assoc., Inc. 1,927.0460 10.54
FBO Edmonds Thomas
Bin #47331326
880 Carillon Parkway
St. Petersburg, FL 33716-1100
American Enterprise Investment Svcs 1,402.8630 7.67
FBO 555731661
P.O. Box 9446
Minneapolis, MN 55440-9446
LPL Financial Services 2,164.0630 11.84
A/C 4594-0116
9785 Towne Center Drive
San Diego, CA 92121-1968
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 870,667.1960 5.78
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co 1,305,834.2960 8.67
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
A-44
GROWTH FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Columbia Trust Company IRA 13,984.8130 9.38
Max Borten
1301 Commonwealth Avenue
West Newton, MA 02465-2912
NFSC FEBO # 251-050660 8,136.8150 5.46
Elwood W. Beebe TTEE
Russell S. Tauscher TTEE
The Philipp Manuf Co Retir Pl EM
19 Ward Avenue
Easthampton, MA 01027-2214
NFSC FEBO # 251-050652 27,173.6630 18.23
Elwood W. Beebe TTEE
Russell S. Tauscher TTEE 401K Pl
The Philipp Manufacturing Co
19 Ward Avenue
Easthampton, MA 01027-2214
Pershing LLC 7,824.7260 5.25
PO Box 2052
Jersey City, NJ 07303-2052
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Dean Witter for the Benefit of 5,210.2770 14.59
Disc Roger A. Shiffman TTEE
PO Box 250 Church Street Station
New York, NY 10008-0250
US Clearing Corp 8,947.5840 25.06
FBO 195-04466-23
26 Broadway
New York, NY 10004-1703
US Clearing Corp 2,298.8510 6.44
FBO 245-96575-12
26 Broadway
New York, NY 10004-1703
US Clearing Corp 5,656.5780 15.84
FBO 247-02888-18
26 Broadway
New York, NY 10004-1703
A-45
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Amvescap National Trust Co as Agent 8,731,123.0310 24.05
For Fleet National Bank FBO
FleetBoston Financial Savings Plus
PO Box 105779
Atlanta, GA 30348-5779
Gales & Co 5,027,993.2770 13.85
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
Gales & Co 9,405,643.6380 25.91
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
Gales & Co 7,824,652.6560 21.55
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
VALUE FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Columbia Management Advisors Inc. 10,075.5990 8.57
Nominee for Various Columbia Funds
Attn Jane Howard FBO J. Seed
245 Summer Street FL 3
Boston, MA 02110-1129
Pershing LLC 38,543.9320 32.78
PO Box 2052
Jersey City, NJ 07303-2052
A-46
CLASS B SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Jack B. Yeager TTEE 3,880.8880 5.45
Icon Inc.
Defined Benefit Plan
2429 Sunny Meadow Lane
Vienna, VA 22181-3024
Pershing LLC 3,705.7800 5.20
PO Box 2052
Jersey City, NY 07303-2052
UBS Financial Services Inc. 5,037.0000 7.07
Phillipe Berthet
3 Motley Lane
Charleston, SC 29401-2016
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
American Enterprise Investment Svcs 1,240.4450 8.46
FBO 169099881
PO Box 9446
Minneapolis, MN 55440-9446
American Enterprise Investment Svcs 1,239.0900 8.45
FBO 169098141
PO Box 9446
Minneapolis, MN 55440-9446
Bear Stearns Securities Corp. 1,706.4850 11.64
FBO 459-14706-14
1 Metrotech Center North
Brooklyn, NY 11201-3870
First Clearing Corp 1,319.5820 9.00
A/C 4254-6999
Siera N. Dennis CUST
Lee C. Dennis Laws of GA
2099 Comer Road
Comer, GA 30629-6109
LPL Financial Services 1,193.6910 8.14
A/C 6948-4160
9785 Towne Centre Drive
San Diego, CA 92121-1968
Merrill Lynch Pierce Fenner & Smith 6,818.6400 46.53
For the Sole Benefit of
Its Customers
Attn Fund Administration
4800 Deer Lake Drive E Fl 3
Jacksonville, FL 32246-6484
A-47
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 6,582,119.6300 31.99
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co 6,733,851.9660 32.73
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
Gales & Co 3,414,625.1690 16.60
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
LARGE CAP FUND
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 2,099,449.5880 12.75
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 4,695,973.5880 28.51
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 6,703,395.9290 40.70
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
A-48
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
US CLEARING CORP 3,959.1440 11.64
FBO 134-10437-17
26 Broadway
New York NY 10004-1703
Larry G Stegall 2,254.6520 6.63
1006 Southwest Dr
Davidson NC 28036-9496
Fun Y Chan 2,361.6450 6.95
Tommy Yuen JT WROS
PO BOX 1911
Arlington Hts IL 60006-1911
American Enterprise Investment Svcs 3,507.1940 10.31
FBO 191549541
PO BOX 9446
Minneapolis MN 55440-9446
INTERNATIONAL FUND
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 10,385,215.3470 31.53
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 4,305,959.8280 13.07
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 17,149,274.7380 52.07
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
A-49
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
NFSC FEBO # W81-084980 536.6730 5.62
NFS/FMTC IRA
FBO J Timothy Stebbins
1640 Black Fox Canyon Rd
Henderson NV 89052-6938
A G Edwards & Sons Inc FBO 2,172.0240 22.75
Elizabeth Wolf Paules
TTEE U/A DTD 9/24/97
A/C 0800-064562
1 N Jefferson Ave Saint
Louis MO 63103-2287
LPL Financial Services 526.3160 5.51
A/C 6612-0038
9785 Towne Centre Dr
San Diego CA 92121-1968
Zong Li Chen 4,962.1670 51.97
27 St Andrew Court
Old Westbury NY 11568
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Pershing LLC 2,179.5370 6.28
PO Box 2052
Jersey City NJ 07303-2052
American Enterprise Investment Svcs 2,084.9830 6.01
FBO 573612971
PO Box 9446
Minneapolis MN 55440-9446
CLASS B SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
US Clearing Corp 3,338.5150 8.57
FBO 111-14513-14
26 Broadway
New York NY 10004-1703
Attn Cliff McCoy 5,328.5970 13.67
Wachovia Securities LLC FBO
Housing Auth of the County
Of Kings Employer RETR PL
4-1-81
Hanford CA 93232
A-50
SMALL CAP FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Charles Schwab & Co. Inc. 2,288,723.3970 31.39
CLASS T SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Charles Schwab & Co 1,610,904.2250 17.54
Cust of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Fleet Investment Services Mutual Funds Unit 13,342,355.2250 23.34
159 E. Main Street
Rochester, NY ###-##-####
Fleet Investment Services Mutual Funds Unit 17,387,345.8080 30.42
159 E. Main Street
Rochester, NY ###-##-####
Fleet Investment Services Mutual Funds Unit 13,075,882.2420 22.88
159 E. Main Street
Rochester, NY ###-##-####
SMALL COMPANY FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
U.S. Clearing Corp 5,625.8790 12.14
FBO 113-92691-10
26 Broadway
New York, NY 10004-1703
A-51
CLASS B SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
NFSC FEBO Terry Whitney IRA 1,969.7610 5.95
25 Sherwood Drive
Brockport, NY 14420-1439
NFSC FEBO Mark O. Nevarez & Janice Nevarez 1,664.4470 5.03
25 Sherwood Drive
Brockport, NY 14420-1439
NFSC FEBO Gunter P. Borrosch & Anna Mae 2,730.1010 8.24
Borrosch
25 Sherwood Drive
Brockport, NY 14420-1439
Man Ping Jin 4,225.8010 12.76
14 Balmoral Cres.
White Plains, NY 10607-2202
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
US Clearing Corp. 1,447.1780 15.68
26 Broadway
New York, NY 10004-1703
US Clearing Corp. 705.2190 7.64
26 Broadway
New York, NY 10004-1703
US Clearing Corp. 2,153.6250 23.33
26 Broadway
New York, NY 10004-1703
US Clearing Corp. 526.3160 5.70
26 Broadway
New York, NY 10004-1703
George Berger 1,212.6940 13.14
17 Wren Drive
Hauppauge, NY 11788-1106
LPL Financial Services 514.7560 5.58
9785 Towne Centre Drive
San Diego, CA 92121-1968
A-52
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 5,570,952.1890 29.24
Fleet Investment Services
Mutual Fund Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co 2,236,873.0300 11.74
Fleet Investment Services
Mutual Fund Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co 1,517,161.4050 7.96
Fleet Investment Services
Mutual Fund Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
AMVESCAP National Trust Company AGE 7,926,599.3190 41.61
For Fleet National Bank FBO
FleetBoston Financial Savings Plus
PO Box 105779
Atlanta, GA 30348-5779
DIVIDEND FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
NFSC FEBO # APJ-183695 15,240.6150 9.15
Steven J Baum
220 Northpointe Pkwy Ste G
Amherst NY 14228-1894
Pershing LLC 20,734.2700 12.45
P.O. Box 2052
Jersey City NJ 07303-2052
Fiserv Securities Inc 10,105.8670 6.07
FAO 13870712
Attn: Mutual Funds
One Commerce Square
2005 Market Street Suite 1200
Philadelphia PA 19103-7084
LPL Financial Services 9,011.2990 5.41
A/C 7488-8811
9785 Towne Centre Dr
San Diego CA 92121-1968
A-53
CLASS B SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
American Enterprise Investment Svcs 14,366.9210 5.96
FBO 199476701
PO Box 9446
Minneapolis MN 55440-9446
American Enterprise Investment Svcs 13,808.1420 5.73
FBO 169023141
PO Box 9446
Minneapolis MN 55440-9446
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
NFSC FEBO #N23-580864 5,409.0010 9.96
Larry D. Schroeder
2064 Hopp Rd N
Odessa, WA 99159-9806
UBS Financial Services Inc. FBO 5,036.000 9.27
UBS-FINSVC CUST FBO Cheryl Elston Bell
PO Box 3321
Weehawken, NJ 07086-8154
US Clearing Corp 6,426.7080 11.83
FBO 976-14432-18
26 Broadway
New York, NY 10004-1703
Raymond James & Assoc. Inc. 4,935.8340 9.09
FBO Slippey G
BIN# 80636422
880 Carillon Pkwy
St Petersburg, FL 33716-1100
UBS Financial Services Inc. FBO 5,036.000 9.27
Elizabeth E Newhouse TTEE
U/W Barbara H Ellis
Elizabeth E Newhouse Trust
5339 Auburn Rdg
San Antonio TX 78249-3389
LPL Financial Services 3,182.7500 5.86
A/C 4017-7906
9785 Towne Centre Dr
San Diego CA 92121-1968
A-54
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
USB FBO PF# 89 3,082,308.4440 7.04
Willamette University
97303871
PO Box 1787
Milwaukee WI 53201-1787
USB FBO PF#335 5,807,985.4110 13.26
Tri-Met Pension Trust
97310313
PO Box 1787
Milwaukee WI 53201-1787
Board of TTEES Of the Intermountain 2,680,252.5030 6.12
Retail Store PF# 0186
FBO Intermountain Retail Store Emp
Pension Plan Attn: Richard Hepner
201 Queen Anne Ave N Ste 100
Seattle WA 98109-4824
Meyer Memorial Trust PF#674 3,808,958.4220 8.69
C/O Wayne Pierson
425 NW 10TH Ave Ste 400
Portland OR 97209-3128
Gales & Co 4,272,950.8570 55.71
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 1,697,257.3040 22.13
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
USB FBO 3,388,718.9030 7.73
Oregon Retail Employees
Pension Trust
P.O. Box 1787
Milwaukee WI 53201-1787
Gales & Co 910,479.2900 11.87
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
A-55
SALES CHARGES (DOLLARS IN THOUSANDS)
PFPC Distributors served as distributor for the Predecessor Funds until July 22,
2002. PFPC Distributors, an indirect wholly owned subsidiary of PNC Financial
Services Group, is a registered broker-dealer with principal offices located at
400 Bellevue Parkway, Wilmington, Delaware 19809. Prior to January 2, 2001,
Provident Distributors, Inc. ("PDI") served as distributor for the Predecessor
Funds. Prior to December 1, 1999, First Data Distributors, Inc. ("FD
Distributors"), a wholly-owned subsidiary of PFPC, served as distributor for the
Predecessor Funds. During the eleven months ended September 30, 2003 and the
last three fiscal years, CFD, PFPC Distributors, PDI and/or FD Distributors
received sales charges as follows:
CLASS A SHARES(a)
ASSET ALLOCATION FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $53 $0 $0 $2
Initial sales charges retained by CFD 1 0 0 0
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by CFD 0 0 0 0
CLASS B SHARES(c)
ASSET ALLOCATION FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors $2 $2 $1 $1
CLASS C SHARES(d)
ASSET ALLOCATION FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(e)
ASSET ALLOCATION FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors $239 $333 $399 $369
CLASS T SHARES(f)
ASSET ALLOCATION FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $2 $123 $440 $539
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors 24 0 0 0
A-56
(a) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime A shares
were redesignated Class A shares.
(b) The Asset Allocation Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime B shares
were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail B shares
were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail A shares
were redesignated Class T shares.
CLASS A SHARES(a)
GROWTH FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $143 $0 $0 $985
Initial sales charges retained by CFD 2 0 0 0
Aggregate contingent deferred sales charges (CDSC) on Fund
redemptions retained by CFD 0 0 0 0
CLASS B SHARES(c)
GROWTH FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Fund redemptions retained by CFD,
PFPC Distributors, PDI and/or FD Distributors $ (a) $ (a) $ (a) $ 5
(a) Rounds to less than one.
CLASS C SHARES(d)
GROWTH FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(e)
GROWTH FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Fund redemptions retained by CFD,
PFPC Distributors, PDI and/or FD Distributors 166 $205 $344 $274
CLASS T SHARES(f)
GROWTH FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Predecessor Fund share $5 $302 $584 1,023
sales
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors 23 0 0 0
A-57
(a) On November 18, 2002, the Galaxy Equity Growth Fund, Prime A shares were
redesignated Class A shares.
(b) The Growth Fund changed its fiscal year end from October 31 to September
30 in 2003.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Prime B shares were
redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Equity Growth Fund, Retail B shares were
redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Equity Growth Fund, Retail A shares were
redesignated Class T shares.
CLASS A SHARES(b)
VALUE FUND
Eleven months ended September 30,
---------------------------------
2003(a)
-------
Aggregate initial sales charges on Fund share sales $39
Initial sales charges retained by CFD (b)
Aggregate contingent deferred sales charges (CDSC) on Fund redemptions
retained by CFD 0
(a) Class A Shares were not offered by the Value Fund during the last three
fiscal years.
(b) Rounds to less than one.
CLASS B SHARES(c)
VALUE FUND
Eleven months ended September 30, 2003(a)
-----------------------------------------
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors $0
(a) Class B Shares were not offered by the Value Fund during the last three
fiscal years.
CLASS C SHARES(d)
VALUE FUND
Eleven months ended September 30, 2003(a)
-----------------------------------------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(e)
VALUE FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Predecessor Fund redemptions received by
PFPC Distributors, PDI and/or FD Distributors $31,158 $37,493 $64,007 $117,397
CLASS T SHARES(f)
VALUE FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $1,343 $78 $131 $109
Aggregate CDSC on Fund redemptions retained by CFD, PFPC Distributors, PDI
and/or FD Distributors 0 0 0 0
A-58
CLASS A SHARES
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Initial sales charges retained by CFD $3,735 $7 $463 $0
Aggregate contingent deferred sales charges (CDSC) on Fund redemptions
retained by CFD 0 0 0 0
CLASS B SHARES
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
------- --------- ---------- -------
Aggregate CDSC on Predecessor Fund redemptions received by CFD $901 $794 $80 $280
CLASS C SHARES(b)
LARGE CAP FUND
Eleven months ended September 30, 2003
--------------------------------------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(c)
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Predecessor Fund redemptions received by $91,350 $162,795 $132,046 $222,339
CLASS T SHARES(d)
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $1,654 $122,240 $184,258 $154,459
Aggregate CDSC on Fund redemptions retained by CFD, PFPC Distributors,
PDI and/or FD Distributors 0 0 0 0
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(b) On December 9, 2002, the Fund's, Prime A shares were redesignated Class A
shares.
(c) On December 9, 2002, the Fund's, Prime B shares were redesignated Class B
shares.
(d) Class C Shares were initially offered on December 9, 2002.
(e) On December 9, 2002, the Fund's, Retail B shares were redesignated Class G
shares.
(f) On December 9, 2002, the Fund's, Retail A shares were redesignated Class T
shares.
A-59
CLASS A SHARES
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
---- ---- ---- ----
Aggregate initial sales charges on Fund share sales $497 $0 $0 $138
CLASS B SHARES
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
---- ---- ---- ----
Aggregate CDSC on Fund redemptions received by CFD, $276 $2,630 $84 $3,176
CLASS C SHARES
INTERNATIONAL FUND
Eleven months ended September 30,
---------------------------------
2003
----
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 (a) 2002 2001 2000
-------- ---- ---- ----
Aggregate CDSC on Fund redemptions received by CFD, $13,354 $122,240 $184,258 $154,459
CLASS T SHARES
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 (a) 2002 2001 2000
-------- ---- ---- ----
Aggregate initial sales charges on Fund share sales $ 251 $72,794 $227,881 $163,039
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors $ 7,820 $19,699 $ 32,216 $ 15,689
(a) The Asset Allocation Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Fund's, Prime A shares were redesignated Class A
shares.
(c) On November 18, 2002, the Fund's, Prime B shares were redesignated Class B
shares.
(d) Class C Shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Fund's Retail B shares were redesignated Class G
shares.
(f) On November 18, 2002, the Fund's, Retail A shares were redesignated Class
T shares.
CLASS A SHARES(a)
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---- ---- ----
Aggregate initial sales charges on Fund share sales $563 $5 (c) (c)
Initial sales charges retained by CFD 58 0 0 0
Aggregate contingent deferred sales charges (CDSC) on Fund
redemptions retained by CFD 7 0 0 0
A-60
CLASS B SHARES(d)
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---- ---- ----
Aggregate CDSC on Predecessor Fund redemptions received by
PFPC Distributors, PDI and/or FD Distributors $5 (c) $2 $1
CLASS C SHARES(e)
SMALL CAP FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD (c)
CLASS G SHARES(f)
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- -------- -------- -------
Aggregate CDSC on Predecessor Fund redemptions received by
PFPC Distributors, PDI and/or FD Distributors $27 $17 $10 $95
CLASS T SHARES(g)
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ----------- ----------- -------
Aggregate initial sales charges on Predecessor Fund share sales $10 $423 $127 $62
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors 2 0 0 0
(a) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime A shares were
redesignated Class A shares.
(b) The Small Cap Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(c) Rounds to less than one.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime B shares were
redesignated Class B shares.
(e) Class C Shares were initially offered on November 18, 2002.
(f) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail B shares
were redesignated Class G shares.
(g) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail A shares
were redesignated Class T shares.
CLASS A SHARES(a)
SMALL COMPANY FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate initial sales charges on Fund share sales $23,726
Initial sales charges retained by CFD (c)
Aggregate contingent deferred sales charges (CDSC) on Fund redemptions
retained by CFD 0
A-61
CLASS B SHARES(d)
SMALL COMPANY FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD (c)
Class B Shares were not offered by the Small Company Fund during the last three
fiscal years.
CLASS C SHARES(e)
SMALL COMPANY FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(f)
SMALL COMPANY FUND
Eleven months
ended Fiscal period ended October 31,
September 30, -------------------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Predecessor Fund redemptions received by
PFPC Distributors, PDI and/or FD Distributors $13 $21 $34 $53
CLASS T SHARES(g)
SMALL COMPANY FUND
Eleven months
ended Fiscal period ended October 31,
September 30, -------------------------------
2003(a) 2002 2001 2000
------- --------- --------- --------
Aggregate initial sales charges on Fund share sales $(c) $47 $75 $106
Aggregate CDSC on Fund redemptions retained by CFD, PFPC Distributors,
PDI and/or FD Distributors 6 0 0 0
(a) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime A Shares
were redesignated Class A Shares.
(b) The Small Company Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(c) Rounds to less than one.
(d) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime B shares
were redesignated Class B shares.
(e) Class C Shares were initially offered on November 18, 2002.
(f) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail B
shares were redesignated Class G shares.
(g) On November 18, 2002, the Galaxy Small Company Equity Fund l Retail A
shares were redesignated Class T shares.
CLASS A SHARES(b)
DIVIDEND FUND
Eleven months ended September 30,
---------------------------------
2003(a)
-------
Aggregate initial sales charges on Fund share sales
Initial sales charges retained by CFD $1
Aggregate contingent deferred sales charges (CDSC) on Fund redemptions $0
retained by CFD
A-62
CLASS B SHARES(b)
DIVIDEND FUND
Eleven months ended September 30,
---------------------------------
2003(a)
-------
Aggregate CDSC on Fund redemptions retained by CFD $101
CLASS C SHARES(b)
DIVIDEND FUND
Eleven months ended September 30,
---------------------------------
2003
----
Aggregate CDSC on Fund redemptions retained by CFD $1,563
CLASS G SHARES(c)
DIVIDEND FUND
Eleven Months
ended
September 30 Years ended October 31,
-----------------------
2003(a) 2002 2001 2002
------- ---- ---- ----
Aggregate CDSC on Fund redemptions received by PFPC Distributors, PDI $ 30,195 $45,798 $5,728 $7,119
and/or FD Distributors
CLASS T SHARES(d)
DIVIDEND FUND
Eleven Months
ended
September 30 Years ended October 31,
-----------------------
2003(a) 2002 2001 2002
------- ---- ---- ----
Aggregate initial sales charges on Predecessor Fund share sales $1,167 $59,920 $26,558 $10,187
Aggregate CDSC on Fund redemptions retained by CFD, PFPC Distributors,
PDI and/or FD Distributors 0 0 0 0
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(b) Classes A, B and C shares were initially offered on November 25, 2002.
(c) On November 25, 2002, the Fund's Retail B shares were redesignated class G
shares.
(d) On November 25, 2002, the Fund's Retail A shares were redesignated Class T
shares.
12B-1 PLAN, SHAREHOLDER SERVICING PLAN, CDSCS AND CONVERSION OF SHARES All of
the Funds offer Class A, Class B, Class C, Class G, Class T and Class Z shares.
The Funds may in the future offer other classes of shares. The Trustees have
approved a 12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act. Under the
Plan, the Funds pay CFD monthly a service fee at an annual rate of 0.25% of each
Fund's average daily net assets attributed to Class A, B and C shares. The Funds
also pay CFD monthly a distribution fee at an annual rate of 0.10% of each
Fund's average daily net assets attributed to Class A shares and 0.75% of each
Fund's average daily net assets attributed to Class B and Class C shares. For
the current fiscal year, CFD intends to limit aggregate 12b-1 fees for Class A
shares to 0.25%. The Funds also may pay CFD distribution and service fees up to
a maximum of 1.15% of such Fund's average daily net assets attributable to Class
G shares (comprised of up to 0.65% for distribution services,). For the current
fiscal year, the Fund's payments under the Plan for each of shareholder liaison
services and administrative support services will be limited to 0.95% (on an
annualized basis) of the average daily net asset value of Class G shares owned
of record or beneficially by customers of institutions. Such limitations may be
revoked at any time. CFD may use the entire amount of such fees to defray the
cost of commissions and service fees paid to financial service firms (FSFs) and
for certain other purposes. Since the distribution and service fees are payable
regardless of the amount of CFD's expenses, CFD may realize a profit from the
fees.
The Plan authorizes any other payments by the Funds to CFD and its affiliates
(including the Advisor) to the extent that such payments might be construed to
be indirect financing of the distribution of Fund shares. The Trustees believe
the Plan could be a significant factor in the growth and retention of the Funds'
assets resulting in more advantageous expense ratios and increased investment
flexibility which could benefit each class of Fund shareholders. The Plan will
continue in effect from year to year so long as continuance is specifically
approved at least annually by a vote of
A-63
the Trustees, including the Trustees who are not interested persons of the Trust
and have no direct or indirect financial interest in the operation of the Plan
or in any agreements related to the Plan (Independent Trustees), cast in person
at a meeting called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plan must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plan may be terminated at any time by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plan will only be effective if the selection and nomination of the
Trustees who are not interested persons of the Trust is effected by such
disinterested Trustees.
Class T shares of the Funds are subject to a shareholder servicing fee pursuant
to a Shareholder Servicing Plan. Under the Shareholder Servicing Plan, a Fund
may enter into agreements with institutions pursuant to which an institution
agrees to provide certain administrative and support services to its customers
who are the beneficial owners of Class T shares. Services provided by such
institutions to their customers include aggregating and processing purchase and
redemption requests and placing net purchase and redemption orders. In return
for providing these services, the Fund agrees to pay each institution a fee at
an annual rate of up to 0.50%, up to 0.25% for shareholder liaison services and
up to 0.25% for administrative support services of the average daily net assets
attributable to Class T shares owned beneficially by the institution's
customers. Current service arrangements are limited to payments of 0.30% for the
Funds.
Under the Shareholder Servicing Plan, the Trustees must review, at least
quarterly, a written report of the amounts paid under the servicing agreements
and the purposes for which those expenditures were made. The initial term of the
Shareholder Servicing Plan is one year and it will continue in effect from year
to year after its initial one-year term provided that its continuance is
specifically approved at least annually by a majority of the Trustees, including
a majority of the Independent Trustees who have no direct or indirect financial
interest in the operation of the Shareholder Servicing Plan or in any agreement
related to it. Any material amendment to the Shareholder Servicing Plan must be
approved in the same manner. The Shareholder Servicing Plan is terminable at any
time with respect to any Fund by a vote of a majority of the Independent
Trustees. While the Shareholder Servicing Plan is in effect, only the
Independent Trustees may select and nominate any future Independent Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within a certain number of years after purchase
depending on the program you purchased your shares under. Class C shares are
offered at net asset value and are subject to a 1.00% CDSC on redemptions within
one year after purchase. Class G shares are offered at net asset value and are
subject to a CDSC if redeemed within a certain number of years after purchase
depending on when you purchased your shares that were exchanged for Class G
shares. Class T shares are offered at net asset value plus varying sales charges
which may include a CDSC. Class Z shares are offered at net asset value and are
not subject to a CDSC. The CDSCs are described in the Prospectuses.
No CDSC will be imposed on shares derived from reinvestment of distributions or
amounts representing capital appreciation. In determining the applicability and
rate of any CDSC, it will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing reinvestment of
distributions and finally of other shares held by the shareholder for the
longest period of time.
A certain number of years, depending on the program you purchased your shares
under, after the end of the month in which a Class B share is purchased, such
share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares having an
equal value, which are not subject to the distribution fee.
A certain number of years, depending on when you purchased your shares that were
exchanged for Class G shares, after the end of the month in which you purchased
your shares that were exchanged for Class G shares, such Class G shares and a
pro rata portion of any shares issued on the reinvestment of distributions will
be automatically converted into Class T shares having an equal value, which are
not subject to the distribution fee. See Part 2 of this Statement of Additional
Information for the CDSCs and conversion schedules applicable to Class G shares
received in exchange for Retail B shares purchased or acquired prior to January
1, 2001.
A-64
SALES-RELATED EXPENSES (dollars in thousands) of CFD relating to the Funds for
the fiscal year ended September 30, 2003, were (a):
(a) The Funds changed their fiscal year end from October 31 to September 30 in
2003.
ASSET ALLOCATION FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(b) Shares(c) Shares(d) Shares(e)
--------- --------- --------- --------- ---------
Fees to FSFs $1 $62 $1 $183 $389
Cost of sales material relating to the Fund
(including printing and mailing expenses) (f) 2 (f) 5 2
Allocated travel, entertainment and other
promotional expenses (including
advertising) 1 5 (f) 15 7
(a) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime A shares
were redesignated Class A shares.
(b) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime B shares
were redesignated Class B shares.
(c) Class C shares were initially offered on November 18, 2002.
(d) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail B shares
were redesignated Class G shares.
(e) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail A shares
were redesignated Class T shares.
(f) Rounds to less than one.
GROWTH FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(b) Shares(c) Shares(d) Shares(e)
--------- --------- --------- --------- ---------
Fees to FSFs $9 $19 $2 $216 $465
Cost of sales material relating to the Fund
(including printing and mailing expenses) 2 1 (f) 11 26
Allocated travel, entertainment and other
promotional expenses (including
advertising) 8 2 1 34 81
(a) On November 18, 2002, the Galaxy Equity Growth Fund, Prime A shares were
redesignated Class A shares.
(b) On November 18, 2002, the Galaxy Equity Growth Fund, Prime B shares were
redesignated Class B shares.
(c) Class C shares were initially offered on November 18, 2002.
(d) On November 18, 2002, the Galaxy Equity Growth Fund, Retail B shares were
redesignated Class G shares.
(e) On November 18, 2002, the Galaxy Equity Growth Fund, Retail A shares were
redesignated Class T shares.
(f) Rounds to less than one.
VALUE FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(b) Shares(c) Shares(d) Shares(e)
--------- --------- --------- --------- ---------
Fees to FSFs $1 $6 (f) $44 $251
Cost of sales material relating to the Fund
(including printing and mailing expenses) (f) (f) (f) 2 2
Allocated travel, entertainment and other
promotional expenses (including
advertising) 1 1 (f) 5 7
(a) Class A shares were initially offered on November 25, 2002.
(b) Class B shares were initially offered on November 25, 2002.
(c) Class C shares were initially offered on November 25, 2002.
(d) On November 25, 2002, the Galaxy Value Fund, Retail B shares were
redesignated Class G shares.
(e) On November 25, 2002, the Galaxy Value Fund, Retail A shares were
redesignated Class T shares.
(f) Rounds to less than one.
A-65
LARGE CAP FUND
Class A Class B Class C Class G Class T
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
Fees to FSFs $15 $38 $4 $91 $232
Cost of sales material relating to the Fund
(including printing and mailing expenses) 2 1 (a) 3 3
Allocated travel, entertainment and other
promotional expenses (including advertising) 5 3 (a) 11 10
(a) Rounds to less than one.
INTERNATIONAL FUND
Class A Class B Class C Class G Class T
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
Fees to FSFs $1 $6 (a) $13 $100
Cost of sales material relating to the Fund
(including printing and mailing expenses) (a) (a) (a) 1 82
Allocated travel, entertainment and other
promotional expenses (including advertising) 1 1 (a) 4 254
(a) Rounds to less than one.
SMALL CAP FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(b) Shares(c) Shares(d) Shares(e)
--------- --------- --------- --------- ---------
Fees to FSFs $126 $379 $105 $35 $168
Cost of sales material relating to the Fund
(including printing and mailing expenses) 67 11 15 1 42
Allocated travel, entertainment and other
promotional expenses (including
advertising) 209 33 47 4 132
(a) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime A shares were
redesignated Class A shares.
(b) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime B shares were
redesignated Class B shares.
(c) Class C Shares were initially offered on November 18, 2002.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail B shares
were redesignated Class G shares.
(e) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail A shares
were redesignated Class T shares.
SMALL COMPANY FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(a) Shares(a) Shares(b) Shares(c)
--------- --------- --------- --------- ---------
Fees to FSFs $(d) $3 $(d) $26 $106
Cost of sales material relating to the Fund
(including printing and mailing expenses) (d) (d) (d) 1 26
Allocated travel, entertainment and other
promotional expenses (including
advertising) 1 (d) (d) 4 81
(a) Classes A, B and C were initially offered on November 18, 2002.
(b) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail B
shares were redesignated Class G shares.
(c) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail A
shares were redesignated Class T shares.
(d) Rounds to less than one.
A-66
DIVIDEND FUND
Class A Class B Class C Class G Class T
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
Fees to FSFs $(a) $11 $1 $27 $175
Cost of sales material relating to the Fund
(including printing and mailing expenses) (a) (a) (a) 1 1
Allocated travel, entertainment and other
promotional expenses (including advertising) (a) 1 (a) 3 4
(a) Rounds to less than one.
CUSTODIAN OF THE FUNDS
State Street Bank & Trust Company, located at 2 Avenue De Lafayette, Boston, MA
02111-2900, is the Funds' custodian. The custodian is responsible for
safeguarding the Funds' cash and securities, receiving and delivering securities
and collecting the Funds' interest and dividends.
INDEPENDENT AUDITORS OF THE FUNDS
Ernst & Young LLP, located at 200 Clarendon Street, Boston, MA 02116, are the
independent auditors for the Funds and were the independent auditors for the
Predecessor Galaxy Funds for the eleven months ended September 30, 2003 and the
fiscal years ended on or after October 31, 1999. The financial statements
incorporated by reference in this SAI have been so incorporated, and the
financial highlights included in the Prospectuses have been so included, in
reliance upon the report of Ernst & Young LLP, for the eleven months in the
period ended September 30, 2003 and for the years ended October 31, 2002, 2001,
2000 and 1999, and on the report of the Galaxy Funds' former auditors for the
year ended October 31, 1998, given on the authority of said firms as experts in
auditing and accounting.
A-67
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the
Advisor. "Funds" include the series of Columbia Funds Trust I (formerly named
Liberty Funds Trust I), Columbia Funds Trust II (formerly named Liberty Funds
Trust II), Columbia Funds Trust III (formerly named Liberty Funds Trust III),
Columbia Funds Trust IV (formerly named Liberty Funds Trust IV), Columbia Funds
Trust V (formerly named Liberty Funds Trust V), Columbia Funds Trust VI
(formerly named Liberty Funds Trust VI), Columbia Funds Trust VII (formerly
named Liberty Funds Trust VII), Columbia Funds Trust VIII (formerly named
Liberty-Stein Roe Funds Income Trust), Columbia Funds Trust IX (formerly named
Liberty-Stein Roe Funds Municipal Trust) and Columbia Funds Trust XI (formerly
named Liberty-Stein Roe Funds Investment Trust) (each a Trust and together, the
Trusts). In certain cases, the discussion applies to some, but not all, of the
Funds, and you should refer to your Fund's Prospectus and to Part 1 of this
Statement of Additional Information (SAI) to determine whether the matter is
applicable to your Fund. You will also be referred to Part 1 for certain data
applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF
THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio
securities whenever it believes it is appropriate. The Advisor's decision will
not generally be influenced by how long the Fund may have owned the security.
From time to time, the Fund will buy securities intending to seek short-term
trading profits. A change in the securities held by the Fund is known as
"portfolio turnover" and generally involves some expense to the Fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the Fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than that of other
mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The Fund's portfolio turnover
rate is not a limiting factor when the Advisor considers a change in the Fund's
portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the
sale by the Fund of a security that it does not own with the hope of purchasing
the same security at a later date at a lower price. In order to deliver the
security to the buyer, the Fund borrows the security from a third party. The
Fund is then obligated to return the security to the third party, so the Fund
must purchase the security at the market price at a later point in time. If the
price of the security has increased during this time, then the Fund will incur a
loss equal to the increase in price of the security from the time that the short
sale was entered into plus any premiums and interest paid to the third party.
Therefore, short sales involve the risk that losses may be exaggerated,
potentially losing more money than the actual cost of the security. Also, there
is the risk that the third party to the short sale may fail to honor its
contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by
S&P, or comparable unrated debt securities. Relative to debt securities of
higher quality,
1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default for
lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become
less liquid or respond to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the bonds;
A-68
3. the Advisor's credit analysis of lower-rated debt securities may have a
greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate
changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on
a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities.
Preferred stocks share some of the characteristics of both debt and equity
investments and are generally preferred over common stocks with respect to
dividends and in liquidation. A warrant is an instrument issued by a corporation
which gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the Fund, will be held by the Fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. This "excess
distribution" will be allocated over the Fund's holding period for such
investment. The PFIC tax is the highest ordinary income rate in effect for any
period multiplied by the portion of the "excess distribution" allocated to such
period, and it could be increased by an interest charge on the deemed tax
deferral.
The Fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the Fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxes" below.
OTHER INVESTMENT COMPANIES
The Fund may invest in other investment companies. Such investments will involve
the payment of duplicative fees through the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies.
ZERO COUPON SECURITIES (ZEROS)
The Fund may invest in zero coupon securities, which are securities issued at a
significant discount from face value and do not pay interest at intervals during
the life of the security. Zero coupon securities include securities issued in
certificates representing undivided interests in the interest or principal of
mortgage-backed securities (interest only/principal only), which tend to be more
volatile than other types of securities. The Fund will accrue and distribute
income from stripped securities and certificates on a current basis and may have
to sell securities to generate cash for distributions.
A-69
STEP COUPON BONDS (STEPS)
The Fund may invest in debt securities which pay interest at a series of
different rates (including 0%) in accordance with a stated schedule for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities may be subject to more volatility risk than fixed rate
debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Advisor will consider on an ongoing basis the creditworthiness of the issuer of
the underlying municipal securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying municipal securities and for other
reasons.
PAY-IN-KIND (PIK) SECURITIES
The Fund may invest in securities which pay interest either in cash or
additional securities. These securities are generally high yield securities and,
in addition to the other risks associated with investing in high yield
securities, are subject to the risks that the interest payments which consist of
additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are
issued by supranational entities and are generally designed to promote economic
improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a
commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued
by a business to finance short-term needs (including promissory notes with
floating or variable interest rates, or including a frequent interval put
feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or
less to maturity at the time of purchase) issued by businesses to finance
long-term needs. PARTICIPATION INTERESTS include the underlying securities and
any related guaranty, letter of credit, or collateralization arrangement which
the Fund would be allowed to invest in directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued
against deposits in a commercial bank with a defined return and maturity. TIME
DEPOSITS are non-negotiable deposits maintained in banking institutions for
specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments,
their subdivisions, agencies and instrumentalities. Examples of the types of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (hereinafter, "U.S. Government obligations") that may be held
by the Funds include, without limitation, direct obligations of the U.S.
Treasury, and securities issued or guaranteed by the Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, Federal
National Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates,
maturities and time of issuance: Treasury Bills have initial maturities of one
year or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of more than ten years.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others,
A-70
such as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved relatively little risk of loss
of principal. However, due to fluctuations in interest rates, the market value
of such securities may vary during the period a shareholder owns shares of the
Fund.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank which is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation ("FDIC"), or by a savings and loan association or savings bank which
is insured by the FDIC. Bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Time deposits with a
maturity longer than seven days or that do not provide for payment within seven
days after notice will be subject to any limitations on illiquid securities
described in Part I of this SAI. For purposes of each Fund's investment policies
with respect to bank obligations, the assets of a bank or savings institution
will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of Funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are
component parts of U.S. Treasury Securities traded through the Federal Reserve
Book-Entry System. While there is no limitation on the percentage of a Fund's
assets that may be invested in STRIPS, the Advisor will monitor the level of
such holdings to avoid the risk of impairing shareholders' redemption rights.
The interest-only component of STRIPS is extremely sensitive to the rate of
principal payments on the underlying obligation. The market value of the
principal-only component generally is usually volatile in response to changes in
interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury
securities and buys back on a delayed settlement basis the same U.S. Treasury
securities. During the period prior to the delayed settlement date, the assets
from the sale of the U.S. Treasury securities are invested in certain cash
equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could
suffer an opportunity loss if the counterparty to the roll failed to perform its
obligations on the settlement date, and if market conditions changed adversely.
The Funds intend to enter into U.S. Treasury rolls only with U.S. Government
securities dealers recognized by the Federal Reserve Bank or with member banks
of the Federal Reserve System. The Funds will hold and maintain in a segregated
account until the settlement date cash or other liquid assets in an amount equal
to the forward
A-71
purchase price. For financial reporting and tax purposes, the Funds propose to
treat U.S. Treasury rolls as two separate transactions, one involving the
purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by
businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Commercial paper may include variable and floating rate instruments which are
unsecured instruments that permit the indebtedness thereunder to vary. Variable
rate instruments provide for periodic adjustments in the interest rate. Floating
rate instruments provide for automatic adjustment of the interest rate whenever
some other specified interest rate changes. Some variable and floating rate
obligations are direct lending arrangements between the purchaser and the issuer
and there may be no active secondary market. However, in the case of variable
and floating rate obligations with a demand feature, a Fund may demand payment
of principal and accrued interest at a time specified in the instrument or may
resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation were to default on its payment obligation,
a Fund might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the
extent of the default.
A-72
Commercial paper may include securities issued by corporations without
registration under the 1933 Act in reliance on the so-called "private placement"
exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is
restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) Paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) Paper, thus providing
liquidity. For purposes of each Fund's limitation on purchases of illiquid
instruments described below, Section 4(2) Paper will not be considered illiquid
if the Advisor has determined, in accordance with guidelines approved by the
Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Funds' Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations
issued by governmental entities to obtain Funds for various public purposes,
including the construction of a wide range of public facilities, the refunding
of outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity bonds
that are issued by or on behalf of public authorities to finance various
privately operated facilities are "Municipal Securities" if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be
held by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
Each Fund's portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer. There is no limitation on the amount of moral
obligation securities that may be held by the Funds.
A-73
There are, of course, variations in the quality of Municipal
Securities, both within a particular category and between categories, and the
yields on Municipal Securities depend upon a variety of factors, including
general market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of a
nationally recognized statistical rating organization ("NRSRO"), such as Moody's
and S&P, represent such NRSRO's opinion as to the quality of Municipal
Securities. It should be emphasized that these ratings are general and are not
absolute standards of quality. Municipal Securities with the same maturity,
interest rate and rating may have different yields. Municipal Securities of the
same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and
floating rate tax-exempt instruments, such as variable rate demand notes.
Variable rate demand notes are long-term Municipal Securities that have variable
or floating interest rates and provide a fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on an
applicable interest index or another published interest rate or interest rate
index. Most variable rate demand notes allow a Fund to demand the repurchase of
the security on not more than seven days prior notice. Other notes only permit a
Fund to tender the security at the time of each interest rate adjustment or at
other fixed intervals. Variable interest rates generally reduce changes in the
market value of Municipal Securities from their original purchase prices.
Accordingly, as interest rates decrease, the potential for capital appreciation
is less for variable rate Municipal Securities than for fixed income
obligations. The terms of these variable rate demand instruments require payment
of principal and accrued interest from the issuer of the Municipal Securities,
the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be
insured as to the timely payment of principal and interest. There is no
guarantee, however, that the insurer will meet its obligations in the event of a
default in payment by the issuer. In other cases, Municipal Securities may be
backed by letters of credit or guarantees issued by domestic or foreign banks or
other financial institutions which are not subject to federal deposit insurance.
Adverse developments affecting the banking industry generally or a particular
bank or financial institution that has provided its credit or guarantee with
respect to a Municipal Security held by a Fund, including a change in the credit
quality of any such bank or financial institution, could result in a loss to the
Fund and adversely affect the value of its shares. Letters of credit and
guarantees issued by foreign banks and financial institutions involve certain
risks in addition to those of similar instruments issued by domestic banks and
financial institutions.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this SAI and the Prospectuses. The non-governmental user of facilities
financed by private activity bonds is also considered to be an "issuer." An
issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income. The
Funds cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on Municipal Securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of Municipal
Securities for investment by the Funds and the liquidity and value of their
respective portfolios. In such an
A-74
event, each Fund would re-evaluate its investment objective and policies and
consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds nor
the Advisor will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
A-75
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on
which, although exempt from regular federal income tax, may constitute an item
of tax preference for purposes of the federal alternative minimum tax. Private
activity bonds are or have been issued to obtain funds to provide, among other
things, privately operated housing facilities, pollution control facilities,
convention or trade show facilities, mass transit, airport, port or parking
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Private activity bonds are also issued to
privately held or publicly owned corporations in the financing of commercial or
industrial facilities. State and local governments are authorized in most states
to issue private activity bonds for such purposes in order to encourage
corporations to locate within their communities. The principal and interest on
these obligations may be payable from the general revenues of the users of such
facilities.
Private activity bonds held by the Funds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general
obligation of the municipality for which the municipality's taxing power is
pledged, a municipal lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the
municipal lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
In addition, the tax treatment of such obligations in the event of
non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal
lease obligation, as with any other municipal security, are made based on all
relevant factors. These factors include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the Fund
an amount equal to any dividends or interest received on securities lent. The
Fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the Fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund may also call such loans in order
to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered
open-end investment companies. The Fund may borrow through the program when the
Advisor believes borrowing is appropriate and the costs are equal to or lower
than the costs of bank loans. When borrowing money, the Fund is subject to the
risk that the securities the Fund acquires with the borrowed money or would
otherwise have sold will decline in value. When lending money, the Fund is
subject to the risk that the borrower will be unwilling or unable to make timely
payments of interest or principal.
A-76
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and
"when-issued securities") if the Fund holds until the settlement date, in a
segregated account, cash or liquid securities in an amount sufficient to meet
the purchase price, or if the Fund enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the Fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the Fund of an
advantageous yield or price. Although the Fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the Fund may dispose
of a commitment prior to settlement if the Advisor deems it appropriate to do
so. The Fund may realize short-term profits or losses (generally taxed at
ordinary income tax rates in the hands of the shareholders) upon the sale of
forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The Fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the Fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. In addition, the
transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity
REITs invest directly in real property while mortgage REITs invest in mortgages
on real property. REITs may be subject to certain risks associated with the
direct ownership of real estate, including declines in the value of real estate,
risks related to general and local economic conditions, overbuilding and
increased competition, increases in property taxes and operating expenses, and
variations in rental income. Generally, increases in interest rates will
decrease the value of high yielding securities and increase the costs of
obtaining financing, which could decrease the value of a REIT's investments. In
addition, equity REITs may be affected by changes in the value of the underlying
property owned by the REITs, while mortgage REITs may be affected by the quality
of credit extended. Equity and mortgage REITs are dependent upon management
skill, are not diversified and are subject to the risks of financing projects.
REITs are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Funds intend to include the gross dividends from any investments
in REITs in their periodic distributions to its shareholders and, accordingly, a
portion of the Fund's distributions may also be designated as a return of
capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations"
(CMOs) and "real estate mortgage investment conduits" (REMICs), evidence
ownership in a pool of mortgage loans made by certain financial institutions
that may be insured or guaranteed by the U.S. government or its agencies. CMOs
are obligations issued by special-purpose trusts, secured by mortgages. REMICs
are entities that own mortgages and elect REMIC status under the Internal
Revenue Code. Both CMOs and REMICs issue one or more classes of securities of
which one (the Residual) is in the nature of equity. The Funds will not invest
in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs
may be prepaid if the underlying mortgages are prepaid. Prepayment rates for
mortgage-backed securities tend to increase as interest rates decline
(effectively shortening the security's life) and decrease as interest rates rise
(effectively lengthening the security's life). Because of the prepayment
feature, these securities may not increase in value as much as other debt
securities when interest rates fall. A Fund may be able to invest prepaid
principal only at lower yields. The prepayment of such securities purchased at a
premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are
not guaranteed by the U.S. government or an agency. Such securities are subject
to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed
Securities." In addition, although the underlying mortgages provide collateral
for the security, the Fund may experience losses, costs and delays in enforcing
its rights if the issuer defaults or enters bankruptcy, and the Fund may incur a
loss.
A-77
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by
various types of loans such as credit card, auto and home equity loans. These
securities involve prepayment risk, which is the possibility that the underlying
debt may be refinanced or prepaid prior to maturity during periods of declining
interest rates. During periods of rising interest rates, asset-backed securities
have a high risk of declining in price because the declining prepayment rates
effectively lengthen the expected maturity of the securities. A decline in
interest rates may lead to a faster rate of repayment on asset-backed securities
and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In
addition, the potential impact of prepayment on the price of an asset-backed
security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as
Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such
as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are
derivative products which, in the aggregate, evidence direct ownership in a pool
of securities. Typically, a sponsor will deposit a pool of securities with a
custodian in exchange for custody receipts evidencing those securities or with a
trust in exchange for trust certificates evidencing interests in the trust, the
principal asset of which is those securities. The sponsor will then generally
sell those custody receipts or trust certificates in negotiated transactions at
varying prices that are determined at the time of sale. Each custody receipt or
trust certificate evidences the individual securities in the pool and the holder
of a custody receipt or trust certificate generally will have all the rights and
privileges of owners of those securities. Each holder of a custody receipt or
trust certificate generally will be treated as directly purchasing its pro rata
share of the securities in the pool for an amount equal to the amount that such
holder paid for its custody receipt or trust certificate. If a custody receipt
or trust certificate is sold, a holder will be treated as having directly
"disposed of its pro rata share of the securities evidenced by the custody
receipt or trust certificate. Additionally, the holder of a custody receipt or
trust certificate may withdraw the securities represented by the custody receipt
or trust certificate subject to certain conditions. Custody receipts and trust
certificates are generally subject to the same risks as those securities
evidenced by the receipts or certificates which, in the case of the Fund, are
corporate debt securities. Additionally, custody receipts and trust certificates
may also be less liquid than the underlying securities if the sponsor fails to
maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the Fund acquires a security for a relatively short period
subject to the obligation of the seller to repurchase and the Fund to resell
such security at a fixed time and price (representing the Fund's cost plus
interest). It is the Fund's present intention to enter into repurchase
agreements only with commercial banks and registered broker-dealers and only
with respect to obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as loans made by the
Fund which are collateralized by the securities subject to repurchase. The
Advisor will monitor such transactions to determine that the value of the
underlying securities is at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller defaults,
the Fund could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, if the
seller should be involved in bankruptcy or insolvency proceedings, the Fund may
incur delay and costs in selling the underlying security or may suffer a loss of
principal and interest if the Fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the Fund
and, therefore, as a form of leverage. The Fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the Fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The Fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The Fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each Fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
A-78
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order
to permit borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowings may be preferable to liquidation of
portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Advisor,
such transactions are consistent with the Fund's investment goal and policies.
Call options written by the Fund give the purchaser the right to buy the
underlying securities from the Fund at a stated exercise price; put options give
the purchaser the right to sell the underlying securities to the Fund at a
stated price.
The Fund may write only covered options, which means that, so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the Fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The Fund may
write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The Fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the Fund writes a call option but does not own the underlying security, and
when it writes a put option, the Fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the Fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
Fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the Fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the Fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Fund might
have realized had it bought the underlying security at the time it purchased the
call option.
A-79
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment
Management of the Securities and Exchange Commission (SEC) has taken the
position that OTC options purchased by the Fund and assets held to cover OTC
options written by the Fund are illiquid securities. Although the Staff has
indicated that it is continuing to evaluate this issue, pending further
developments, the Fund intends to enter into OTC options transactions only with
primary dealers in U.S. government securities and, in the case of OTC options
written by the Fund, only pursuant to agreements that will assure that the Fund
will at all times have the right to repurchase the option written by it from the
dealer at a specified formula price. The Fund will treat the amount by which
such formula price exceeds the amount, if any, by which the option may be
"in-the-money" as an illiquid investment. It is the present policy of the Fund
not to enter into any OTC option transaction if, as a result, more than 15% (10%
in some cases, refer to your Fund's Prospectus) of the Fund's net assets would
be invested in (i) illiquid investments (determined under the foregoing formula)
relating to OTC options written by the Fund, (ii) OTC options purchased by the
Fund, (iii) securities which are not readily marketable, and (iv) repurchase
agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options
strategies depends on the ability of the Advisor to forecast interest rate and
market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the Fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the Fund
will lose part or all of its investment in the option. This contrasts with an
investment by the Fund in the underlying securities, since the Fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the Fund's ability to terminate
option positions at times when the Advisor deems it desirable to do so. Although
the Fund will take an option position only if the Advisor believes there is a
liquid secondary market for the option, there is no assurance that the Fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of option transactions, which may limit the Fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the Fund has
expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements,
cash or liquid securities, equal in value to the amount of the Fund's obligation
under the contract (less any applicable margin deposits and any assets that
constitute "cover" for such obligation), will be segregated with the Fund's
custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type
A-80
of instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken at the settlement date
are not determined until on or near that date. The determination is made in
accordance with the rules of the exchanges on which the futures contract was
made. The Fund may enter into futures contracts which are traded on national or
foreign futures exchanges and are standardized as to maturity date and
underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received
by the Fund upon the purchase or sale of a futures contract, although the Fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. government securities. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the Fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the Fund. The Fund may
close its positions by taking opposite positions which will operate to terminate
the Fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both
the cash market and the futures market. In the cash market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally within five business days after the trade. In the futures
market, only a contract is made to purchase or sell a bond in the future for a
set price on a certain date. Historically, the prices for bonds established in
the futures markets have tended to move generally in the aggregate in concert
with the cash market prices and have maintained fairly predictable
relationships. Accordingly, the Funds may use interest rate futures contracts as
a defense, or hedge, against anticipated interest rate changes. The Funds
presently could accomplish a similar result to that which they hope to achieve
through the use of futures contracts by selling bonds with long maturities and
investing in bonds with short maturities when interest rates are expected to
increase, or conversely, selling short-term bonds and investing in long-term
bonds when interest rates are expected to decline. However, because of the
liquidity that is often available in the futures market, the protection is more
likely to be achieved, perhaps at a lower cost and without changing the rate of
interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A-81
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures
contracts may act as a hedge against changes in market conditions. A municipal
bond index assigns values daily to the municipal bonds included in the index
based on the independent assessment of dealer-to-dealer municipal bond brokers.
A municipal bond index futures contract represents a firm commitment by which
two parties agree to take or make delivery of an amount equal to a specified
dollar amount multiplied by the difference between the municipal bond index
value on the last trading date of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond
Buyer Municipal Bond Index. This Index is composed of 40 term revenue and
general obligation bonds, and its composition is updated regularly as new bonds
meeting the criteria of the Index are issued and existing bonds mature. The
Index is intended to provide an accurate indicator of trends and changes in the
municipal bond market. Each bond in the Index is independently priced by six
dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged
and multiplied by a coefficient. The coefficient is used to maintain the
continuity of the Index when its composition changes. The Chicago Board of
Trade, on which futures contracts based on this Index are traded, as well as
other U.S. commodities exchanges, are regulated by the CFTC. Transactions on
such exchange are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
liquid securities equal in value to the commodity value (less any applicable
margin deposits) have been deposited in a segregated account. The Fund may
purchase and write call and put options on futures contracts it may buy or sell
and enter into closing transactions with respect to such options to terminate
existing positions. The Fund may use such options on futures contracts in lieu
of writing options directly on the underlying securities or purchasing and
selling the underlying futures contracts. Such options generally operate in the
same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the Fund is subject to the Advisor's ability to predict
correctly, movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market
A-82
on an exchange include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES
CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase
and sell futures contracts and related options on interest rate and U.S.
Treasury securities when, in the opinion of the Advisor, price movements in
these security futures and related options will correlate closely with price
movements in the tax-exempt securities which are the subject of the hedge.
Interest rate and U.S. Treasury securities futures contracts require the seller
to deliver, or the purchaser to take delivery of, the type of security called
for in the contract at a specified date and price. Options on interest rate and
U.S. Treasury security futures contracts give the purchaser the right in return
for the premium paid to assume a position in a futures contract at the specified
option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in interest rate and U.S. Treasury security
futures contracts and related options will not correlate closely with price
movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The Fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The Fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the Fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Advisor will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject
to the Advisor's ability to predict correctly movements in the direction of the
market. It is possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the Fund's portfolio may
decline. If this occurs, the Fund would lose money on the futures and also
experience a decline in the value of its portfolio securities. However, while
this could occur to a certain degree, the Advisor believes that over time the
value of the Fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the Fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the Fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result,
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and
A-83
also because of the imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast of general
market trends by the Advisor may still not result in a successful hedging
transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put
options on index futures, the Fund may purchase call and put options on the
underlying indices themselves. Such options could be used in a manner identical
to the use of options on index futures. Options involving securities indices
provide the holder with the right to make or receive a cash settlement upon
exercise of the option based on movements in the relevant index. Such options
must be listed on a national securities exchange and issued by the Options
Clearing Corporation. Such options may relate to particular securities or to
various stock indices, except that a Fund may not write covered options on an
index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of
hedging its portfolio, subject to applicable securities regulations, purchase
and write put and call options on foreign stock indices listed on foreign and
domestic stock exchanges. A stock index fluctuates with changes in the market
values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other
types of swap agreements such as caps, collars, and floors. In a typical
interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payments in different currencies, the
parties might agree to exchange notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if
A-84
the counterparty's creditworthiness deteriorates. The Funds may also suffer
losses if they are unable to terminate outstanding swap agreements or reduce
their exposure through offsetting transactions.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When
it engages in transaction hedging, the Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio
securities. The Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the Fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the Fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the Fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
Fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the Fund expects to purchase, when
the Fund holds cash or short-term investments). In connection with position
hedging, the Fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The Fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the Fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the Fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the Fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated.
A-85
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
Fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit (ECU).
The ECU is composed of amounts of a number of currencies, and is the official
medium of exchange of the European Economic Community's European Monetary
System. The Fund will only purchase or write currency options when the Advisor
believes that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex
political and economic factors applicable to the issuing country. In addition,
the exchange rates of currencies (and therefore the values of currency options)
may be significantly affected, fixed, or supported directly or indirectly by
government actions. Government intervention may increase risks involved in
purchasing or selling currency options, since exchange rates may not be free to
fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies
A-86
remain open, significant price and rate movements may take place in the
underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments
in foreign securities and to the Fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the Fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The Fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the Fund in connection with the arrangement. The Fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the Fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the Fund, although it could sell the underlying municipal
obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund portfolio will not exceed 10% of the value
of the Fund's total assets calculated immediately after each stand-by commitment
is acquired. The Fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Some variable
and floating rate obligations are direct lending arrangements between the
purchaser and the issuer and there may be no active secondary market. However,
in the case of variable and floating rate obligations with a demand feature, a
Fund may demand payment of principal and accrued interest at a time specified in
the instrument or may resell the instrument to a third party. In the event an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. Variable or floating rate instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but may have a more active secondary market. Substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
A-87
If a variable or floating rate instrument is not rated, the Fund's
Advisor must determine that such instrument is comparable to rated instruments
eligible for purchase by the Funds and will consider the earning power, cash
flows and other liquidity ratios of the issuers and guarantors of such
instruments and will continuously monitor their financial status in order to
meet payment on demand. In determining average weighted portfolio maturity of
each of these Funds, a variable or floating rate instrument issued or guaranteed
by the U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the obligation's next
interest rate adjustment. Variable and floating rate obligations with a demand
feature will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are
eligible for purchase and sale pursuant to Rule 144A under the Securities Act of
1933, as amended (1933 Act). That Rule permits certain qualified institutional
buyers, such as the Fund, to trade in privately placed securities that have not
been registered for sale under the 1933 Act. The Advisor, under the supervision
of the Board of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's investment restriction on
illiquid securities. A determination of whether a Rule 144A security is liquid
or not is a question of fact. In making this determination, the Advisor will
consider the trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the Advisor could
consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market, and (4) nature
of the security and of marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
The liquidity of Rule 144A securities will be monitored and, if as a result of
changed conditions, it is determined by the Advisor that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities would be reviewed
to determine what, if any, steps are required to assure that the Fund does not
exceed its investment limit on illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the Fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make
or receive payments in specified currencies. Currency swaps usually involve the
delivery of the entire principal value of one designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Advisor is incorrect in its forecast
of market value and currency exchange rates, the investment performance of a
Fund would be less favorable than it would have been if this investment
technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be
exchanged or converted into a predetermined number of shares of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants, which
are options to buy the common stock, they function as convertible bonds, except
that the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities and therefore have a claim to the
assets of the issuer prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar non-convertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. A Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in the Advisor's opinion, the investment
characteristics of the underlying common stock will assist the Fund in achieving
its investment objective. Otherwise, the Fund will hold or trade the convertible
securities. In selecting convertible securities for a Fund, the Advisor
evaluates the investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying equity
security for capital appreciation.
A-88
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued
by U.S. and Canadian insurance companies, a Fund makes cash contributions to a
deposit fund of the insurance company's general account. The insurance company
then credits to the fund payments at negotiated, floating or fixed interest
rates. A GIC is a general obligation of the issuing insurance company and not a
separate account. The purchase price paid for a GIC becomes part of the general
assets of the insurance company, and the contract is paid from the company's
general assets.
The Funds will only purchase GICs that are issued or guaranteed by
insurance companies that at the time of purchase are rated at least AA by S&P or
receive a similar high quality rating from a nationally recognized service which
provides ratings of insurance companies. GICs are considered illiquid securities
and will be subject to any limitations on such investments described in Part I
of this SAI, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available. No Fund will
invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain
quality and asset size requirements for banks are available to the Funds.
Pursuant to BICs, cash contributions are made to a deposit account at the bank
in exchange for payments at negotiated, floating or fixed interest rates. A BIC
is a general obligation of the issuing bank. BICs are considered illiquid
securities and will be subject to any limitations on such investments described
in Part I of this SAI, unless there is an active and substantial secondary
market for the particular instrument and market quotations are readily
available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by
the lending bank or agent for a syndicate of lending banks, and sold by the
lending bank or syndicate member. The Funds may only purchase interests in loan
participations issued by a bank in the United States with assets exceeding $1
billion and for which the underlying loan is issued by borrowers in whose
obligations the Funds may invest. Because the intermediary bank does not
guarantee a loan participation in any way, a loan participation is subject to
the credit risk generally associated with the underlying corporate borrower. In
addition, in the event the underlying corporate borrower defaults, a Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of the borrower. Under the terms of a loan participation, the
purchasing Fund may be regarded as a creditor of the intermediary bank so that
the Fund may also be subject to the risk that the issuing bank may become
insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be
designed to have various combinations of equity and fixed-income
characteristics. Equity-linked securities are a form of structured investment
and generally consist of a conversion privilege to a single company's common
stock plus a fixed annual distribution to the holder. Equity-linked securities
have some derivative characteristics because the conversion feature is linked to
the price of the company's common stock. Equity-linked securities are designed
to provide investors with higher quarterly income than the dividend paid per
share on the common stock. However, equity-linked securities have decreased
potential for capital appreciation because of limitations of the conversion
feature.
Equity-linked securities include issues such as "Structured Yield
Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange
Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"),
"Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities,
including those which may be developed in the future. The issuers of the above
listed examples of equity-linked securities generally purchase and hold a
portfolio of stripped U.S. Treasury securities maturing on a quarterly basis
through the conversion date, and a forward purchase contract with an existing
shareholder of the company relating to the common stock. Quarterly distributions
on equity-linked securities generally consist of the cash received from the U.S.
Treasury securities and equity-linked securities generally are not entitled to
any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of
investment companies. To the extent that equity-linked securities are issued by
investment companies, a Fund's investments in equity-linked securities are
subject to the same limitations as investments in more traditional forms of
investment companies.
A-89
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign
issuers that are either registered with the SEC or issued pursuant to Rule 144A
under the 1933 Act. These obligations consist of debt securities (including
preferred or preference stock of non-governmental issuers), certificates of
deposit, fixed time deposits and banker's acceptances issued by foreign banks,
and debt obligations of foreign governments or their subdivisions, agencies and
instrumentalities, international agencies and supranational entities. Some
securities issued by foreign governments or their subdivisions, agencies and
instrumentalities may not be backed by the full faith and credit of the foreign
government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered
form by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. European Depositary Receipts ("EDRs"),
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe typically by non-U.S. banks or trust companies and
foreign branches of U.S. banks that evidence ownership of foreign or U.S.
securities. Global Depositary Receipts ("GDRs") are receipts structured
similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a
national securities exchange or may be traded in the over-the-counter market.
EDRs and CDRs are designed for use in European exchange and over-the-counter
markets. GDRs are designed for trading in non-U.S. securities markets. ADRs,
EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an
active or substantial secondary market will be considered illiquid and therefore
will be subject to the Funds' respective limitations with respect to such
securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR,
there may be less information available to the Fund concerning the issuer of the
securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for
an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices
are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs
involve risks similar to those accompanying direct investments in foreign
securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage
transactional expenses. These cash balances are expected, under normal
conditions, not to exceed 2% of each Fund's net assets at any time (excluding
amounts used as margin and segregated assets with respect to futures
transactions and collateral for securities loans and repurchase agreements). The
Funds may invest these temporary cash balances in short-term debt obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities ("U.S. Government Securities"), high quality commercial paper
(rated A-1 or better by S&P or P-1 or better by Moody's), certificates of
deposit and time deposits of banking institutions having total assets in excess
of $1 billion, and repurchase agreements collateralized by U.S. Government
Securities. The Funds may also hold these investments in connection with U.S.
Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels
relate to U.S. federal taxes only. Consult your tax advisor for state, local and
foreign tax considerations and for information about special tax considerations
that may apply to shareholders that are not natural persons or not U.S. citizens
or resident aliens.
FEDERAL TAXES. The Fund (even if it is a fund in a Trust with multiple series)
is treated as a separate entity for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (Code). The Fund has elected (or in
the case of a new fund, intends to elect) to be, and intends to qualify to be
treated each year as, a "regulated investment company" under Subchapter M of the
Code by meeting all applicable requirements of Subchapter M, including
requirements as to the nature of the Fund's gross income, the amount of its
distributions (as a percentage of both its overall income and any tax-exempt
income), and the composition of its portfolio assets. To qualify as a "regulated
investment company," the Fund must (a) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies or
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (b) diversify its holdings so that, at the
close of each quarter of its taxable year, (i) at least 50% of the value of its
total assets consists of cash, cash items, U.S. government securities,
securities of other regulated investment companies and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the Fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any issuer (other than U.S. government securities or other
regulated investment companies); or of two or more issuers which the Fund
controls and which are engaged in the same, similar, or related trades or
businesses;and (c) distribute with respect to each year at least 90% of its
A-90
taxable net investment income, its tax-exempt interest income and the excess, if
any, of net short-term capital gains over net long-term capital losses for such
year. As a regulated investment company that is accorded special tax treatment,
the Fund will not be subject to any federal income taxes on its net investment
income and net realized capital gains that it distributes to shareholders in
accordance with the timing requirements imposed by the Code. The Fund's
foreign-source income, if any, may be subject to foreign withholding taxes. If
the Fund were to fail to qualify as a "regulated investment company" in any
year, it would incur a regular federal corporate income tax on all of its
taxable income, whether or not distributed, and Fund distributions would
generally be taxable as ordinary dividend income to the shareholders, except to
the extent they were treated as "qualified dividend income," as described below.
In addition, the Fund could be required to recognize unrealized gains, pay
substantial taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is accorded special tax
treatment.
If the Fund fails to distribute in a calendar year substantially all of its
ordinary income for such year and substantially all of its capital gain net
income for the one-year period ending October 31 (or later if the Fund is
permitted so to elect and so elects), plus any retained amount from the prior
year, the Fund will be subject to a 4% excise tax on the underdistributed
amounts. A dividend paid to shareholders by the Fund in January of a year
generally is deemed to have been paid by the Fund on December 31 of the
preceding year, if the dividend was declared and payable to shareholders of
record on a date in October, November or December of that preceding year. The
Fund intends generally to make distributions sufficient to avoid imposition of
the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from
regular federal income tax may subject corporate shareholders to or increase
their liability under the corporate alternative minimum tax (AMT). A portion of
such distributions may constitute a tax preference item for individual
shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
Fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT. The dividends received
deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a
shareholder in excess of the Fund's current and accumulated "earning and
profits" in any taxable year, the excess distribution will be treated as a
return of capital to the extent of your tax basis in your shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces your tax
basis in your shares, thus reducing any loss or increasing any gain on a
subsequent taxable disposition by you of your shares. Dividends and
distributions on a Fund's shares are generally subject to federal income tax as
described herein to the extent they do not exceed the Fund's realized income and
gains, even though such dividends and distributions may economically represent a
return of a particular shareholder's investment. Such distributions are likely
to occur in respect of shares purchased at a time when a Fund's net asset value
reflects gains that are either unrealized, or realized but not distributed. Such
realized gains may be required to be distributed even when a Fund's net asset
value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the Fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisors about the applicability of state and local
intangible property, income or other taxes to their Fund shares and
distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend
income and exempt-interest dividends, as discussed below) will generally be
taxable to shareholders as ordinary income to the extent derived from the Fund's
investment income and net short-term gains. Distributions of long-term capital
gains (that is, the excess of net gains from capital assets held for more than
one year over net losses from capital assets held for not more than one year)
will be taxable to shareholders as such, regardless of how long a shareholder
has held shares in the Fund. In general, any distributions of net capital gains
will be taxed to shareholders who are individuals at a maximum rate of 15% for
taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or
gains earned by the Fund before a shareholder's investment (and thus were
included in the price of the shareholder paid). Distributions are taxable
whether received in cash or in Fund shares.
A-91
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31,
2008, "qualified dividend income" received by an individual will be taxed at the
rates applicable to long-term capital gain. In order for some portion of the
dividends received by a Fund shareholder to be qualified dividend income, the
Fund must meet holding period and other requirements with respect to some
portion of the dividend paying stocks in its portfolio and the shareholder must
meet holding period and other requirements with respect to the Fund's shares. A
dividend will not be treated as qualified dividend income (at either the Fund or
shareholder level) (1) if the dividend is received with respect to any share of
stock held for fewer than 61 days during the 120-day period beginning on the
date which is 60 days before the date on which such share becomes ex-dividend
with respect to such dividend (or, in the case of certain preferred stock, 91
days during the 180-day period beginning 90 days before such date), (2) to the
extent that the recipient is under an obligation (whether pursuant to a short
sale or otherwise) to make related payments with respect to positions in
substantially similar or related property, (3) if the recipient elects to have
the dividend income treated as investment income for purposes of the limitation
on deductibility of investment interest, or (4) if the dividend is received from
a foreign corporation that is (a) not eligible for the benefits of a
comprehensive income tax treaty with the United States (with the exception of
dividends paid on stock of such a foreign corporation readily tradable on an
established securities market in the United States) or (b) treated as a foreign
personal holding company, foreign investment company, or passive foreign
investment company.
In general, distributions of investment income properly designated by the Fund
as derived from qualified dividend income may be treated as qualified dividend
income by a shareholder taxed as an individual provided the shareholder meets
the holding period and other requirements described above with respect to his or
her shares. Only qualified dividend income received by a Fund after December 31,
2002 is eligible for pass-through treatment. If the aggregate qualified
dividends received by a fund during any taxable year are 95% or more of its
gross income, then 100% of the Fund's dividends (other than properly designated
capital gain dividends) will be eligible to be treated as qualified dividend
income. For this purpose, the only gain included in the term "gross income" is
the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is
treated as a tax preference item for the AMT at the maximum rate of 28% for
individuals and 20% for corporations. If the Fund invests in private activity
bonds, shareholders may be subject to the AMT on that part of the distributions
derived from interest income on such bonds. Interest on all tax-exempt bonds is
included in corporate adjusted current earnings when computing the AMT
applicable to corporations. Seventy-five percent of the excess of adjusted
current earnings over the amount of income otherwise subject to the AMT is
included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are generally taxable to shareholders
as ordinary income. Any distributions of long-term capital gains will in general
be taxable to shareholders as long-term capital gains (generally subject to a
maximum 15% tax rate for shareholders who are individuals) regardless of the
length of time Fund shares are held.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and
some or all of this discount may be included in the Fund's ordinary income which
will be taxable when distributed. Any market discount recognized on a tax-exempt
bond purchased after April 30, 1993, with a term at time of issue of more than
one year is taxable as ordinary income. A market discount bond is a bond
acquired in the secondary market at a price below its "stated redemption price"
(in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the Fund.
A-92
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest
dividends, if any, attributable to interest received on certain private activity
obligations and certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users of the facilities financed by such
obligations or bonds or who are "related persons" of such substantial users, as
further defined in the Code. Income derived from the Fund's investments other
than tax-exempt instruments may give rise to taxable income. The Fund's shares
must be held for more than six months in order to avoid the disallowance of a
capital loss on the sale of Fund shares to the extent of tax-exempt dividends
paid during that period. Part or all of the interest on indebtedness, if any,
incurred or continued by a shareholder to purchase or carry shares of the Fund
paying exempt-interest dividends is not deductible. The portion of interest that
is not deductible is equal to the total interest paid or accrued on the
indebtedness, multiplied by the percentage of the Fund's total distributions
(not including distributions from net long-term capital gains) paid to the
shareholder that are exempt-interest dividends. Under rules used by the Internal
Revenue Service to determine when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares generally will be treated as long-term capital gain if the shares have
been held for more than one year. Otherwise the gain on the sale, exchange or
redemption of Fund shares will be treated as short-term capital gain. In
general, any loss realized upon a taxable disposition of shares will be treated
as long-term loss if the shares have been held more than one year, and otherwise
as short-term loss. However, any loss realized upon a taxable disposition of
shares held for six months or less will be treated as long-term, rather than
short-term, capital loss to the extent of any long-term capital gain
distributions received by the shareholder with respect to those shares. All or a
portion of any loss realized upon a taxable disposition of shares will be
disallowed if other shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased shares will be
adjusted to reflect the disallowed loss.
Under recently promulgated Treasury regulations, if on a disposition of Fund
shares a shareholder recognizes a loss of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder in any single
taxable year (or a greater loss over a combination of years), the shareholder
must file with the Internal Revenue Service a disclosure statement on Form 8886.
Direct shareholders of portfolio securities are in many cases excepted from this
reporting requirement, but under current guidance, shareholders of a regulated
investment company are not excepted. Future guidance may extend the current
exception from this reporting requirement to shareholders of most or all
regulated investment companies. The fact that a loss is reportable under these
regulations does not affect the legal determination of whether the taxpayer's
treatment of the loss is proper.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to
backup withholding for taxpayers who fail to furnish a correct tax
identification number, who have under-reported dividend or interest income, or
who fail to certify to the Fund that the shareholder is not subject to the
withholding is provided to the Fund. This number and certification may be
provided by either a Form W-9 or the accompanying application. In certain
instances, CFS may be notified by the Internal Revenue Service that a
shareholder is subject to backup withholding. The backup withholding rate is 28%
for amounts paid through 2010. The backup withholding rate will be 31% for
amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including
hedging transactions in options, futures contracts and straddles, or other
similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale and short sale rules),
the effect of which may be to accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
long-term capital gains into short-term capital gains or convert short-term
capital losses into long-term capital losses. These rules could therefore affect
the amount, timing and character of distributions to shareholders. The Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued
at a discount and certain other obligations will (and investments in securities
purchased at a discount may) require the Fund to accrue and distribute income
not yet received. In such cases, the Fund may be required to sell assets
(possibly at a time when it is not advantageous to do so) to generate the cash
necessary to distribute as dividends to its shareholders all of its income and
gains and therefore to eliminate any tax liability at the Fund level.
A-93
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The
Fund's transactions in foreign currencies, foreign currency-denominated debt
securities, certain foreign currency options, futures contracts and forward
contracts (and similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the value of the
foreign currency concerned.
If more than 50% of the Fund's total assets at the end of its fiscal year are
invested in stock or securities of foreign corporate issuers, the Fund may make
an election permitting its shareholders to take a deduction or credit for
federal income tax purposes for their pro rata portion of certain qualified
foreign taxes paid by the Fund to foreign countries in respect of foreign
securities the Fund has held for at least the minimum period specified in the
Code. The Advisor will consider the value of the benefit to a typical
shareholder, the cost to the Fund of compliance with the election, and
incidental costs to shareholders in deciding whether to make the election. A
shareholder's ability to claim such a foreign tax credit or deduction in respect
of foreign taxes will be subject to certain limitations imposed by the Code,
including a holding period requirement , as a result of which a shareholder may
not get a full credit or deduction for the amount of foreign taxes so paid by
the Fund. Shareholders who do not itemize on their federal income tax returns
may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in certain "passive foreign investment companies" could
subject the Fund to a U.S. federal income tax (including interest charges) on
distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to Fund shareholders. However, the Fund may be able to elect to
treat a passive foreign investment company as a "qualified electing fund," in
which case the Fund will be required to include its share of the company's
income and net capital gain annually, regardless of whether it receives any
distribution from the company. Alternatively, the Fund may make an election to
mark the gains (and, to a limited extent, losses) in such holdings "to the
market" as though it had sold and repurchased its holdings in those passive
foreign investment companies on the last day of the Fund's taxable year. Such
gains and losses are treated as ordinary income and loss. The qualified electing
fund and mark-to-market elections may have the effect of accelerating the
recognition of income (without the receipt of cash) and increase the amount
required to be distributed for the Fund to avoid taxation. Making either of
these elections therefore may require a Fund to liquidate other investments
(including when it is not advantageous to do so) in order to meet its
distribution requirement, which also may accelerate the recognition of gain and
affect a Fund's total return.
MANAGEMENT OF THE FUNDS
The Advisor provides administrative and management services to the Funds. On
April 1, 2003, Fleet Investment Advisors Inc., Stein Roe & Farnham Incorporated,
Colonial Management Associates, Inc. and Newport Pacific Management, Inc.
(NPMI), merged into Columbia Management Advisors, Inc. Each of the four merging
companies was a registered investment advisor and advised various Funds in the
Columbia Funds Complex. The Advisor, located at 100 Federal Street, Boston,
Massachusetts 02110, is a direct wholly owned subsidiary of Columbia Management
Group, Inc. (Columbia), which is an indirect wholly owned subsidiary of
FleetBoston Financial Corporation, a U.S. financial holding company. The Advisor
is the surviving company in these mergers and is now the investment advisor of
the Funds. The Advisor has been an investment advisor since 1969.
In addition, immediately prior to the mergers described above and also on April
1, 2003, Newport Fund Management, Inc. (NFMI), a subsidiary of NPMI and a
registered investment advisor that advised several Funds in the Columbia Funds
Complex, merged into NPMI. As a result of NPMI's merger into the Advisor, the
Advisor is now the Advisor to the Funds previously advised by NFMI.
A-94
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names,
addresses and ages of the Trustees and officers of the Funds in the Columbia
Funds Complex, the year each was first elected or appointed to office, their
principal business occupations during at least the last five years, the number
of portfolios overseen by each Trustee and other directorships they hold are
shown below. Each officer listed below serves as an officer of each Fund in the
Columbia Funds Complex.
Number of
Portfolios in
Year First Columbia Funds
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) by Trustee Other Directorships Held
------- ---------- ------- During Past Five Years ---------- ------------------------
----------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 48) Trustee 1996 Executive Vice President -- 119 Orbitz, Inc. (on-line
P.O. Box 66100 Strategy of United Airlines travel company)
Chicago, IL 60666 (airline) since December, 2002
(formerly President of UAL
Loyalty Services (airline)
from September, 2001 to
December, 2002; Executive Vice
President and Chief Financial
Officer of United Airlines
from March, 1993 to September,
2001).
Janet Langford Kelly (Age 45) Trustee 1996 Chief Administrative Officer 119 None
3100 West Beaver Road and Senior Vice President,
Troy, MI 48084-3163 Kmart Holding Corporation
(consumer goods) since
September, 2003 (formerly
Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary, Kellogg
Company (food manufacturer),
from September, 1999 to
August, 2003; Senior Vice
President, Secretary and
General Counsel, Sara Lee
Corporation (branded,
packaged, consumer-products
manufacturer) from January,
1995 to September, 1999).
Richard W. Lowry (Age 67) Trustee 1995 Private Investor since August, 121(3) None
10701 Charleston Drive 1987 (formerly Chairman and
Vero Beach, FL 32963 Chief Executive Officer, U.S.
Plywood Corporation (building
products manufacturer)).
A-95
Number of
Portfolios in
Year First Columbia Funds
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) by Trustee Other Directorships Held
------- ---------- ------- During Past Five Years ---------- ------------------------
----------------------
DISINTERESTED TRUSTEES
Charles R. Nelson (Age 61) Trustee 1981 Professor of Economics, 119 None
Department of Economics University of Washington,
University of Washington since January, 1976; Ford and
Seattle, WA 98195 Louisa Van Voorhis Professor
of Political Economy,
University of Washington,
since September, 1993;
Director, Institute for
Economic Research, University
of Washington, since
September, 2001; Adjunct
Professor of Statistics,
University of Washington,
since September, 1980;
Associate Editor, Journal of
Money Credit and Banking,
since September, 1993;
consultant on econometric and
statistical matters.
John J. Neuhauser (Age 60) Trustee 1985 Academic Vice President and 122(3),(4) Saucony, Inc. (athletic
84 College Road Dean of Faculties since footwear); SkillSoft
Chestnut Hill, MA 02467-3838 August, 1999, Boston College Corp. (E-Learning)
(formerly Dean, Boston College
School of Management from
September, 1977 to September,
1999).
Patrick J. Simpson (Age 58) Trustee 2000 Partner, Perkins Coie L.L.P. 119 None
1211 S.W. 5th Avenue (law firm).
Suite 1500
Portland, OR 97204
Thomas E. Stitzel (Age 67) Trustee 1998 Business Consultant since 1999 119 None
2208 Tawny Woods Place (formerly Professor of Finance
Boise, ID 83706 from 1975 to 1999, College of
Business, Boise State
University); Chartered
Financial Analyst.
A-96
Number of
Portfolios in
Year First Columbia Funds
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) by Trustee Other Directorships Held
------- ---------- ------- During Past Five Years ---------- ------------------------
----------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (Age 66) Trustee and 1996 Managing Director, William 119 Anixter International
27 West Monroe Street, Chairman of Blair Capital Partners (network support
Suite 3500 the Board (private equity investing) equipment distributor),
Chicago, IL 60606 since September, 1994. Jones Lang LaSalle (real
estate management
services) and MONY Group
(life insurance)
Anne-Lee Verville (Age 58) Trustee 1998 Author and speaker on 120(4) Chairman of the Board of
359 Stickney Hill Road educational systems needs Directors, Enesco Group,
Hopkinton, NH 03229 (formerly General Manager, Inc. (designer, importer
Global Education Industry, IBM and distributor of
Corporation (computer and giftware and
technology) from 1994 to collectibles)
1997).
Richard L. Woolworth (Age 62) Trustee 1991 Retired since December 2003 119 NW Natural (natural gas
100 S.W. Market Street (formerly Chairman and Chief service provider)
#1500 Executive Officer, The Regence
Portland, OR 97207 Group (regional health
insurer); Chairman and Chief
Executive Officer, BlueCross
BlueShield of Oregon;
Certified Public Accountant,
Arthur Young & Company)
A-97
Number of
Portfolios in
Year First Columbia Funds
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) by Trustee Other Directorships Held
------- ---------- ------- During Past Five Years ---------- ------------------------
----------------------
DISINTERESTED TRUSTEES
William E. Mayer(2) (Age 63) Trustee 1994 Managing Partner, Park Avenue 121(3) Lee Enterprises (print
399 Park Avenue Equity Partners (private media), WR Hambrecht +
Suite 3204 equity) since February, 1999 Co. (financial service
New York, NY 10022 (formerly Founding Partner, provider) and First
Development Capital LLC from Health (healthcare)
November 1996 to February,
1999).
Joseph R. Palombo(2) (Age 50) Trustee and 2000 Executive Vice President and 120(5) None
One Financial Center President Chief Operating Officer of
Boston, MA 02111 Columbia Management Group,
Inc. (Columbia Management)
since December, 2001 and
Director, Executive Vice
President and Chief Operating
Officer of the Advisor since
April, 2003 (formerly Chief
Operations Officer of Mutual
Funds, Liberty Financial
Companies, Inc. from August,
2000 to November, 2001;
Executive Vice President of
Stein Roe & Farnham
Incorporated (Stein Roe) from
April, 1999 to April, 2003;
Director of Colonial
Management Associates, Inc.
(Colonial) from April, 1999 to
April, 2003; Director of Stein
Roe from September, 2000 to
April, 2003) President of
Columbia Funds and Galaxy
Funds since February, 2003
(formerly Vice President from
September 2002 to February
2003); Manager of Columbia
Floating Rate Limited
Liability Company since
October, 2000; (formerly Vice
President of the Columbia
Funds from April, 1999 to
August, 2000; Chief Operating
Officer and Chief Compliance
Officer, Putnam Mutual Funds
from December, 1993 to March,
1999).
A-98
(1)In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for the
oversight of both fund groups (collectively, the "Liberty Board"). In October
2003, the trustees on the Liberty Board were elected to the boards of the
Columbia Funds (the "Columbia Board") and of the CMG Funds (the "CMG Funds
Board"); simultaneous with that election, Patrick J. Simpson and Richard L.
Woolworth, who had been directors on the Columbia Board and trustees on the CMG
Funds Board, were appointed to serve as trustees of the Liberty Board. The date
shown is the earliest date on which a trustee/director was elected or appointed
to the board of a Fund in the Columbia Funds Complex.
(2)Mr. Mayer is an "interested person" (as defined in the Investment Company Act
of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. Mr.
Palombo is an interested person as an employee of the Advisor.
(3)Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the
All-Star Funds, currently consisting of 2 funds, which are advised by an
affiliate of the Advisor.
(4)Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
(5)Mr. Palombo also serves as an interested director of Columbia Management
Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
Year First
Elected or
Name, Address Position Appointed to Principal Occupation(s)
and Age with Funds Office
------- ---------- ------ During Past Five Years
----------------------
Officers
Vicki L. Benjamin (Age 42) Chief 2001 Controller of the Columbia Funds and of the Liberty
One Financial Center Accounting All-Star Funds since May, 2002; Chief Accounting
Boston, MA 02111 Officer and Officer of the Columbia Funds and Liberty All-Star
Funds since June, 2001; Controller and Chief
Accounting Officer of the Galaxy Funds since
September, 2002 (formerly Controller Vice President,
Corporate Audit, State Street Bank and Trust Company
from May, 1998 to April, 2001; Audit Manager from
July, 1994 to June, 1997; Senior Audit Manager from
July, 1997 to May, 1998, Coopers & Lybrand, LLP).
J. Kevin Connaughton (Age 39) Treasurer 2000 Treasurer of the Columbia Funds and of the Liberty
One Financial Center All-Star Funds since December, 2000; Vice President
Boston, MA 02111 of the Advisor since April, 2003 (formerly
Controller of the Columbia Funds and of the Liberty
All-Star Funds from February, 1998 to October,
2000); Treasurer of the Galaxy Funds since
September, 2002; Treasurer, Columbia Management
Multi-Strategy Hedge Fund, LLC since December, 2002
(formerly Vice President of Colonial from February,
1998 to October, 2000 and Senior Tax Manager,
Coopers & Lybrand, LLP from April, 1996 to January,
1998).
David A. Rozenson (Age 49) Secretary 2003 Secretary of the Columbia Funds and of the Liberty
One Financial Center All-Star Funds since December, 2003; Senior Counsel,
Boston, MA 02111 Fleet Boston Financial Corporation since January,
1996: Associate General Counsel, Columbia Management
Group since November, 2002.
A-99
Trustee Positions
As of December 31, 2003, no disinterested Trustee or any of their immediate
family members owned beneficially or of record any class of securities of
FleetBoston Financial, the Advisor, another investment advisor, sub-advisor or
portfolio manager of any of the funds in the Columbia Funds Complex or any
person controlling, controlled by or under common control with any such entity.
Approving the Investment Advisory Contract
In determining to approve the most recent annual extension of a Fund's
management agreement, the Trustees met over the course of the year with the
relevant investment advisory personnel from the Advisor and considered
information provided by the Advisor relating to the education, experience and
number of investment professionals and other personnel providing services under
that agreement. See "Managing the Fund" in each Fund's Prospectus and "Trustees
and Officers" in this SAI. The Trustees also took into account the time and
attention devoted by senior management to the Funds and the other funds in the
Columbia Funds Complex. The Trustees evaluated the level of skill required to
manage the Funds and concluded that the human resources devoted by the Advisor
to the Funds were appropriate to fulfill effectively the Advisor's duties under
the agreement. The Trustees also considered the business reputation of the
Advisor and its financial resources, and concluded that the Advisor would be
able to meet any reasonably foreseeable obligations under the agreement.
The Trustees received information concerning the investment philosophy and
investment process applied by the Advisor in managing the Funds. See "Principal
Investment Strategies" and "Principal Investment Risks" in the Funds'
Prospectuses. In this connection, the Trustees considered the Advisor's in-house
research capabilities as well as other resources available to the Advisor's
personnel, including research services available to the Advisor as a result of
securities transactions effected for the Funds and other investment advisory
clients. The Trustees concluded that the Advisor's investment process, research
capabilities and philosophy were well suited to each Fund, given each Fund's
investment goal(s) and policies.
The Trustees considered the scope of the services provided by the Advisor to the
Funds under the agreement relative to services provided by third parties to
other mutual funds. See "Fund Charges and Expenses" and "Management of the Funds
- -- The Management Agreement". The Trustees concluded that the scope of the
Advisor's services to the Funds was consistent with the Funds' operational
requirements, including, in addition to its investment goal, compliance with
each Fund's investment restrictions, tax and reporting requirements and related
shareholder services.
The Trustees considered the quality of the services provided by the Advisor to
the Funds. The Trustees evaluated the Advisor's record with respect to
regulatory compliance and compliance with the investment policies of each Fund.
The Trustees also evaluated the procedures of the Advisor designed to fulfill
the Advisor's fiduciary duty to the Funds with respect to possible conflicts of
interest, including the Advisor's code of ethics (regulating the personal
trading of its officers and employees) (see "Management of the Funds -- Code of
Ethics"), the procedures by which the Advisor allocates trades among its various
investment advisory clients and the record of the Advisor in these matters. The
Trustees also received information concerning standards of the Advisor with
respect to the execution of portfolio transactions. See "Management of the Funds
- -- Portfolio Transactions."
The Trustees considered the Advisor's management of non-advisory services
provided by persons other than the Advisor by reference, among other things, to
each Fund's total expenses and the reputation of each Fund's other service
providers. See "Your Expenses" in each Fund's Prospectus(es). The Trustees also
considered information provided by third parties relating to each Fund's
investment performance relative to its performance benchmark(s), relative to
other similar funds managed by the Advisor and relative to funds managed
similarly by other advisors. The Trustees reviewed performance over various
periods, including each Fund's one, five and ten year calendar year periods
and/or the life of the Fund, as applicable (See "Performance History" in the
Fund's Prospectuses), as well as factors identified by the Advisor as
contributing to each Fund's performance. See each Fund's most recent annual and
semi-annual reports. The Trustees concluded that the scope and quality of the
Advisor's services was sufficient to merit reapproval of the agreement for
another year.
In reaching that conclusion, the Trustees also gave substantial consideration to
the fees payable under the agreement. The Trustees reviewed information
concerning fees paid to investment advisors of similarly-managed funds. The
Trustees also considered the fees of the Funds as a percentage of assets at
different asset levels and possible economies of scale to the Advisor. The
Trustees evaluated the Advisor's profitability with respect to the Funds,
concluding that such profitability appeared to be generally consistent with
levels of profitability that had been determined by courts to be "not
excessive." For these purposes, the Trustees took into account not only the
actual dollar amount of fees paid by the Funds directly to the Advisor, but also
so-called "fallout benefits" to the Advisor such as reputational value derived
from serving as investment Advisor to the Funds and the research services
available to the Advisor by reason of brokerage commissions generated by each
Fund's turnover. In evaluating the Funds' advisory fees, the Trustees also took
into account the complexity of investment management for the Funds relative to
other types of funds. Based on challenges associated with less readily available
market information about foreign issuers and smaller capitalization companies,
limited liquidity of certain securities,
A-100
and the specialization required for focused funds, the Trustees concluded that
generally greater research intensity and trading acumen is required for equity
funds, and for international or global funds, as compared to funds investing,
respectively, in debt obligations or in U.S. issuers. Similarly, the Trustees
concluded that, generally, small capitalization equity funds and focused funds
including state specific municipal funds, require greater intensity of research
and trading acumen than larger capitalization or more diversified funds. See
"The Fund" in each Fund's Prospectus.
Based on the foregoing, the Trustees concluded that the fees to be paid the
Advisor under the advisory agreement were fair and reasonable, given the scope
and quality of the services rendered by the Advisor.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty
All-Star Funds. Messrs. Neuhauser and Palombo and Ms. Verville are also
directors of Columbia Management Multi-Strategy Hedge Fund, LLC.
The Trustees serve as trustees of all open-end Funds managed by the
Advisor for which each Trustee (except Mr. Palombo) will receive an annual
retainer of $45,000 and attendance fees of $9,500 for each regular and special
joint board meeting and $1,000 for each special telephonic joint board meeting.
Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the
Board. Mr. Theobald receives an additional annual retainer of $40,000 for
serving in this capacity. All committee chairs, except the Audit Committee
chair, receive an annual retainer of $5,000 and members of Committees, except
the Audit Committee, receive $1,500 for each committee meeting . The Audit
Committee chair receives an annual retainer of $10,000 and each Audit Committee
member receives $2,000 for each Audit Committee meeting. Committee members
receive $1,000 for each special telephonic committee meeting. Two-thirds of the
Trustee fees are allocated among the Funds based on each Fund's relative net
assets and one-third of the fees is divided equally among the Funds.
The Advisor and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Advisor currently serves as investment advisor or
administrator for 71 open-end and 14 closed-end management investment company
portfolios. Trustees and officers of the Trust, who are also officers of the
Advisor or its affiliates, will benefit from the advisory fees, sales
commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder
fund structure. Under this structure, a Fund may invest all or a portion of its
investable assets in investment companies with substantially the same investment
goals, policies and restrictions as the Fund. The primary reason to use the
master fund/feeder fund structure is to provide a mechanism to pool, in a single
master fund, investments of different investor classes, resulting in a larger
portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (Agreement), the Advisor has contracted to furnish
each Fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each Fund pays a monthly fee based on the average of the daily closing value of
the total net assets of each Fund for such month. Under the Agreement, any
liability of the Advisor to the Trust, a Fund and/or its shareholders is limited
to situations involving the Advisor's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Advisor including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any
A-101
Prospectuses sent to shareholders. Columbia Funds Distributor, Inc. (formerly
named Liberty Funds Distributor, Inc.) (CFD) pays the cost of printing and
distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR
RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR
INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the
Administrator to each Fund, has contracted to perform the following
administrative services:
(a) providing office space, equipment and clerical
personnel;
(b) arranging, if desired by the respective Trust, for its
directors, officers and employees to serve as Trustees,
officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents
required for compliance by each Fund with applicable
laws and regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees
and shareholders;
(e) coordinating and overseeing the activities of each
Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Columbia Money Market Fund (formerly named Liberty Money Market
Fund) and Columbia Municipal Money Market Fund (formerly named Liberty Municipal
Money Market Fund), the Administration Agreement for these Funds provides that
the Advisor will monitor compliance by the Fund with Rule 2a-7 under the 1940
Act and report to the Trustees from time to time with respect thereto. The
Advisor is paid a monthly fee at the annual rate of average daily net assets set
forth in Part 1 of this SAI.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to
each Fund pursuant to a pricing and bookkeeping agreement. Under a separate
agreement (Outsourcing Agreement), the Advisor has delegated those functions to
State Street Bank and Trust Company (State Street). The Advisor pays fees to
State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the
Funds. The Advisor's affiliate, CASI, advises other institutional, corporate,
fiduciary and individual clients for which CASI performs various services.
Various officers and Trustees of the Trust also serve as officers or Trustees of
other funds and the other corporate or fiduciary clients of the Advisor. The
Funds and clients advised by the Advisor or the Funds administered by the
Advisor sometimes invest in securities in which the Fund also invests and
sometimes engage in covered option writing programs and enter into transactions
utilizing stock index options and stock index and financial futures and related
options ("other instruments"). If the Fund, such other funds and such other
clients desire to buy or sell the same portfolio securities, options or other
instruments at about the same time, the purchases and sales are normally made as
nearly as practicable on a pro rata basis in proportion to the amounts desired
to be purchased or sold by each. Although in some cases these practices could
have a detrimental effect on the price or volume of the securities, options or
other instruments as far as the Fund is concerned, in most cases it is believed
that these practices should produce better executions. It is the opinion of the
Trustees that the desirability of retaining the Advisor as investment advisor to
the Funds outweighs the disadvantages, if any, which might result from these
practices.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the
National Association of Securities Dealers, Inc., and subject to seeking "best
execution" (as defined below) and such other policies as the Trustees may
determine, the Advisor may consider sales of shares of the Funds as a factor in
the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by
the Advisor and, if applicable, negotiates commissions. Broker-dealers may
receive brokerage commissions on portfolio transactions, including the purchase
and writing of options, the effecting of closing purchase and sale transactions,
and the purchase and sale of underlying securities upon the exercise of options
and the purchase or sale of other instruments. The Funds from time to time also
execute portfolio transactions with such broker-dealers acting as principals.
The Funds do not intend to deal exclusively with any particular broker-dealer or
group of broker-dealers.
A-102
It is the Advisor's policy generally to seek best execution, which is to place
the Funds' transactions where the Funds can be expected to obtain the most
favorable combination of price and execution services in particular transactions
or provided on a continuing basis by a broker-dealer, and to deal directly with
a principal market maker in connection with over-the-counter transactions,
except when it is believed that best execution is obtainable elsewhere. In
evaluating the execution services of, including the overall reasonableness of
brokerage commissions paid to, a broker-dealer, consideration is given to, among
other things, the firm's general execution and operational capabilities, and to
its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also
provide research services (as defined below) to the Advisor and the Funds. The
Advisor may use all, some or none of such research services in providing
investment advisory services to each of its investment company and other
clients, including the Fund. To the extent that such services are used by the
Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion,
it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a
broker-dealer which provides brokerage and research services to the Advisor an
amount of commission for effecting a securities transaction, including the sale
of an option or a closing purchase transaction, for the funds in excess of the
amount of commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the Securities
Exchange Act of 1934, "brokerage and research services" include advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends and portfolio strategy and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The Advisor must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or the Advisor's
overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing
agent with respect to all call options written by Funds that write options and
to pay such clearing agent commissions of a fixed amount per share (currently
1.25 cents) on the sale of the underlying security upon the exercise of an
option written by a Fund.
The Advisor may use the services of Quick & Reilly, Inc., or Fleet Securities,
Inc., each an affiliate of the Advisor, when buying or selling securities for a
Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act
Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays
to affiliates of the Advisor on portfolio transactions are reasonable and fair
compared to commissions received by other broker-dealers in connection with
comparable transactions involving similar securities being bought or sold at
about the same time. The Advisor will report quarterly to the Trustees on all
securities transactions placed through affiliates of the Advisor so that the
Trustees may consider whether such trades complied with these procedures and the
Rule.
PRINCIPAL UNDERWRITER
CFD is the principal underwriter of the Trust's shares. CFD has no obligation to
buy the Funds' shares, and purchases the Funds' shares only upon receipt of
orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CFS is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CFS is based on number of accounts plus reimbursement for
certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF
THIS SAI FOR INFORMATION ON FEES RECEIVED BY CFS. The agreement continues
indefinitely but may be terminated by 90 days' notice by the Fund to CFS or
generally by 6 months' notice by CFS to the Fund. The agreement limits the
liability of CFS to the Fund for loss or damage incurred by the Fund to
situations involving a failure of CFS to use reasonable care or to act in good
faith in performing its duties under the agreement. It also provides that the
Fund will indemnify CFS against, among other things, loss or damage incurred by
CFS on account of any claim, demand, action or suit made on or against CFS not
resulting from CFS's bad faith or negligence and arising out of, or in
connection with, its duties under the agreement.
CODE OF ETHICS
The Funds, the Advisor, and CFD have adopted Codes of Ethics pursuant to the
requirements of the Act. These Codes of Ethics permit personnel subject to the
Codes to invest in securities, including securities that may be purchased or
held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's
Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090.
These Codes are also available on the EDGAR Database on the SEC's internet web
site at http://www.sec.gov, and may also be obtained, after paying a duplicating
fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's
Public Reference Section, Washington, D.C. 20549-0102.
A-103
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and
regulations. Consequently, the Funds may request additional information from you
to verify your identity. If at any time the Funds believe a shareholder may be
involved in suspicious activity or if certain account information matches
information on government lists of suspicious persons, the Funds may choose not
to establish a new account or may be required to "freeze" a shareholder's
account. The Funds also may be required to provide a governmental agency with
information about transactions that have occurred in a shareholder's account or
to transfer monies received to establish a new account, transfer an existing
account or transfer the proceeds of an existing account to a governmental
agency. In some circumstances, the law may not permit a Fund to inform the
shareholder that it has taken the actions described above.
PROXY VOTING POLICIES
THE FUND HAS DELEGATED TO THE ADVISOR THE RESPONSIBILITY TO VOTE PROXIES
RELATING TO PORTFOLIO SECURITIES HELD BY THE FUND. IN DECIDING TO DELEGATE THIS
RESPONSIBILITY TO THE ADVISOR, THE BOARD OF TRUSTEES OF THE TRUST REVIEWED AND
APPROVED THE POLICIES AND PROCEDURES ADOPTED BY THE ADVISOR. THESE INCLUDED THE
PROCEDURES THAT THE ADVISOR FOLLOWS WHEN A VOTE PRESENTS A CONFLICT BETWEEN THE
INTERESTS OF THE FUND AND ITS SHAREHOLDERS AND THE ADVISOR, ITS AFFILIATES, ITS
OTHER CLIENTS OR OTHER PERSONS.
THE ADVISOR'S POLICY IS TO VOTE ALL PROXIES FOR FUND SECURITIES IN A MANNER
CONSIDERED BY THE ADVISOR TO BE IN THE BEST INTEREST OF THE FUND AND ITS
SHAREHOLDERS WITHOUT REGARD TO ANY BENEFIT TO THE ADVISOR, ITS AFFILIATES, ITS
OTHER CLIENTS OR OTHER PERSONS. THE ADVISOR EXAMINES EACH PROPOSAL AND VOTES
AGAINST THE PROPOSAL, IF, IN ITS JUDGMENT, APPROVAL OR ADOPTION OF THE PROPOSAL
WOULD BE EXPECTED TO IMPACT ADVERSELY THE CURRENT OR POTENTIAL MARKET VALUE OF
THE ISSUER'S SECURITIES. THE ADVISOR ALSO EXAMINES EACH PROPOSAL AND VOTES THE
PROXIES AGAINST THE PROPOSAL, IF, IN ITS JUDGMENT, THE PROPOSAL WOULD BE
EXPECTED TO AFFECT ADVERSELY THE BEST INTEREST OF THE FUND. THE ADVISOR
DETERMINES THE BEST INTEREST OF THE FUND IN LIGHT OF THE POTENTIAL ECONOMIC
RETURN ON THE FUND'S INVESTMENT.
The Advisor addresses potential material conflicts of interest by having
predetermined voting guidelines. For those proposals that require special
consideration or in instances where special circumstances may require varying
from the predetermined guideline, the Advisor's Proxy Committee determines the
vote in the best interest of the Fund, without consideration of any benefit to
the Advisor, its affiliates, its other clients or other persons. A member of the
Proxy Committee is prohibited from voting on any proposal for which he or she
has a conflict of interest by reason of a direct relationship with the issuer or
other party affected by a given proposal. Persons making recommendations to the
Proxy Committee or its members are required to disclose to the Committee any
relationship with a party making a proposal or other matter known to the person
that would create a potential conflict of interest.
The Advisor has three classes of proxy proposals. The first two classes are
predetermined guidelines to vote for or against specific proposals, unless
otherwise directed by the Proxy Committee. The third class is for proposals
given special consideration by the Proxy Committee. In addition, the Proxy
Committee considers requests to vote on proposals in the first two classes other
than according to the predetermined guidelines.
The Advisor generally votes in favor of proposals related to the following
matters: selection of auditors (unless the auditor receives more than 50% of its
revenues from non-audit activities from the company and its affiliates),
election of directors (unless the proposal gives management the ability to alter
the size of the board without shareholder approval), different persons for
chairman of the board /chief executive officer (unless, in light of the size of
the company and the nature of its shareholder base, the role of chairman and CEO
are not held by different persons), compensation (if provisions are consistent
with standard business practices), debt limits (unless proposed specifically as
an anti-takeover action), indemnifications (unless for negligence and or
breaches of fiduciary duty), meetings, name of company, principal office (unless
the purpose is to reduce regulatory or financial supervision), reports and
accounts (if the certifications required by Sarbanes-Oxley Act of 2002 have been
provided), par value, shares (unless proposed as an anti-takeover action), share
repurchase programs, independent committees, and equal opportunity employment.
The Advisor generally votes against proposals related to the following matters:
super majority voting, cumulative voting, preferred stock, warrants, rights,
poison pills, reclassification of common stock and meetings held by written
consent.
The Advisor gives the following matters special consideration: new proposals,
proxies of investment company shares (other than those covered by the
predetermined guidelines), mergers/acquisitions (proposals where a hostile
merger/acquisition is apparent or where the Advisor represents ownership in more
than one of the companies involved), shareholder proposals (other than those
covered by the predetermined guidelines), executive/director compensation (other
than those covered by the predetermined guidelines), pre-emptive rights and
proxies of international issuers which block securities sales between submission
of a proxy and the meeting (proposals for these securities are voted only on the
specific instruction of the Proxy Committee and to the extent practicable in
accordance with predetermined guidelines).
A-104
In addition, if a portfolio manager or other party involved with a client of the
Advisor or Fund account concludes that the interest of the client or Fund
requires that a proxy be voted on a proposal other than according to the
predetermined guidelines, he or she may request that the Proxy Committee
consider voting the proxy differently. If any person (or entity) requests the
Proxy Committee (or any of its members) to vote a proxy other than according to
a predetermined guideline, that person must furnish to the Proxy Committee a
written explanation of the reasons for the request and a description of the
person's (or entity's) relationship with the party proposing the matter to
shareholders or any other matter known to the person (or entity) that would
create a potential conflict of interest.
The Proxy Committee may vary from the predetermined guideline if it determines
that voting on the proposal according to the predetermined guideline would be
expected to impact adversely the current or potential market value of the
issuer's securities or to affect adversely the best interest of the client.
References to the best interest of a client refer to the interest of the client
in terms of the potential economic return on the client's investment. In
determining the vote on any proposal, the Proxy Committee does not consider any
benefit other than benefits to the owner of the securities to be voted.
The Advisor's Proxy Committee is composed of operational and investment
representatives of its regional offices as well as senior representatives of the
Advisor's equity investments, equity research, compliance and legal functions.
During the first quarter of each year, the Proxy Committee reviews all
guidelines and establishes guidelines for expected new proposals. In addition to
these reviews and its other responsibilities described above, its functions
include annual review of its Proxy Voting Policy and Procedures to ensure
consistency with internal policies and regulatory agency policies, and
development and modification of voting guidelines and procedures as it deems
appropriate or necessary.
The Advisor uses Institutional Shareholder Services ("ISS"), a third party
vendor, to implement its proxy voting process. ISS provides proxy analysis,
record keeping services and vote disclosure services.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the
close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern
time) each day the Exchange is open, except that certain classes of assets, such
as index futures, for which the market close occurs shortly after the close of
regular trading on the Exchange will be priced at the closing time of the market
on which they trade. Currently, the Exchange is closed Saturdays, Sundays and
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. Funds with portfolio securities which are primarily listed on foreign
exchanges may experience trading and changes in NAV on days on which such Fund
does not determine NAV due to differences in closing policies among exchanges.
This may significantly affect the NAV of the Fund's redeemable securities on
days when an investor cannot redeem such securities Debt securities generally
are valued by a pricing service which determines valuations based upon market
transactions for normal, institutional-size trading units of similar securities.
However, in circumstances where such prices are not available or where the
Advisor deems it appropriate to do so, an over-the-counter or exchange bid
quotation is used. Securities listed on an exchange or on NASDAQ are valued at
the last sale price (or the official closing price as determined by the NASDAQ
system, if different, as applicable). Listed securities for which there were no
sales during the day and unlisted securities generally are valued at the last
quoted bid price. Options are valued at the last sale price or in the absence of
a sale, the mean between the last quoted bid and offering prices. Short-term
obligations with a maturity of 60 days or less are valued at amortized cost
pursuant to procedures adopted by the Trustees. The values of foreign securities
quoted in foreign currencies are translated into U.S. dollars at the exchange
rate for that day. Portfolio positions for which market quotations are not
readily available and other assets are valued at fair value as determined by the
Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each Fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at fair value following procedures approved by
the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund
(formerly named Liberty Newport Tiger Fund), Columbia Newport Greater China Fund
(formerly named Liberty Newport Greater China Fund), Columbia Newport Europe
Fund (formerly named Liberty Newport Europe Fund) and Columbia Newport Asia
Pacific Fund (formerly named Liberty Newport Asia Pacific Fund))
A-105
Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Advisor, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET
FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA
MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA
MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET
FUND))
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued cost and
thereafter amortized to maturity. This method assures a constant NAV but may
result in a yield different from that of the same portfolio under the market
value method. The Trust's Trustees have adopted procedures intended to stabilize
a money market fund's NAV per share at $1.00. When a money market fund's market
value deviates from the amortized cost of $1.00, and results in a material
dilution to existing shareholders, the Trust's Trustees will take corrective
action that may include: realizing gains or losses; shortening the portfolio's
maturity; withholding distributions; redeeming shares in kind; or converting to
the market value method (in which case the NAV per share may differ from $1.00).
All investments will be determined pursuant to procedures approved by the
Trust's Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Columbia Money Market Fund (formerly named Liberty Money Market Fund) for a
specimen price sheet showing the computation of maximum offering price per share
of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public
offering price based on the NAV per share next determined after the order is
placed in good order. The public offering price is the NAV plus the applicable
sales charge, if any. In the case of orders for purchase of shares placed
through FSFs, the public offering price will be determined on the day the order
is placed in good order, but only if the FSF receives the order prior to the
time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CFS,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, CFD's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that CFD retains the entire sales charge on any sales made to a
shareholder who does not specify a FSF on the Investment Account Application
("Application"), and except that CFD may from time to time reallow additional
amounts to all or certain FSFs. CFD generally retains some or all of any
asset-based sales charge (distribution fee) or contingent deferred sales charge.
Such charges generally reimburse CFD for any up-front and/or ongoing commissions
paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CFS acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CFS, provided the new FSF has a sales agreement
with CFD.
A-106
Shares credited to an account are transferable upon written instructions in good
order to CFS and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates are not available for any class of shares offered by
the Fund. If you currently hold previously issued share certificates, you may
send the certificates to CFS for deposit to your account.
CFD may, at its expense, provide special sales incentives (such as cash payments
in addition to the commissions specified in the Fund's Prospectus(es) and SAI)
to FSFs that agree to promote the sale of shares of the Fund or other funds that
CFD distributes. At its discretion, CFD may offer special sales incentives only
to selected FSFs or to FSFs who have previously sold or expect to sell
significant amounts of the Fund's shares.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds
advised by the Advisor may be purchased through the Automatic Investment Plan.
Electronic fund transfers for a fixed amount of at least $50 are used to
purchase a Fund's shares at the public offering price next determined after CFD
receives the proceeds. If your Automatic Investment Plan purchase is by
electronic funds transfer, you may request the Automatic Investment Plan
purchase for any day. Further information and application forms are available
from FSFs or from CFD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, T, G and Z). The Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any fund distributed by CFD in which you have a current balance of at
least $5,000 into the same class of shares of up to four other Funds. Complete
the Automated Dollar Cost Averaging section of the Application. There is no
charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your fund balance is sufficient to
complete the transfers. Your normal rights and privileges as a shareholder
remain in full force and effect. Thus you can buy any Fund, exchange between the
same Class of shares of Funds by written instruction or by telephone exchange if
you have so elected and withdraw amounts from any Fund, subject to the
imposition of any applicable CDSC.
Any additional payments or exchanges into your Fund will extend the time of the
Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax
purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Columbia Funds Services,
Inc. (formerly named Liberty Funds Services, Inc.) (CFS) P.O. Box 8081, Boston,
MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the
Automated Dollar Cost Averaging program is appropriate for you.
CFD offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges. These plans may be altered or discontinued at
any time. See "Programs For Reducing or Eliminating Sales Charges" below for
more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a
Shareholder Services Plan (the "Services Plan") pursuant to which the trusts
plan to enter into servicing agreements with institutions (including Fleet Bank
and its affiliates). Pursuant to these servicing agreements, institutions render
certain administrative and support services to customers who are the beneficial
owners of Class T shares of each Fund other than the Columbia Newport Tiger
Fund. Such services are provided to the institution's customers who are the
beneficial owners of Class T shares and are intended to supplement the services
provided by the Fund's administrator and transfer agent to the shareholders of
record of the Class T shares. The Services Plan provides that each Fund will pay
fees for such services at an annual rate of up to 0.50% of the average daily net
asset value of Class T shares owned beneficially by the institution's customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following services to such customers: (i) aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with CFD; (ii) processing dividend payments from a Fund; (iii) providing
sub-accounting with respect to Class T shares or the information necessary for
sub-accounting; and (iv) providing periodic mailings to customers. Institutions
may also receive up to one-half of this fee for providing one or more of these
additional services to such customers: (i) providing customers with information
as to their positions in Class T shares; (ii) responding to customer inquiries;
and (iii) providing a service to invest the assets of customers in Class T
shares.
A-107
The payments under the servicing agreements entered into as of the date
of this SAI are limited to an aggregate fee of not more than 0.30% (on an
annualized basis) of the average daily net asset value of the Class T shares of
equity funds beneficially owned by customers of institutions and 0.15% (on an
annualized basis) of the average daily net asset value of the Class T shares of
bond funds beneficially owned by customers of institutions. The Funds understand
that institutions may charge fees to their customers who are the beneficial
owners of Class T shares in connection with their accounts with such
institutions. Any such fees would be in addition to any amounts which may be
received by an institution under the Services Plan. Under the terms of each
servicing agreement, institutions are required to provide to their customers a
schedule of any fees that they may charge in connection with customer
investments in Class T shares.
Each servicing agreement with an institution ("Service Organization")
relating to the Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the Service Organization agrees to waive a
portion of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Class T shares of such Funds on any day do not exceed the income to be accrued
to such Class T shares on that day.
During the last three fiscal years, the following payments were made to
Service Organizations (net of expense reimbursements) with respect to Class T
shares as shown in the table below:
SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
FUND(1)(4) 2003 2002(3) 2001(2)
---------- ---- ------- -------
Columbia Asset Allocation Fund $506,628 $722,543 $914,162
Columbia Large Cap Growth Fund $621,536 $872,400 $1,213,883
Columbia Disciplined Value Fund $328,843 $480,502 $585,821
Columbia Large Cap Core Fund $484,124 $666,709 $634,076
Columbia International Equity Fund $107,527 $151,816 N/A
Columbia Small Cap Fund $318,591 $316,465 $258,937
Columbia Small Company Equity Fund $156,029 $201,135 $258,937
Columbia Dividend Income Fund $0 $24,133 $20,192
- --------
(1) Information shown for each Fund for periods prior to its reorganization
is that of Retail A Shares of its predecessor fund. Class T shares are a
newer class of shares created as part of the reorganization of certain
Galaxy Funds.
(2) Expense reimbursements for the fiscal year ended October 31, 2001 were
$26,074, $29,123, $5,541, $8,298 and $47,211, respectively, for the Asset
Allocation Fund, Large Cap Fund, Dividend Fund, Value Fund and Growth
Fund.
(3) Expense reimbursements for the fiscal year ended October 31, 2002 were
$19,673, $90,360, $70,449, $21,761 and $3,789, respectively for the Asset
Allocation Fund, Growth Fund, International Fund, Small Company Fund and
Dividend Fund.
(4) The Funds changed their fiscal year end from October 31 to September 30
in 2003.
The Class T servicing agreements are governed by the Services Plan
approved by the Board of Trustees in connection with the offering of Class T
shares of each Fund. Pursuant to the Services Plan, the Board of Trustees
reviews, at least quarterly, a written report of the amounts paid under the
servicing agreements and the purposes for which the expenditures were made. In
addition, the arrangements with Service Organizations must be approved annually
by a majority of the Trustees, including a majority of the trustees who are not
"interested persons" of the Funds as defined in the 1940 Act and who have no
direct or indirect financial interest in such arrangements (the "Disinterested
Trustees").
The Board of Trustees has approved the service agreements with Service
Organizations based on information provided by the Funds' service contractors
that there is a reasonable likelihood that the arrangements will benefit the
Funds and their shareholders by affording the Funds greater flexibility in
connection with the efficient servicing of the accounts of the beneficial owners
of Class T shares of the Funds. Any material amendment to the Funds'
arrangements with Service Organizations must be approved by a majority of the
Board of Trustees (including a majority of the Disinterested Trustees). So long
as the service agreements with Service Organizations are in effect,
A-108
the selection and nomination of the members of Columbia's Board of Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Funds will be
committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CFD offers prototype
tax-qualified plans, including Pension and Profit-Sharing Plans for individuals,
corporations, employees and the self-employed. The minimum initial Retirement
Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee
and Plan Sponsor of the Columbia Management prototype plans offered through CFD.
In general, a $20 annual fee is charged. Detailed information concerning these
Retirement Plans and copies of the Retirement Plans are available from CFD.
A-109
Participants in Retirement Plans not sponsored by CTC, not including Individual
Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the
Retirement Plan maintains an omnibus account with CFS. Participants in CTC
sponsored prototype plans (other than IRAs) who liquidate the total value of
their account may also be charged a $20 close-out processing fee payable to CFS.
The fee is in addition to any applicable CDSC. The fee will not apply if the
participant uses the proceeds to open a Columbia Management IRA Rollover account
in any Fund distributed by CFD, or if the Retirement Plan maintains an omnibus
account.
Consultation with a competent financial advisor regarding these Retirement Plans
and consideration of the suitability of Fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CFS, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected. Please have your account and taxpayer identification numbers available
when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic
Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a Fund automatically invested in the same class of shares of
another Fund. An ADD account must be in the same name as the shareholder's
existing open account with the particular Fund. Call CFS for more information at
1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Class A, Class B and Class T shares only) (Class T
shares can only be purchased by the shareholders of Columbia Newport Tiger Fund
(formerly named Liberty Newport Tiger Fund) who already own Class T shares).
Reduced sales charges on Class A, B and T shares can be effected by combining a
current purchase of Class A, Class B or Class T shares with prior purchases of
Class A, B, C, T and Z shares of the funds distributed by CFD. The applicable
sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business
on the previous day of all funds' Class A, B, C, T and Z shares
held by the shareholder (except shares of any money market fund,
unless such shares were acquired by exchange from Class A, B C, T
or Z shares of another fund distributed by CFD other than a money
market fund).
CFD must be promptly notified of each purchase which entitles a shareholder to a
reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CFS. A Fund may terminate or amend
this Right of Accumulation.
STATEMENT OF INTENT (Class A and Class T shares only). Any person may qualify
for reduced sales charges on purchases of Class A and T shares made within a
thirteen-month period pursuant to a Statement of Intent ("Statement"). A
shareholder may include, as an accumulation credit toward the completion of such
Statement, the value of all Class A, B, C, T and Z shares held by the
shareholder on the date of the Statement in Funds (except shares of any money
market fund, unless such shares were acquired by exchange from Class A shares of
another non-money market fund). The value is determined at the public offering
price on the date of the Statement. Purchases made through reinvestment of
distributions do not count toward satisfaction of the Statement. Upon request, a
Statement of Intent may be backdated to reflect purchases within 90 days.
During the term of a Statement, CFS will hold shares in escrow to secure payment
of the higher sales charge applicable to Class A or T shares actually purchased.
Dividends and capital gains will be paid on all escrowed shares and these shares
will be released when the amount indicated has been purchased. A Statement does
not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to CFD the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
CFD an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CFS will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CFS at 1-800-345-6611.
A-110
REINSTATEMENT PRIVILEGE. An investor who has redeemed Class A, B, C or T shares
(other than shares of the Columbia Newport Asia Pacific Fund (formerly named
Liberty Newport Asia Pacific Fund), Columbia Newport Europe Fund (formerly named
Liberty Newport Europe Fund), Columbia Newport Greater China Fund (formerly
named Liberty Newport Greater China Fund), Columbia Global Equity Fund (formerly
named Liberty Newport Global Equity Fund), Columbia Newport Japan Opportunities
Fund (formerly named Liberty Newport Japan Opportunities Fund), Columbia Newport
Tiger Fund (formerly named Liberty Newport Tiger Fund), Columbia International
Equity Fund (formerly named Liberty International Equity Fund), Columbia
European Thematic Equity Fund (formerly named Liberty European Thematic Equity
Fund) and Columbia Global Thematic Equity Fund (formerly named Liberty Global
Thematic Equity Fund) that were redeemed within 30 days of their acquisition by
exchange from another fund) may, upon request, reinstate within one year a
portion or all of the proceeds of such sale in shares of Class A of any Fund at
the NAV next determined after CFS receives a written reinstatement request and
payment. Investors who desire to exercise this privilege should contact their
FSF or CFS. Shareholders may exercise this privilege an unlimited amount of
times. Exercise of this privilege does not alter the federal income tax
treatment of any capital gains realized on the prior sale of Fund shares, but to
the extent any such shares were sold at a loss, some or all of the loss may be
disallowed for tax purposes. Consult your tax advisor.
PRIVILEGES OF COLUMBIA EMPLOYEES OR FINANCIAL SERVICE FIRMS (IN THIS SECTION,
THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS
THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS). Class A shares of certain Funds
may be sold at NAV to the following individuals whether currently employed or
retired: Trustees of funds advised or administered by the Advisor; directors,
officers and employees of the Advisor, CFD and companies affiliated with the
Advisor; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with CFD; and such persons' families and their beneficial accounts.
PRIVILEGES OF COLUMBIA ACORN FUNDS (FORMERLY NAMED LIBERTY ACORN FUNDS)
SHAREHOLDERS. Any shareholder who owned shares of any fund of Columbia Acorn
Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of
the then outstanding shares of Columbia Acorn Trust were re-designated Class Z
shares) and who since that time has remained a shareholder of any fund
distributed by CFD, may purchase Class A shares of any fund distributed by CFD
at NAV in those cases where a Columbia Fund Class Z share is not available.
Qualifying shareholders will not be subject to any Class A initial sales charge
or CDSC; however, they will be subject to the annual Rule 12b-1 service fee.
EXCHANGES FOR CLIENTS OF AFFILIATES OF INVESTMENT ADVISOR. Clients of affiliates
of CFD who have previously purchased shares of other investment companies and
have been charged a front-end load or other sales charge on such purchases may
exchange those shares for Class A shares of any funds distributed by CFD,
without incurring an additional front-end load or sales charge for those
exchanged shares. Certain funds may charge an annual Rule 12b-1 distribution and
service fee.
SPONSORED ARRANGEMENTS. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Columbia Newport Tiger Fund (formerly named
Liberty Newport Tiger Fund) who already own Class T shares and shareholders who
received (and who have continuously held) Class T shares in connection with the
merger of certain Galaxy Funds into various Columbia Funds (formerly named
Liberty Funds)) of certain funds may be purchased at a reduced or no sales
charge pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the Fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge, will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The Funds reserve the right to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport
Tiger Fund) who already own Class T shares) of certain funds may also be
purchased at reduced or no sales charge by clients of dealers, brokers or
registered investment advisors that have entered into agreements with CFD
pursuant to which the Funds are included as investment options in programs
involving fee-based compensation arrangements, and by participants in certain
retirement plans.
A-111
WAIVER OF INITIAL SALES CHARGES (CLASS A AND CLASS T SHARES)
Class A share initial sales charges (but not contingent deferred sales
charges) are waived for the following categories of investors:
- Galaxy Fund shareholders prior to December 1, 1995; and
- Shareholders who (i) purchased Galaxy Fund Prime A Shares at net
asset value and received Class A shares in exchange for those
shares during the Galaxy/Liberty Fund reorganization; and (ii)
continue to maintain the account in which the Prime A shares were
originally purchased.
Class T share sales charges are waived for the following categories of
investors:
- Galaxy Fund shareholders prior to December 1, 1995;
- Shareholders who (i) purchased Galaxy Fund Retail A Shares at net
asset value and received Class T shares in exchange for those
shares during the Galaxy/Liberty Fund reorganization; and (ii)
continue to maintain the account in which the Retail A shares were
originally purchased; and
- Boston 1784 Fund shareholders on the date the Funds were
reorganized into Galaxy Funds.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE
"ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE
ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Classes A, B, C and T) CDSCs may be
waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a
joint tenant where the surviving joint tenant is the deceased's spouse,
or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA),
Uniform Transfers to Minors Act (UTMA) or other custodial account. If,
upon the occurrence of one of the foregoing, the account is transferred
to an account registered in the name of the deceased's estate, the CDSC
will be waived on any redemption from the estate account occurring
within one year after the death. If the Class B shares are not redeemed
within one year of the death, they will remain subject to the
applicable CDSC, when redeemed from the transferee's account. If the
account is transferred to a new registration and then a redemption is
requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP
established with CFS, to the extent the redemptions do not exceed, on
an annual basis, 12% of the account's value, so long as at the time of
the first SWP redemption the account had had distributions reinvested
for a period at least equal to the period of the SWP (e.g., if it is a
quarterly SWP, distributions must have been reinvested at least for the
three-month period prior to the first SWP redemption). Otherwise, CDSCs
will be charged on SWP redemptions until this requirement is met; this
requirement does not apply if the SWP is set up at the time the account
is established, and distributions are being reinvested. See below under
"Investor Services - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as defined
in Section 72(m)(7) of the Internal Revenue Code). To be eligible for
such waiver, (i) the disability must arise AFTER the purchase of shares
(ii) the disabled shareholder must have been under age 65 at the time
of the initial determination of disability, and (iii) a letter from a
physician signed under penalty of perjury stating the nature of the
disability. If the account is transferred to a new registration and
then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death
of the sole trustee where (i) the grantor of the trust is the sole
trustee and the sole life beneficiary, (ii) death occurs following the
purchase AND (iii) the trust document provides for dissolution of the
trust upon the trustee's death. If the account is transferred to a new
registration (including that of a successor trustee), the applicable
CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return the
applicable portion of any commission paid by the Advisor.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required
to make distributions from qualified
A-112
retirement plans following normal retirement (as stated in the Plan
document). CDSCs also will be waived on SWP redemptions made to make
required minimum distributions from qualified retirement plans that
have invested in Funds distributed by CFD for at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
CLASS G SHARES. CDSCs are not assessed on Class G shares in the
following circumstances: (a) redemptions in connection with required (or, in
some cases, discretionary) distributions to participants or beneficiaries of an
employee pension, profit sharing or other trust or qualified retirement or Keogh
plan, individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Code; (b) redemptions in connection with required (or,
in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (c) redemptions effected pursuant to a Fund's
right to liquidate a shareholder's account if the aggregate net asset value of
Class G shares held in the account is less than the minimum account size; (d)
redemptions in connection with the combination of a Fund with any other
investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (e) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (f) any redemption of Class G shares held by investors, provided the
investor was the beneficial owner of shares of a Fund (or any of the other
portfolios offered by Columbia or otherwise advised by Fleet or its affiliates)
before December 1, 1995.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund may delay
selling your shares for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CFS, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor that participates in the Medallion
Signature Guarantee Program. Stock power forms are available from FSFs, CFS and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners, individual retirement account
holders and other legal entities. Call CFS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CFS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN (SWP). If a shareholder's account balance is at least
$5,000, the shareholder may establish a SWP. A specified dollar amount or
percentage of the then current net asset value of the shareholder's investment
in any Fund designated by the shareholder will be paid monthly, quarterly or
semi-annually to a designated payee. The amount or percentage the shareholder
specifies generally may not, on an annualized basis, exceed 12% of the value, as
of the time the shareholder makes the election, of the shareholder's investment.
Withdrawals from Class B and Class C shares of the Fund under a SWP will be
treated as redemptions of shares purchased through the reinvestment of Fund
distributions, or, to the extent such shares in the shareholder's account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares of such Fund in the shareholder's account. No CDSCs apply to a redemption
pursuant to a SWP of 12% or less, even if, after giving effect to the
redemption, the shareholder's account balance is less than the shareholder's
base amount. Qualified plan participants who are required by Internal Revenue
Service regulation to withdraw more than 12%, on an annual basis, of the value
of their Class B and Class C share account may do so but will be subject to a
CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If
a shareholder wishes to participate in a SWP, the shareholder must elect to have
all of the shareholder's income dividends and other Fund distributions payable
in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the Fund
(other than through the reinvestment of dividends) and a SWP at the same time.
A-113
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CFS will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name," the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions are limited to a total of $100,000 in a 30-day period. Redemptions
that exceed $100,000 may be accomplished by placing a wire order trade through a
broker or furnishing a signature guarantee request. Signatures must be
guaranteed by either a bank, a member firm of a national stock exchange or
another eligible guarantor that participates in the Medallion Signature
Guarantee Program. CFS will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Telephone redemptions are
not available on accounts with an address change in the preceding 30 days and
proceeds and confirmations will only be mailed or sent to the address of record
unless the redemption proceeds are being sent to a pre-designated bank account.
Shareholders and/or their FSFs will be required to provide their name, address
account and taxpayer identification numbers. FSFs will also be required to
provide their broker number. All telephone transactions are recorded. A loss to
a shareholder may result from an unauthorized transaction reasonably believed to
have been authorized. Certain restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT
ADVISORS, INC. ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS)
(Available only on the Class A shares of certain Funds) Shares may be redeemed
by check if a shareholder has previously completed an Application and Signature
Card. CFS will provide checks to be drawn on Mellon Trust of New England, N.A.
(the "Bank"). These checks may be made payable to the order of any person in the
amount of not less than $500 ($250 for money market funds) nor more than
$100,000. The shareholder will continue to earn dividends on shares until a
check is presented to the Bank for payment. At such time a sufficient number of
full and fractional shares will be redeemed at the next determined net asset
value to cover the amount of the check. Certificate shares may not be redeemed
in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks., However, you may incur customary fees for services such as a
stop payment request or a request for copies of a check. The shareholder should
make sure that there are sufficient shares in his or her open account to cover
the amount of any check drawn since the net asset value of shares will
fluctuate. If insufficient shares are in the shareholder's open account, the
check will be returned marked "insufficient funds" and no shares will be
redeemed; the shareholder will be charged a $15 service fee for each check
returned. It is not possible to determine in advance the total value of an open
account because prior redemptions and possible changes in net asset value may
cause the value of an open account to change. Accordingly, a check redemption
should not be used to close an open account. In addition, a check redemption,
like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset
value, a Fund may make the payment or a portion of the payment with portfolio
securities held by that Fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their
sales charge structures and shareholder servicing/distribution expenses.
Investments in Class T shares of the Funds are subject to a front-end sales
charge. Investments in Class G shares of the Funds are subject to a back-end
sales charge. This back-end sales charge declines over time and is known as a
"contingent deferred sales charge." An investor should understand that the
purpose and function of the sales charge structures and shareholder
servicing/distribution arrangements for both Class G and Class T shares are the
same. Class T shares of a bond fund and an equity fund are currently subject to
ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%,
respectively, of the Fund's average daily net assets attributable to its Class T
shares. Class G shares of a bond fund and an equity fund are currently subject
to ongoing shareholder servicing and distribution fees at an annual rate of up
to 0.80% and 0.95%, respectively, of the Fund's average daily net assets
attributable to its Class G shares. These ongoing fees, which are higher than
those charged on Class T shares, will cause Class G shares to have a higher
expense ratio and pay lower dividends than Class T shares.
Class G and Class T shares may only be purchased by current shareholders of
Class G and Class T, respectively.
A-114
INFORMATION APPLICABLE TO CLASS T SHARES RECEIVED BY FORMER GALAXY FUND RETAIL A
SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. Unless
otherwise noted, Class T shares received by former Galaxy Fund Retail A
shareholders in connection with the reorganizations are subject to a 1% CDSC if
the Retail A Shares were purchased without an initial sales charge in accounts
aggregating $1 million or more at the time of purchase and the Class A shares
are sold within 12 months of the time of purchase of the Retail A Shares. The
12-month holding period begins on the first day of the month in which each
purchase was made.
CLASS T SHARES. The public offering price for Class T shares of the
Funds is the sum of the net asset value of the Class T shares purchased plus any
applicable front-end sales charge as described in the applicable Prospectus. A
deferred sales charge of up to 1.00% is assessed on certain redemptions of Class
T shares that are purchased with no initial sales charge as part of an
investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge
may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE - BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ---------------------- ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
The appropriate reallowance to dealers will be paid by CFD to
broker-dealer organizations which have entered into agreements with CFD. The
reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide
additional compensation to broker-dealer affiliates of Columbia and to
unaffiliated broker-dealers whose customers purchase significant amounts of
Class T shares of the Funds. Such compensation will not represent an additional
expense to the Funds or their shareholders, since it will be paid from the
assets of Fleet's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND
RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The
following table describes the CDSC schedule applicable to Class G shares
received by former Galaxy Fund Retail B shareholders in exchange for Retail B
Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
Class G shares received in exchange for Galaxy Fund Retail B Shares
that were purchased prior to January 1, 2001 will automatically convert to Class
T shares six years after purchase. For purposes of calculating the CDSC, all
purchases are considered to be made on the first day of the month in which each
purchase was made.
A-115
The following table describes the CDSC schedule applicable to Class G
shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund
Retail B Shares were acquired in connection with the reorganization of the
Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
If you acquired Retail B Shares in connection with the reorganization
of the Pillar Funds, your Class G shares will automatically convert to Class T
shares eight years after you purchased the Pillar Fund Class B shares you held
prior to the reorganization. For purposes of calculating the CDSC, all purchases
are considered to be made on the first day of the month in which each purchase
was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The
public offering price for Class G shares of the Funds is the net asset value of
the Class G shares purchased. Although investors pay no front-end sales charge
on purchases of Class G shares, such shares are subject to a contingent deferred
sales charge at the rates set forth in the applicable Prospectus if they are
redeemed within seven years of purchase. Securities dealers, brokers, financial
institutions and other industry professionals will receive commissions from CFD
in connection with sales of Class G shares. These commissions may be different
than the reallowances or placement fees paid to dealers in connection with sales
of Class T shares. Certain affiliates of Columbia may, at their own expense,
provide additional compensation to broker-dealer affiliates of Columbia and to
unaffiliated broker-dealers, whose customers purchase significant amounts of
Class G shares of a Fund. See "Class T Shares." The contingent deferred sales
charge on Class G shares is based on the lesser of the net asset value of the
shares on the redemption date or the original cost of the shares being redeemed.
As a result, no sales charge is imposed on any increase in the principal value
of an investor's Class G shares. In addition, a contingent deferred sales charge
will not be assessed on Class G shares purchased through reinvestment of
dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor
may pay upon redemption go to CFD, which may use such amounts to defray the
expenses associated with the distribution-related services involved in selling
Class G shares.
Class G shares of a Fund will convert automatically to Class T shares
eight years after purchase. The purpose of the conversion is to relieve a holder
of Class G shares of the higher ongoing expenses charged to those shares, after
enough time has passed to allow CFD to recover approximately the amount it would
have received if the applicable front-end sales charge had been charged. The
conversion from Class G shares to Class T shares takes place at net asset value,
as a result of which an investor receives dollar-for-dollar the same value of
Class T shares as he or she had of Class G shares. The conversion occurs eight
years after the beginning of the calendar month in which the shares are
purchased. Upon conversion, the converted shares will be relieved of the
distribution and shareholder servicing fees borne by Class G shares, although
they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are
also converted at the earlier of two dates - (i) eight years after the beginning
of the calendar month in which the reinvestment occurred or (ii) the date of
conversion of the most recently purchased Class G shares that were not acquired
through reinvestment of dividends or distributions. For example, if an investor
makes a one-time purchase of Class G shares of a Fund, and subsequently acquires
additional Class G shares of the Fund only through reinvestment of dividends
and/or distributions, all of such investor's Class G shares in the Fund,
including those acquired through reinvestment, will convert to Class T shares of
the Fund on the same date.
A-116
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. Shareholders may reinvest all or
a portion of a recent cash distribution without a sales charge. A shareholder
request must be received within 30 calendar days of the distribution. A
shareholder may exercise this privilege only once. No charge is currently made
for reinvestment.
Shares of some Funds that pay daily dividends (include Funds) will normally earn
dividends starting with the date the Fund receives payment for the shares and
will continue through the day before the shares are redeemed, transferred or
exchanged. Shares of some Funds that pay daily dividends (exclude Funds)
Columbia will be earned starting with the day after that Fund receives payments
for the shares. To determine whether a particular Fund is an include or exclude
fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered funds (with certain exceptions) on the basis of the NAVs
per share at the time of exchange. Class T and Z shares may be exchanged for
Class A shares of certain other funds. The prospectus of each Fund describes its
investment goal and policies, and shareholders should obtain a prospectus and
consider these goals and policies carefully before requesting an exchange.
Shares of certain Funds are not available to residents of all states. Consult
CFS before requesting an exchange.
By calling CFS, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting CFS by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another fund, completion of an exchange may be delayed under unusual
circumstances, such as if the Fund suspends repurchases or postpones payment for
the Fund shares being exchanged in accordance with federal securities law. CFS
will also make exchanges upon receipt of a written exchange request and share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CFS will require customary additional documentation.
Prospectuses of the other Funds are available from the CFD Literature Department
by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
Consult your FSF or CFS. In all cases, the shares to be exchanged must be
registered on the records of the Fund in the name of the shareholder desiring to
exchange.
Shareholders of the other open-end funds generally may exchange their shares at
NAV for the same class of shares of the Fund.
An exchange is generally a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for
more than seven days unless the Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the SEC during periods
when trading on the Exchange is restricted or during any emergency which makes
it impracticable for the Fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the Fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Fund or the
Trust's Trustees. The Declaration provides for indemnification out of Fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the Fund would be unable to meet its obligations and
the disclaimer was inoperative.
A-117
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History", the Fund will not
hold annual shareholders' meetings. The Trustees may fill any vacancies in the
Board of Trustees except that the Trustees may not fill a vacancy if,
immediately after filling such vacancy, less than two-thirds of the Trustees
then in office would have been elected to such office by the shareholders. In
addition, at such times as less than a majority of the Trustees then in office
have been elected to such office by the shareholders, the Trustees must call a
meeting of shareholders. Trustees may be removed from office by a written
consent signed by a majority of the outstanding shares of the Trust or by a vote
of the holders of a majority of the outstanding shares at a meeting duly called
for the purpose, which meeting shall be held upon written request of the holders
of not less than 10% of the outstanding shares of the Trust. Upon written
request by the holders of 1% of the outstanding shares of the Trust stating that
such shareholders of the Trust, for the purpose of obtaining the signatures
necessary to demand a shareholders' meeting to consider removal of a Trustee,
request information regarding the Trust's shareholders, the Trust will provide
appropriate materials (at the expense of the requesting shareholders). Except as
otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue
to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees, but each
series would vote separately from the others on other matters, such as changes
in the investment policies of that series or the approval of the management
agreement for that series.
A-118
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for bonds in the A
category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC bonds have a currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, the bonds are not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned
an actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
A-119
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and
interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on the obligation are being
continued.
A-120
D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large in
Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact, have speculative
characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
A-121
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
A-122
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in the
`AAA' and `AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'.
A bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
securities and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or
the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such
securities are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these securities, and `D'
represents the lowest potential for recovery.
A-123
PLEASE VOTE PROMPTLY
*********************************
Your vote is important, no matter how many shares you own. Please vote on the
reverse side of this proxy card and sign in the space(s) provided. Return your
completed proxy card in the enclosed envelope today.
You may receive additional proxies for other accounts. These are not duplicates;
you should sign and return each proxy card in order for your votes to be
counted.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The signers of this
proxy hereby appoint each of [________], [_________], [__________],
[___________] and [__________] proxies of the signers, with power of
substitution, to vote at the Special Meeting of Shareholders to be held at
Boston, Massachusetts, on February 16, 2005, and at any adjournments, as
specified herein and in accordance with their best judgment, on any other
business that may properly come before this meeting.
AFTER CAREFUL REVIEW, THE BOARD OF DIRECTORS UNANIMOUSLY HAS RECOMMENDED A VOTE
"FOR" ALL MATTERS.
[COLUMBIA LOGO]
-----------------------------------------------------
COLUMBIA GROWTH FUND, INC.
-----------------------------------------------------
Please be sure to sign and date this proxy. Date________
- ---------------------------------- -----------------------------------
Shareholder sign here Co-owner sign here
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BELOW
AND, ABSENT DIRECTION, WILL BE VOTED FOR PROPOSAL 1 LISTED BELOW. THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGMENT AS TO ANY OTHER
MATTER.
THE DIRECTORS RECOMMEND A VOTE FOR THE PROPOSAL:
1. Proposal to approve the Agreement and Plan of [ ] FOR [ ] AGAINST
Reorganization with respect to the acquisition of
Columbia Growth Fund by Columbia Large Cap [ ] ABSTAIN
Growth Fund.
(Item 1 of the Notice)
MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE NEW ADDRESS AT LEFT [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name or names appear hereon. Joint owners should each
sign personally. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
DETACH CARD DETACH CARD
THREE CONVENIENT WAYS TO VOTE YOUR PROXY
The enclosed proxy statement provides details on important issues affecting your
fund. The Board of Directors recommends that you vote for the proposal.
You can vote your proxies over the Internet, by telephone, or by fax - it's
easy and confidential!
If you are voting by Internet, telephone, or fax, you should NOT mail your
proxy card.
Vote by Internet:
- Read the proxy statement and have your proxy card available.
- Go to www.[_________].com or www.[________].com.
- Click on the proxy link and follow the instructions provided.
Vote by telephone:
- Read the proxy statement and have your proxy card available.
- When you are ready to vote, call toll free [___]-[___]-[____].
- Enter the voter control number located on the upper left corner
of your proxy card.
- Follow the instructions provided to cast your vote. A
representative will be available to answer questions regarding
the meeting agenda and execution of proxies.
Vote by fax:
- Read the proxy statements and have your proxy card available.
- When you are ready to vote, fax your completed proxy card to
[___]-[___]-[____].
INTERNET, TELEPHONE, AND FAX VOTING ARE AVAILABLE 24 HOURS A DAY, SEVEN DAYS A
WEEK. If you have any questions or concerns, please call 866-270-3134 from 9:00
a.m. to 11:00 p.m. EDT Monday through Friday, and Saturdays from 12:00 to 6:00
p.m.
COLUMBIA COMMON STOCK FUND, INC.
ONE FINANCIAL CENTER,
BOSTON, MASSACHUSETTS 02111-2621
Dear Investor:
I am writing to ask for your vote on the proposed acquisition of Columbia Common
Stock Fund, Inc. (the "Common Stock Fund" or the "Fund") by Columbia Large Cap
Core Fund (the "Large Cap Core Fund"). At a special meeting of shareholders on
February 16, 2005, you will be asked to vote on your Fund's acquisition.
The proposed acquisition of your Fund is one of several acquisitions recommended
by Columbia Management Group, Inc. ("Columbia"), the parent company of the
investment advisor to the Columbia funds. Columbia's overall goal in proposing
these fund mergers is two-fold. First, by merging funds with generally similar
investment strategies, Columbia can create larger, more efficient investment
portfolios. Second, by streamlining its product offering, Columbia can more
effectively concentrate its investment management and distribution resources on
a more focused group of portfolios. Columbia recommended the acquisition of your
Fund to enable shareholders to invest in a larger, more efficient investment
portfolio while continuing to access a similar investment strategy.
Should your Fund's merger be approved, and other conditions to the acquisition
satisfied, your current fund investment will be exchanged, without immediate tax
consequences, for an equal investment (that is, dollar value) in Columbia Large
Cap Core Fund. The table below provides information on Large Cap Core Fund
shares you will receive upon consummation of the acquisition:
<Table>
<Caption>
You will receive the following share
If you own the following share class of class of the Large Cap Core Fund upon
the Common Stock Fund: consummation of the acquisition:
Class A Class A
Class B Class B
Class C Class C
Class D Class C
Class Z Class Z
</Table>
More information on the specific details and reasons for your Fund's acquisition
is contained in the enclosed combined Prospectus/Proxy Statement. Please read it
carefully.
THE BOARD OF DIRECTORS OF THE COMMON STOCK FUND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR THE ACQUISITION OF THE COMMON STOCK FUND BY THE LARGE CAP CORE FUND,
INCLUDING THE DISSOLUTION OF
THE COMMON STOCK FUND FOLLOWING THE PROPOSED ACQUISITION.
YOUR VOTE IS IMPORTANT. YOU CAN VOTE BY COMPLETING THE ENCLOSED PROXY CARD. A
SELF-ADDRESSED POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE.
We appreciate your participation and prompt response in these matters and thank
you for your continued support.
Sincerely,
Christopher L. Wilson
President
December , 2004
[Job Code]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 16, 2005
COLUMBIA COMMON STOCK FUND, INC.
1-866-270-3134
To the shareholders of Columbia Common Stock Fund, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of Columbia
Common Stock Fund, Inc. (the "Common Stock Fund") will be held at 2:00 p.m.
Eastern Time on Wednesday, February 16, 2005, at the offices of the Common Stock
Fund, One Financial Center, Boston, Massachusetts 02111, for the following
purposes:
1. To approve an Agreement and Plan of Reorganization providing for (i) the
sale of all of the assets of the Common Stock Fund to, and the assumption
of all of the liabilities of, the Common Stock Fund by Columbia Large Cap
Core Fund (the "Large Cap Core Fund"), in exchange for shares of the Large
Cap Core Fund, and (ii) the distribution of such shares to the shareholders
of the Common Stock Fund in complete liquidation of the Common Stock Fund,
and (iii) the dissolution under state law and the de-registration under the
Investment Company Act of 1940, as amended, of the Common Stock Fund.
2. To consider and act upon such other matters that properly come before the
meeting or any adjourned session of the meeting.
Shareholders of record of the Common Stock Fund at the close of business on
December 1, 2004 are entitled to notice of and to vote at the meeting and any
adjourned session.
Shareholders of the Common Stock Fund are or may be entitled to assert
dissenters' rights under Oregon law. Please see "Terms of the Agreement and Plan
of Reorganization" in the enclosed Prospectus/Proxy Statement.
By Order of the Board of Directors,
David Rozenson, Secretary
December [__], 2004
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE SEE THE ENCLOSED PROSPECTUS/PROXY STATEMENT AND OTHER MATERIALS FOR
INSTRUCTIONS ON HOW TO VOTE EASILY AND QUICKLY.
COMBINED PROSPECTUS/PROXY STATEMENT
DECEMBER [__], 2004
ACQUISITION OF THE ASSETS AND LIABILITIES OF
COLUMBIA COMMON STOCK FUND, INC.
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
1-866-270-3134
BY AND IN EXCHANGE FOR SHARES OF
COLUMBIA LARGE CAP CORE FUND
C/O COLUMBIA FUNDS TRUST XI
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
1-866-270-3134
TABLE OF CONTENTS
<Table>
QUESTIONS AND ANSWERS....................................... 4
Proposal -- Acquisition of Columbia Common Stock Fund, Inc.
by Columbia Large Cap Core Fund........................... 14
Principal Investment Risks................................ 14
Information about the Acquisition......................... 16
GENERAL..................................................... 28
Voting Information........................................ 28
Appendix A -- Agreement and Plan of Reorganization.......... A-1
Appendix B -- Fund Information.............................. B-1
Appendix C -- Capitalization................................ C-1
Appendix D -- Information Applicable to Class A, Class B,
Class C and Class Z Shares of Columbia Large Cap Core
Fund...................................................... D-1
Appendix E -- Financial Highlights for Columbia Large Cap
Core Fund................................................. E-1
Appendix F -- Comparison of a Massachusetts Business Trust
with an Oregon Corporation................................ F-1
Appendix G -- Dissenters' Rights............................ G-1
</Table>
This combined Prospectus/Proxy Statement (the "Prospectus/Proxy Statement")
contains information you should know before voting on the Agreement and Plan of
Reorganization dated [ ________ ], among Columbia Funds Trust XI ("Trust XI"),
on behalf of Columbia Large Cap Core Fund (the "Large Cap Core Fund"), Columbia
Common Stock Fund, Inc. (the "Common Stock Fund," and together with the Large
Cap Core Fund, the "Funds"), and Columbia Management Group, Inc.
("Columbia") (the "Agreement and Plan of Reorganization") relating to the
proposed acquisition of the Common Stock Fund by the Large Cap Core Fund (the
"Acquisition") at a Special Meeting of Shareholders of the Common Stock Fund
(the "Meeting"), which will be held at 2:00 p.m. Eastern Time on February 16,
2005, at the offices of the Funds, One Financial Center, Boston, Massachusetts
02111. The Funds are both registered open-end management investment companies.
Please read this Prospectus/Proxy Statement and keep it for future reference.
The Proposal in this Prospectus/Proxy Statement relates to the proposed
acquisition of the Common Stock Fund by the Large Cap Core Fund. If the
Acquisition occurs, you will become a shareholder of the Large Cap Core Fund.
The Large Cap Core Fund seeks to provide a relatively high total return through
long-term capital appreciation and current income. If the Agreement and Plan of
Reorganization is approved by the shareholders of the Common Stock Fund and the
Acquisition occurs, the Common Stock Fund will transfer all of the assets and
liabilities attributable to each class of its shares to the Large Cap Core Fund
in exchange for shares of the same class of the Large Cap Core Fund (except for
the Class D shares of the Common Stock Fund, which will be exchanged for Class C
shares of the Large Cap Core Fund) with the same aggregate net asset value as
the net value of the assets and liabilities transferred. After that exchange,
shares of each class received by the Common Stock Fund will be distributed pro
rata to its shareholders of the corresponding class, and the Common Stock Fund
will be dissolved under state law and de-registered under the Investment Company
Act of 1940, as amended (the "1940 Act").
The following documents have been filed with the Securities and Exchange
Commission ("SEC") and are incorporated into this Prospectus/Proxy Statement by
reference:
- The Prospectuses of the Common Stock Fund dated January 1, 2004, as
supplemented through November 4, 2004.
- The Statement of Additional Information of the Common Stock Fund dated
January 1, 2004, as supplemented through October 21, 2004.
- The Report of Independent Registered Public Accounting Firm and the
financial statements included in the Annual Report to Shareholders of the
Common Stock Fund dated August 31, 2004.
- The Statement of Additional Information of the Large Cap Core Fund dated
[ ____________ ], 2004, relating to the Acquisition.
2
The Common Stock Fund has previously sent its Annual Report to its shareholders.
For a free copy of this Report or any of the documents listed above, you may
call 1-800-426-3750, or you may write to your Fund at the address listed on the
cover of this Prospectus/Proxy Statement. You may also obtain many of these
documents by accessing the Internet site for your Fund at www.columbiafunds.com.
Text-only versions of all the Large Cap Core Fund and Common Stock Fund
documents can be viewed online or downloaded from the EDGAR database on the
SEC's Internet site at www.sec.gov. You can review and copy information about
the Funds by visiting the Public Reference Room, U.S. Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, DC 20549-0102 and at the
regional offices of the SEC located at 233 Broadway, New York, NY 10279 and 175
W. Jackson Boulevard, Suite 900, Chicago, IL 60604. You can obtain copies, upon
payment of a duplicating fee, by sending an e-mail request to publicinfo@sec.gov
or by writing the Public Reference Room at the address above. Information on the
operation of the Public Reference Room may be obtained by calling 202-942-8090.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
An investment in a Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation.
3
QUESTIONS AND ANSWERS
THE FOLLOWING QUESTIONS AND ANSWERS PROVIDE AN OVERVIEW OF KEY FEATURES OF THE
ACQUISITION AND OF THE INFORMATION CONTAINED IN THIS COMBINED PROSPECTUS/PROXY
STATEMENT. PLEASE REVIEW THE FULL PROSPECTUS/PROXY STATEMENT PRIOR TO CASTING
YOUR VOTE.
1. WHAT IS BEING PROPOSED?
The Board of Directors of the Common Stock Fund is recommending that the Large
Cap Core Fund acquire the Common Stock Fund. This means that the Large Cap Core
Fund would acquire all of the assets and liabilities of the Common Stock Fund in
exchange for shares of the Large Cap Core Fund. If the Acquisition is approved
and completed, shareholders of the Common Stock Fund will receive shares of the
Large Cap Core Fund with an aggregate net asset value equal to the aggregate net
asset value of their Common Stock Fund shares on the business day prior to the
closing of the Acquisition and the Common Stock Fund will subsequently be
dissolved under state law and de-registered under the 1940 Act. The Acquisition
is currently scheduled to take place on or around February 25, 2005 or such
other date as the parties may agree.
2. WHY IS THE ACQUISITION BEING PROPOSED?
The Board of Directors of your Fund recommends approval of the Acquisition
because it offers shareholders of your Fund the opportunity to invest in a
larger combined portfolio that has similar investment goals and strategies.
Spreading fixed costs over a broader asset base allows the potential for more
efficient operation, and lower overall expenses. In reviewing the Acquisition,
the Directors also considered that, based on estimated expense ratios as of
September 30, 2004, and a commitment by the Fund's advisor, Columbia Management
Advisors, Inc. ("Columbia Management") to cap total net operating expenses for
Large Cap Core Fund, shareholders of your Fund are expected to experience no
change in net expenses.
Please review "Reasons for the Acquisition" in the Proposal section of this
Prospectus/Proxy Statement for more information regarding the factors considered
by the Board of Directors.
Shareholders of the Common Stock Fund should note that, although the investment
goal of the Large Cap Core Fund is generally similar to that of the Common Stock
Fund, the investment style of the combined fund may differ from that of the
Common Stock Fund.
4
3. HOW DO THE MANAGEMENT FEES AND EXPENSES OF THE FUNDS COMPARE AND WHAT ARE
THEY ESTIMATED TO BE FOLLOWING THE ACQUISITION?
The following tables allow you to compare the sales charges and management fees
and expenses of each Fund and the estimated expenses the combined fund to bear
in the first year following the Acquisition. The shareholder fees presented
below for the Large Cap Core Fund apply both before and after giving effect to
the Acquisition. Sales charges, if applicable, are paid directly by shareholders
to Columbia Funds Distributor, Inc., each Fund's distributor. Annual Fund
Operating Expenses are paid by each Fund. They include management fees, 12b-1
fees (if applicable) and administrative costs, including pricing and custody
services.
The Annual Fund Operating Expenses shown in the table below represent expenses
as of each Fund's most recent fiscal year (August 31, 2004 for the Common Stock
Fund and September 30, 2004 for the Large Cap Core Fund), and those projected
for the combined fund on a pro forma basis after giving effect to the
Acquisition and based on pro forma combined net assets as of September 30, 2004.
Based on the expense ratios shown below, net expenses of each class of shares of
the Large Cap Core Fund are expected to be equal to the net expenses of each
corresponding class of shares of your Fund (after giving effect to the
contractual fee limitation described in footnote 9 to the Annual Fund Operating
Expenses table). Columbia Management has undertaken to maintain this arrangement
through the first anniversary of the consummation of the Acquisition, after
which this arrangement may be modified or terminated at any time, which may
cause the expenses of a class of shares of the Large Cap Core Fund to be higher
than the estimated expenses of the corresponding class of shares of your Fund.
Shareholders of the Common Stock Fund will not pay additional sales charges as a
result of the Acquisition, although any applicable contingent deferred sales
charges ("CDSCs") will continue to apply.
5
SHAREHOLDER FEES
(paid directly from your investment)
COMMON STOCK FUND(1)
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS D CLASS Z
Maximum sales charge (load) on purchases
(%) (as a percentage of the offering
price) 5.75 0.00 0.00 1.00(2) 0.00
- -------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
lesser of purchase price or redemption
price) 1.00(3) 5.00 1.00 1.00 0.00
- -------------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of
amount redeemed, if applicable) (4) (4) (4) (4) (4)
</Table>
LARGE CAP CORE FUND(1)
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS Z
Maximum sales charge (load) on purchases (%) (as a
percentage of the offering price) 5.75 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the lesser
of purchase price or redemption price) 1.00(3) 5.00 1.00 0.00
- -----------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of amount
redeemed, if applicable) (4) (4) (4) (4)
</Table>
LARGE CAP CORE FUND(1)
(PRO FORMA COMBINED)
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS Z
Maximum sales charge (load) on purchases (%) (as a
percentage of the offering price) 5.75 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the lesser
of purchase price or redemption price) 1.00 5.00 1.00 0.00
- -----------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of amount
redeemed, if applicable) (4) (4) (4) (4)
</Table>
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) Columbia Funds Distributor, Inc., the Funds' distributor has agreed to
waive indefinitely the front-end sales charge for purchases of Class D
shares by existing Class D shareholders.
(3) This charge applies only to Class A shares bought without an initial sales
charge that are sold within 18 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
6
ANNUAL FUND OPERATING EXPENSES
(deducted directly from Fund assets)
COMMON STOCK FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS D CLASS Z
Management fee (%) 0.60 0.60 0.60 0.60 0.60
- -------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25(5) 1.00 1.00 1.00 0.00
- -------------------------------------------------------------------------------------------
Other expenses(6) (%) 0.29 0.29 0.29 0.29 0.29
- -------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.14 1.89 1.89 1.89 0.89
</Table>
LARGE CAP CORE FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS Z
Management fees(7) (%) 0.82 0.82 0.82 0.82
- -----------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25(5) 1.00 1.00 0.00
- -----------------------------------------------------------------------------------------
Other expenses(6) (%) 0.28 0.28 0.28 0.28
- -----------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.35 2.10 2.10 1.10
</Table>
LARGE CAP CORE FUND
(PRO FORMA COMBINED)
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS Z
Management fees(8)(9) (%) 0.80 0.80 0.80 0.80
- -------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25(5) 1.00 1.00 0.00
- -------------------------------------------------------------------------------------
Other expenses(6) (%) 0.25 0.25 0.25 0.25
- -------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.30 2.05 2.05 1.05
- -------------------------------------------------------------------------------------
Expense Reimbursement(9) (%) (0.16) (0.16) (0.16) (0.16)
- -------------------------------------------------------------------------------------
Net Expenses(9) (%) 1.14 1.89 1.89 0.89
</Table>
(5) Each of the Large Cap Core Fund and the Common Stock Fund may pay annual
distribution and service (12b-1) fees of up to a maximum of 0.35% of the
Fund's average daily net assets attributable to Class A shares (comprised
of up to 0.25% for shareholder liaison services and up to 0.10% for
distribution services). Both funds will limit payments under the plan to
0.25%.
(6) Other expenses have been restated to reflect contractual changes to the
transfer agency and bookkeeping fees for the Common Stock Fund and to the
transfer agency fees for the Large Cap Core Fund effective November 1,
2003.
(7) The Large Cap Core Fund pays a management fee of 0.75% and an
administration fee of 0.07%.
(8) After consummation of the Acquisition, the Large Cap Core Fund is expected
to pay a management fee of 0.73% and an administration fee of 0.07%
(9) The Fund's advisor has contractually agreed to bear a portion of the Fund's
expenses so that the Fund's ordinary operating expenses (excluding
distribution and service fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) do not exceed 0.89% annually for classes A,
B, C, and Z shares. The advisor has undertaken to maintain this arrangement
for one year following the consummation of the Acquisition, after which
date it may be modified or terminated at any time.
7
EXAMPLE EXPENSES
Example Expenses help you compare the cost of investing in the Large Cap Core
Fund or the Common Stock Fund currently with the cost of investing in the
combined fund on a pro forma basis and also allow you to compare these costs
with the cost of investing in other mutual funds. The table reflects a one-year
expense reimbursement as described in footnote 9 to the Annual Fund Operating
Expenses table and also reflects, with respect to the Common Stock Fund, the
waiver of the initial sales charge for Class D shares. It uses the following
hypothetical conditions.
- $10,000 initial investment
- 5% total return for each year
- Each Fund's operating expenses remain the same
- Reinvestment of all dividends and distributions
- Class B shares convert to Class A shares after eight years
EXAMPLE EXPENSES
(your actual costs may be higher or lower)
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
COMMON STOCK
Class A $685 $916 $1,167 $1,881
- ----------------------------------------------------------------------------------------------
Class B: did not sell your shares $192 $594 $1,021 $2,016
sold all your shares at end of
period $692 $894 $1,221 $2,016
- ----------------------------------------------------------------------------------------------
Class C: did not sell your shares $192 $594 $1,021 $2,212
sold all your shares at end of
period $292 $594 $1,021 $2,212
- ----------------------------------------------------------------------------------------------
Class D: did not sell your shares $192 $594 $1,021 $2,212
sold all your shares at end of
period $292 $594 $1,021 $2,212
- ----------------------------------------------------------------------------------------------
Class Z $ 91 $284 $ 493 $1,096
LARGE CAP CORE FUND
Class A $705 $978 $1,272 $2,105
- ----------------------------------------------------------------------------------------------
Class B: did not sell your shares $213 $658 $1,129 $2,240
sold all your shares at end of
period $713 $958 $1,329 $2,240
- ----------------------------------------------------------------------------------------------
Class C: did not sell your shares $213 $658 $1,129 $2,431
sold all your shares at end of
period $313 $658 $1,129 $2,431
- ----------------------------------------------------------------------------------------------
Class Z $112 $350 $ 606 $1,340
</Table>
8
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
LARGE CAP CORE FUND
(pro forma combined)
Class A $685 $949 $1,232 $2,039
- ----------------------------------------------------------------------------------------------
Class B: did not sell your shares $192 $627 $1,089 $2,174
sold all your shares at end of
period $692 $927 $1,289 $2,174
- ----------------------------------------------------------------------------------------------
Class C: did not sell your shares $192 $627 $1,089 $2,367
sold all your shares at end of
period $292 $627 $1,089 $2,367
- ----------------------------------------------------------------------------------------------
Class Z $ 91 $318 $ 564 $1,268
</Table>
The projected post-Acquisition pro forma Annual Fund Operating Expenses and
Example Expenses presented above are based upon numerous material assumptions,
including that (1) the current contractual agreements will remain in place; and
(2) certain fixed costs involved in operating the Common Stock Fund are
eliminated. Although these projections represent good faith estimates, there can
be no assurance that any particular level of expenses or expense savings will be
achieved because expenses depend on a variety of factors, including the future
level of fund assets, many of which are beyond the control of the Large Cap Core
Fund or Columbia.
4. HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE LARGE CAP CORE
FUND AND THE COMMON STOCK FUND COMPARE?
This table shows the investment goal and principal investment strategies of each
Fund:
<Table>
<Caption>
LARGE CAP CORE FUND COMMON STOCK FUND
INVESTMENT GOAL: The Large Cap Core INVESTMENT GOAL: The Common Stock Fund
Fund seeks relatively high total return seeks capital appreciation by
through long-term capital appreciation investing, under normal market
and current income conditions, at least 80% of its net
assets (plus any borrowings for
investment purposes) in common stocks
of large-cap, well-established
companies.
- ----------------------------------------------------------------------------------
</Table>
9
<Table>
<Caption>
LARGE CAP CORE FUND COMMON STOCK FUND
PRINCIPAL INVESTMENT STRATEGIES: The PRINCIPAL INVESTMENT STRATEGIES: The
Large Cap Core Fund seeks to achieve Common Stock Fund seeks to achieve its
its goal as follows: goal as follows:
- - Under normal market conditions, the - The Fund will typically invest in
Large Cap Core Fund invests at least stocks that have fallen out of favor
80% of its net assets (plus any and can be purchased at a discount to
borrowings for investment purposes) the intrinsic value of the company
in equity securities, primarily and its prospectus for growth.
common stocks, of U.S. companies with
large market capitalizations - The Fund may also invest up to
(generally over $2 billion) that 33 1/3% of its net assets in foreign
Columbia Management believes offer securities, including American
attractive return potential from Depositary Receipts (ADRs), Global
stock price appreciation and Depositary Receipts (GDRs) and
dividends. Nasdaq-listed foreign securities.
- - Columbia Management focuses on stocks
which are believed to be attractively
priced relative to expectations for
future performance.
- - The Fund may invest up to 20% of its
assets in foreign securities.
</Table>
The following highlights the differences in certain investment strategies that
the Funds use to achieve their investment goals:
- - The Large Cap Core Fund may invest up to 20% of its total assets in foreign
securities. The Common Stock Fund may invest up to 33 1/3% of its net assets
in foreign securities, including ADRs, GDRs and Nasdaq-listed foreign
securities. In addition, the Common Stock Fund is not permitted to invest in
securities of issuers located in emerging market countries.
- - The Large Cap Core Fund may not borrow money, issue senior securities or
mortgage, pledge or hypothecate its assets except to the extent permitted by
the Investment Company Act of 1940, as amended (the "1940 Act"), whereas the
Common Stock Fund may not borrow money in excess of five percent of its net
asset value and any borrowing must only be temporarily from banks and for
extraordinary or emergency purposes. Generally, the 1940 Act permits an
investment company to borrow up to 33 1/3% of its total assets, including the
amount borrowed. The Common Stock Fund is also precluded from issuing senior
securities, bonds or debentures.
- - The Large Cap Core Fund has a fundamental investment restriction under which
it may not purchase or sell commodities or commodity contracts, except that
the Large Cap Core Fund may, to the extent consistent with its investment
objective and policies, purchase and sell financial futures contracts and
related options and foreign current forward contracts, futures contracts and
related options. The Common Stock
10
Fund may not buy or sell commodities, except that it may invest in futures
contracts relating to broadly-based stock indices.
- - The Common Stock Fund has a fundamental investment restriction that precludes
the Fund from buying and selling puts and calls on securities, stock index
futures or options on stock index futures, or financial futures or options on
financial futures, unless such options are written by other persons and the
options or futures are offering through the facilities of a national
securities association or are listed on a national securities or commodities
exchange. The Large Cap Core Fund has a non-fundamental investment restriction
in which the Fund may not purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than five percent of
the value of the Fund's total assets would be invested in premiums on open put
options positions. Similarly, the Large Cap Core Fund has a non-fundamental
investment restriction that precludes it from writing call options on
securities, unless the securities are held in the Fund's portfolio or unless
the Fund is entitled to them in deliverable form without further payment or
after segregating cash in the amount of any further payment. The Large Cap
Core Fund also may not write call options in excess of five percent of the
value of its total assets and may not invest more than five percent of its net
asset in warrants (no more than two percent may be warrants which are not
listed on the New York Stock Exchange).
- - The Large Cap Core Fund has a non-fundamental investment restriction under
which it may not sell securities short, maintain a short position, or purchase
securities on margin, except for such short-term credits as are necessary for
the clearance of transactions. The Common Stock Fund has a fundamental
investment restriction under which it may not engage in short sales of
securities except to the extent that it owns an equal amount of the securities
sold short or other securities convertible into an equivalent amount of such
securities. Such transactions may only be made by the Common Stock Fund to
protect a profit in or to attempt to minimize a loss with respect to
convertible securities. In any event, no more than five percent of the value
of the Common Stock Fund's net assets taken at market value may, at any time,
be held as collateral for such sales.
- - The Large Cap Core Fund has a non-fundamental investment restriction under
which the Fund is precluded from purchasing or selling interests in oil, gas,
or mineral exploration or development programs or leases (other than
securities of issuers which invest in or sponsor such programs). The Common
Stock Fund has a similar fundamental investment restriction.
11
- - The Large Cap Core Fund has a non-fundamental investment restriction which
precludes the Fund from investing in companies for the purpose of exercising
control or management. The Common Stock Fund has a similar fundamental
investment restriction.
- - The Common Stock Fund has fundamental investment restrictions under which the
Fund may not (1) invest in the securities of any company if the purchase would
cause more than five percent of the value of the Fund's total assets to be
invested in companies which, including predecessors and parents, have a record
of less than three years of continuous operations, and (2) purchase the
securities of any issuer if the purchase would cause more than five percent of
the outstanding voting securities of that issuer to be held in the Fund. The
Large Cap Core Fund does not have similar investment restrictions.
Except as noted above, the Funds are generally subject to substantially similar
fundamental and non-fundamental investment policies. For a complete list of the
Funds' investment policies and restrictions, see each Fund's Statement of
Additional Information.
5. WHAT CLASS OF THE LARGE CAP CORE FUND SHARES WILL YOU RECEIVE IF THE
ACQUISITION OCCURS?
If you own Class A, Class B, Class C or Class Z shares of the Common Stock Fund,
you will receive the same class of shares of the Large Cap Core Fund that you
currently own in the Common Stock Fund. The shares will have the same exchange
rights and will bear the same CDSCs upon redemption and, in the case of Class B
shares, will convert to Class A shares at the same time, as your current shares.
The shares will also have the same distribution, purchase and redemption
procedures as your current shares.
If you own Class D shares of the Common Stock Fund, you will receive Class C
shares of the Large Cap Core Fund. Like your Class D shares of the Common Stock
Fund, Class C shares of the Large Cap Core Fund carry a CDSC of 1.00% that is
applied to shares sold within the first year after they are purchased. The
shares you receive in the Acquisition will be subject to the same CDSC
applicable to your Class D shares of the Common Stock Fund. Please see Appendix
D for more information on Class C shares of the Large Cap Core Fund.
6. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION?
The Acquisition is expected to be tax-free to you for federal income tax
purposes. This means that neither you nor the Common Stock Fund is expected to
recognize a gain or loss as a direct result of the Acquisition.
12
However, since the Acquisition will end the tax year of the Common Stock Fund,
it may accelerate distributions from the Common Stock Fund to you as a
shareholder. Specifically, the Common Stock Fund will recognize any net
investment company taxable income and any net realized capital gains (after
reduction by any available capital loss carryforwards) or losses in the short
tax year ending on the date of the Acquisition, and will declare and pay a
distribution of such income and such gains to its shareholders on or before that
date.
The cost basis and holding period of your Common Stock Fund shares are expected
to carry over to your new shares in the Large Cap Core Fund.
Certain other tax consequences are discussed below under "Federal Income Tax
Consequences."
7. WHO BEARS THE EXPENSES ASSOCIATED WITH THE ACQUISITION?
Columbia Management and the Large Cap Core Fund will each bear a portion of the
out of pocket expenses associated with the Acquisition, including, but not
limited to: (1) the expenses associated with the preparation, printing and
mailing of any shareholder communications, including this Prospectus/Proxy
Statement, and any filings with the SEC and other governmental authorities in
connection with the Acquisition; (2) the fees and expenses of any proxy
solicitation firm retained in connection with the Acquisition; (3) the legal
fees and expenses incurred by the Funds in connection with the Acquisition; and
(4) the Directors' and/or Trustees' fees and out of pocket expenses incurred as
a result of the Acquisition. Should your Fund's shareholders not approve the
Acquisition, Columbia Management will bear all costs associated with the
Acquisition.
8. WHO IS ELIGIBLE TO VOTE?
Shareholders of record on December 1, 2004 are entitled to attend and vote at
the Meeting or any adjournment of the Meeting. On each proposal, all
shareholders of your Fund, regardless of the class of shares held, will vote
together as a single class. Each share is entitled to one vote. Shares
represented by properly executed proxies, unless revoked before or at the
Meeting, will be voted according to shareholders' instructions. If you sign a
proxy but do not fill in a vote, your shares will be voted to approve the
Acquisition.
13
PROPOSAL -- ACQUISITION OF COLUMBIA COMMON STOCK FUND, INC. BY COLUMBIA LARGE
CAP CORE FUND
THE PROPOSAL
You are being asked to approve the Agreement and Plan of Reorganization, a form
of which is attached as Appendix A to this Prospectus/Proxy Statement. By
approving the Agreement and Plan of Reorganization, you are also approving the
Acquisition of the Common Stock Fund by the Large Cap Core Fund and the
dissolution of the Common Stock Fund under state law and the de-registration of
the Common Stock Fund under the 1940 Act.
PRINCIPAL INVESTMENT RISKS
What are the principal investment risks of the Large Cap Core Fund, and how do
they compare with those of the Common Stock Fund?
The principal risks associated with each Fund are generally similar because the
Funds have generally similar investment goals and strategies. The actual risks
of investing in each Fund depend on the securities held in each Fund's portfolio
and on market conditions, both of which change over time. The Large Cap Core
Fund is subject to both management risk and market risk. Management risk means
that Columbia Management's investment decisions might produce losses or cause
the Fund to underperform when compared to other funds with a similar investment
goal. Market risk means that security prices in a market, sector or industry may
fall, reducing the value of one's investment. Because of management and market
risk, there is no guarantee that the Large Cap Core Fund will achieve its
investment goal or perform favorably among comparable funds. Since it purchases
equity securities, the Large Cap Core Fund is subject to equity risk. This is
the risk that stock prices will fall over short or extended periods of time. The
Common Stock Fund is also subject to management risk, market risk, and equity
risk.
The Funds may also be subject to sector risk and the risks associated with
investing in foreign securities. Companies that are in different but closely
related industries are sometimes described as being in the same broad economic
sector. The values of stocks of different companies in a market sector may be
similarly affected by particular economic or market events. Although neither
fund intends to focus on any particular sector, at times each fund may have a
large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be
extremely volatile. Fluctuations in currency exchange rates may impact the
14
value of foreign securities without a change in the intrinsic value of those
securities. The liquidity of foreign securities may be more limited than that of
domestic securities, which means that the Funds may, at times, be unable to sell
foreign securities at desirable prices. Brokerage commissions, custodial fees
and other fees are generally higher for foreign investments. In addition,
foreign governments may impose withholding taxes which would reduce the amount
of income and capital gains available to distribute to shareholders. Other risks
include possible delays in the settlement of transactions or in the notification
of income; less publicly available information about companies; the impact of
political, social or diplomatic events; possible seizure, expropriation or
nationalization of the company or its assets; and possible imposition of
currency exchange controls.
Although the stock market has historically outperformed other asset classes over
the long term, the stock market tends to move in cycles. Individual stock prices
may fluctuate drastically from day to day and may underperform other asset
classes over an extended period of time. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may suffer a
decline in response. These price movements may result from factors affecting
individual companies, industries, or the securities market as a whole. An
investment in the Large Cap Core Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. There are many circumstances (including additional risks that
are not described here) which could prevent the Large Cap Core Fund from
achieving its investment goal. You may lose money by investing in the Large Cap
Core Fund.
Shareholders of the Common Stock Fund should note that, although the investment
goal and strategies of the Large Cap Core Fund are generally similar to those of
the Common Stock Fund, there will be some difference in the investment style of
the combined fund. In particular Large Cap Core Fund seeks relatively high total
return through long-term capital appreciation and current income by investing in
equity securities, primarily common stocks of U.S. companies with large market
capitalizations that Columbia Management believes offer attractive return
potential from stock price appreciation and dividends. Please see the answer to
question 4 above under "Questions and Answers" for more information comparing
the investment goals, strategies and policies of the Funds.
15
INFORMATION ABOUT THE ACQUISITION
Terms of the Agreement and Plan of Reorganization
If approved by the shareholders of the Common Stock Fund, the Acquisition is
expected to occur on or around February 25, 2005, or such other date as the
parties may agree, under the Agreement and Plan of Reorganization. The following
is a brief summary of the principal terms of the Agreement and Plan of
Reorganization. Please review Appendix A for more information regarding the
Agreement and Plan of Reorganization.
- - The Common Stock Fund will transfer all of the assets and liabilities
attributable to each class of its shares to the Large Cap Core Fund in
exchange for shares of the same class of the Large Cap Core Fund (except that
Class D shares of the Common Stock Fund will be exchanged for Class C shares
of the Large Cap Core Fund) with an aggregate net asset value equal to the net
value of the transferred assets and liabilities.
- - The Acquisition will occur on the next business day after the time (currently
scheduled to be 4:00 p.m. Eastern Time on February 25, 2005, or such other
date and time as the parties may determine) when the assets of each Fund are
valued for purposes of the Acquisition.
- - The shares of each class of the Large Cap Core Fund received by the Common
Stock Fund will be distributed to the shareholders of the same class of the
Common Stock Fund (except that shareholders of Class D shares of the Common
Stock Fund will receive Class C shares of the Large Cap Core Fund) pro rata in
accordance with their percentage ownership of such class of the Common Stock
Fund in full liquidation of the Common Stock Fund.
- - After the Acquisition, the Common Stock Fund's affairs will be wound up in an
orderly fashion, it will be dissolved under state law and deregistered under
the 1940 Act.
- - The Acquisition requires approval by the Common Stock Fund's shareholders and
satisfaction of a number of other conditions; the Acquisition may be
terminated at any time with the approval of the Trustees of Columbia Funds
Trust XI and the Directors of the Common Stock Fund.
Shareholders should be aware that the Acquisition as proposed is not expected to
result in recognition of gain or loss to shareholders for federal income tax
purposes and that, if the Acquisition is consummated, shareholders will be free
to redeem the shares which they receive in the transaction at their current net
asset value, less any applicable CDSC. In
16
addition, shares may be redeemed at any time prior to the consummation of the
Acquisition. Shareholders who object to the Acquisition may be entitled under
Oregon law to demand payment for, or an appraisal of, their shares. Information
concerning dissenter's rights is contained in Appendix G.
Shares You Will Receive
If the Acquisition occurs, shareholders of Class A, B, C and Z shares of the
Common Stock Fund will receive shares in the Large Cap Core Fund of the same
class as the shares that they currently own in the Common Stock Fund.
Shareholders of Class D shares of the Common Stock Fund will receive Class C
shares of the Large Cap Core Fund. In comparison to the shares you currently
own, the shares you receive will have the following characteristics:
- - They will have an aggregate net asset value equal to the aggregate net asset
value of your current shares as of the business day before the closing of the
Acquisition.
- - They will bear the same sales charges (except as noted below for Class D
shareholders), redemption fees and CDSCs, if any, as your current shares to
the extent such charges and fees apply, and for purposes of determining the
CDSC applicable to any redemption and/or conversion of Class B shares to Class
A shares, if applicable, the new shares will continue to age from the date you
purchased your Common Stock Fund shares. Although the Class D shares of the
Common Stock Fund have a front-end sales charge of 1.00% (currently being
waived), Class C shares of the Large Cap Core Fund have no front-end sales
charge.
- - The procedures for purchasing and redeeming your shares will not change as a
result of the Acquisition.
- - You will have the same exchange options as you currently have, although Class
D shareholders receiving Class C shares of the Large Cap Core Fund may
exchange their shares for Class C shares of another fund distributed by
Columbia Funds Distributor, Inc. at net asset value.
- - You will have voting and other rights generally similar to those you currently
have, but as a shareholder of the Large Cap Core Fund. Please see Appendix F
for more information regarding the differences between the Large Cap Core Fund
and the Common Stock Fund.
Information concerning the capitalization of each of the Funds is contained in
Appendix C.
17
Reasons for the Acquisition
The Directors of the Common Stock Fund, including all Directors who are not
"interested persons" of the Fund, Columbia Management or its affiliates, have
determined on behalf of the Fund that the Acquisition would be in the best
interests of the Fund's shareholders and that the interests of existing
shareholders in the Fund would not be diluted as a result of the Acquisition.
The Directors have unanimously approved the Agreement and Plan of Reorganization
and the Acquisition and recommended that Fund shareholders vote in favor of the
Acquisition by approving the Agreement and Plan of Reorganization.
In proposing the Acquisition, Columbia presented to the Directors of the Common
Stock Fund, at a meetings held on August 11, 2004 and October 13, 2004, the
following reason for the Common Stock Fund to enter into the Acquisition:
- - The Acquisition is expected to create a larger fund with an investment goal
and strategies generally similar to those of the Common Stock Fund.
At the meeting, the Directors (with the advice and assistance of independent
counsel) considered, among other things:
1. the Acquisition as part of a continuing initiative to streamline and improve
the offerings of the Columbia funds family;
2. various potential shareholder benefits of the Acquisition;
3. the current asset level of the Common Stock Fund and the combined pro forma
asset level of the Large Cap Core Fund;
4. the historical performance results of the Funds;
5. the investment objectives and principal investment strategies of the Funds;
6. the fact that the Large Cap Core Fund is expected to have a higher
investment advisory fee and higher gross total operating expenses than, but
the same net total operating expenses as, the Common Stock Fund;
7. Columbia Management's commitment until the first anniversary of the
Acquisition to bear a portion of the Large Cap Core Fund's expenses so that
the total annual fund operating expenses (exclusive of distribution and
service fees, brokerage commissions, interest, taxes, and extraordinary
expenses, if any) will not exceed 0.85% of the Fund's average net assets,
which will result in a net expense ratio that is equal to the net expense
ratio of Common Stock Fund prior to giving effect to the Acquisition.
18
8. the expected U.S. federal income tax consequences of the Acquisition,
including limitations on the use of realized and unrealized losses for U.S.
federal income tax purposes and the potential diminution of the ability to
use such losses to offset future gains;
9. that the Large Cap Core Fund would bear at least part of the expenses
associated with the Acquisition;
10. the potential benefits of the Acquisition to Columbia Management and its
affiliates; and
11. that the acquisition would give shareholders the opportunity to invest in a
larger combined portfolio that has similar investment goals and strategies
and that spreading fixed costs over a broader asset base allows the
potential for more efficient operation, and lower overall expenses
If approved, the Acquisition will combine the Fund's assets with those of the
Large Cap Core Fund, resulting in a combined portfolio that is significantly
larger than the Common Stock. Larger mutual funds generally have more buying
power (for example, they have greater opportunity to purchase round lots of
securities) and are better able to diversify their portfolios.
Columbia Management also believes that the Acquisition helps eliminate
overlapping products. Both Funds are large capitalization equity funds. Columbia
Management believes that streamlining its product offerings in a particular
asset segment will help minimize investor confusion.
In addition, the Directors considered that the Acquisition is intended to permit
the Common Stock Fund's shareholders to exchange their investment for an
investment in the Large Cap Core Fund without recognizing gain or loss for
federal income tax purposes. By contrast, if a Common Stock Fund shareholder
were to redeem his or her shares to invest in another fund, the transaction
would likely be a taxable event for such shareholder. Similarly, if the Common
Stock Fund were liquidated or reorganized in a taxable transaction, the
transaction would likely be a taxable event for the Common Stock shareholders.
After the Acquisition, shareholders may redeem any or all of their Common Stock
Fund shares at net asset value (subject to any applicable CDSC) at any time, at
which point they would recognize a taxable gain or loss.
The Directors also considered the potentially negative tax effects of the
Acquisition. In particular, they reviewed the historical and pro forma tax
attributes of the Funds and the effect of the Acquisition on certain tax losses
of the Funds (see "Federal Income Tax Consequences" below). The Directors
considered the potentially less favorable tax attributes of the
19
combined fund under a range of circumstances, and determined that any such
impact was likely to be outweighed by lower fund operating expenses and other
benefits to shareholders resulting from the Acquisition.
Furthermore, the Directors considered the relative Fund performance results set
forth below under "Performance Information."
Performance Information
The charts below show the percentage gain or loss in each calendar year for the
10-year period ending December 31, 2003, for the Class Z shares of each of the
Common Stock Fund and the Large Cap Core Fund. They should give you a general
idea of how each Fund's return has varied from year to year. The charts include
the effects of Fund expenses, but not sales charges. Returns would be lower if
any applicable sales charges were included. The calculations of total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment date. Past performance is not an indication of future results.
Performance results include the effect of expense reduction arrangements, if
any. If these arrangements had not been in place, the performance results would
have been lower. As with all mutual funds, past performance (before and after
taxes) does not predict a fund's future performance. No assurance can be given
that the Large Cap Core Fund will achieve any particular level of performance
after the Acquisition.
Additional discussion of the manner of calculation of total return is contained
in each Fund's respective Prospectuses and Statement of Additional Information.
20
COMMON STOCK FUND (CLASS Z)
(BAR CHART)
<Table>
2.06% 30.84% 20.71% 25.37% 26.28% 25.76%
-5.73% -17.60% -24.92% 26.87%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
</Table>
<Table>
Class Z's year-to-date total return through For period shown in bar chart:
September 30, 2004, was -2.39% Best quarter: Fourth Quarter 1998, +23.30%
Worst quarter: Third Quarter 2002, -17.95%
</Table>
LARGE CAP CORE FUND (CLASS Z)(1)
(BAR CHART)
<Table>
5.12% 29.67% 20.20% 29.66% 15.96% 7.09% 3.95% 22.83%
-5.56% -24.86%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
</Table>
<Table>
Class Z's year-to-date total return through For period shown in bar chart:
September 30, 2004, was -2.27%. Best quarter: Fourth Quarter 1998, +20.76%
Worst quarter: Third Quarter 2002, -18.91%
</Table>
(1) The calendar year total returns shown include returns of Trust Shares of
the Galaxy Growth and Income Fund (the "Galaxy Fund"), the predecessor to
the Large Cap Core Fund, for periods prior to December 9, 2002, the date on
which Class Z shares were initially offered by the Large Cap Core Fund, and
returns of Trust Shares of a separate portfolio of the Shawmut Funds (the
"Shawmut Funds"), the predecessor to the Galaxy Fund, for periods prior to
December 4, 1995.
21
The following tables list each Fund's average annual total return for each class
of its shares for the one-year, five-year and ten-year periods ending December
31, 2003, (including applicable sales charges), for Class A, B, C, D and Z
shares of the Common Stock Fund and for Class A, B, C and Z shares of the Large
Cap Core Fund. These tables are intended to provide you with some indication of
the risks of investing in the Funds. At the bottom of each table, you can
compare the Funds' performance with one or more broad-based market indices.
After-tax returns are calculated using the historical highest individual federal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown, and may not be relevant to investors who hold shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts.
22
COMMON STOCK FUND(2)
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS
------- ------- --------
Class A (%)
Return Before Taxes 19.09 -2.68 8.34
Return After Taxes on Distributions 19.06 -3.62 6.36
Return After Taxes on Distributions and Sale of Fund
Shares 12.44 -2.55 6.35
- ------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 20.29 -2.05 8.87
Return After Taxes on Distributions 20.29 -2.99 6.89
Return After Taxes on Distributions and Sale of Fund
Shares 13.19 -2.02 6.84
- ------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 24.35 -1.71 8.88
Return After Taxes on Distributions 24.35 -2.63 6.89
Return After Taxes on Distributions and Sale of Fund
Shares 15.83 -1.73 6.85
- ------------------------------------------------------------------------------------
Class D (%)
Return Before Taxes 22.96 -1.92 8.77
Return After Taxes on Distributions 22.96 -2.84 6.78
Return After Taxes on Distributions and Sale of Fund
Shares 14.92 -1.90 6.75
- ------------------------------------------------------------------------------------
Class Z (%)
Return Before Taxes 26.87 1.43 9.03
Return After Taxes on Distributions 26.76 -2.39 7.03
Return After Taxes on Distributions and Sale of Fund
Shares 17.60 -1.51 6.97
- ------------------------------------------------------------------------------------
S&P 500 Index (%)(3) 28.68 -0.57 11.07
- ------------------------------------------------------------------------------------
Russell 1000 Index (%)(3) 29.89 -0.13 11.00
</Table>
(2) Class A, Class B, Class C and Class D are newer classes of shares. Their
performance information includes returns of the Common Stock Fund's Class Z
shares (the oldest existing fund class) for periods prior to their
inception. These returns have not been restated to reflect any differences
in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer
classes of shares. If differences in expenses had been reflected, the
returns shown for periods prior to the inception of the newer classes of
shares would have been lower. Class C shares were initially offered on
October 13, 2003, Class A, B and D shares were initially offered on
November 1, 2002, and Class Z shares were initially offered on October 1,
1991.
(3) Beginning in 2004, the Common Stock Fund's benchmark was changed to the
Russell 1000 Index, an unmanaged index that tracks the performance of 1000
of the largest U.S. companies, based on market capitalization. Previously,
the Fund's returns were compared to the S&P 500 Index. The advisor believes
that the Russell 1000 Index, because of its greater emphasis on
large-capitalization companies, more accurately reflects the type of
securities in which the Fund invests. The Fund's average annual returns for
the one-year, five-year and ten-year periods are shown compared to the
Russell 1000 Index, as well as the Fund's previous benchmark, the S&P 500
Index.
23
LARGE CAP CORE FUND
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS
------- ------- --------
Class A (%)
Return Before Taxes 15.08 -2.01(4) 8.20(4)
Return After Taxes on Distributions 15.03 -2.83(4) 6.25(4)
Return After Taxes on Distributions and Sale of Fund
Shares 9.85 -1.63(4) 6.23(4)
- ------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 16.61 -1.90(4) 8.43(4)
Return After Taxes on Distributions 16.59 -2.61(4) 6.55(4)
Return After Taxes on Distributions and Sale of Fund
Shares 10.81 -1.74(4) 6.52(4)
- ------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 20.51 -1.58(4) 8.42(4)
Return After Taxes on Distributions 20.49 -2.28(4) 6.54(4)
Return After Taxes on Distributions and Sale of Fund
Shares 13.35 -1.48(4) 6.51(4)
- ------------------------------------------------------------------------------------
Class Z (%)
Return Before Taxes 22.83 -0.60(5) 9.10(5)
Return After Taxes on Distributions 22.49 -1.52(5) 7.05(5)
Return After Taxes on Distributions and Sale of Fund
Shares 13.99(5) -0.56(5) 6.96(5)
- ------------------------------------------------------------------------------------
S&P 500 Index (%)(4),(6) 28.68 -0.57 11.07
</Table>
(4) The returns for Class A and Class B shares include the returns of Prime A
Shares (for Class A shares) and Prime B Shares (for Class B shares) of the
Galaxy Fund for periods prior to December 9, 2002, the date on which Class
A and Class B shares were initially offered by the Fund. The returns shown
for Class A shares and Class B shares also include the returns of Retail A
Shares of the Galaxy Fund (adjusted, as necessary, to reflect the sales
charge applicable to Class A shares and Class B shares, respectively) for
periods prior to the date of inception of Prime A and Prime B Shares
(November 1, 1998). Class A and Class B shares generally would have had
substantially similar returns to Retail A Shares because they would have
been invested in the same portfolio of securities, although returns would
have been lower to the extent that expenses for Class A and Class B shares
exceed expenses paid by Retail A Shares. The returns shown for Class C
shares include the returns of Prime B Shares of the Galaxy Fund (adjusted
to reflect the sales charge applicable to Class C shares) for periods prior
to December 9, 2002, the date on which Class C shares were initially
offered. The returns shown for Class C shares also include the returns of
Retail A Shares of the Galaxy Fund (adjusted to reflect the sales charges
applicable to Class C shares) for periods prior to the inception of Prime B
Shares (November 1, 1998). Class C shares generally would have had
substantially similar returns to Retail A and Prime B Shares because they
would have been invested in the same portfolio of securities, although the
returns would have been lower to the extent that expenses for Class C
shares exceed expenses paid by Retail A and Prime B Shares. Retail A Shares
were initially offered on February 12, 1993.
(5) The average annual total returns shown include returns of Trust Shares of
the Galaxy Fund for periods prior to December 9, 2002, the date on which
Class Z shares were initially offered by the Fund, and returns of Trust
Shares of the Shawmut Fund (whose shares were initially offered on December
14, 1992), for periods prior to December 14, 1995.
(6) The Large Cap Core Fund's returns are compared to the Standard & Poor's 500
Index ("S&P 500 Index"), an unmanaged index that tracks the performance of
500 widely held large-capitalization U.S. stocks. Unlike the Fund, indices
are not investments, do not incur fees or expenses and are not
professionally managed.
24
Federal Income Tax Consequences
The Acquisition is intended to be a tax-free reorganization. Ropes & Gray LLP
has delivered to the Large Cap Core Fund and the Common Stock Fund an opinion,
and the closing of the Acquisition will be conditioned on receipt of a letter
from Ropes & Gray LLP confirming such opinion, to the effect that, on the basis
of existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), although not entirely free from doubt, for federal income tax purposes:
- - the Acquisition will constitute a reorganization within the meaning of Section
368(a) of the Code, and the Common Stock Fund and the Large Cap Core Fund will
each be a "party to a reorganization" within the meaning of Section 368(b) of
the Code;
- - under Section 361 of the Code, no gain or loss will be recognized by the
Common Stock Fund upon the transfer of its assets to the Large Cap Core Fund
in exchange for Large Cap Core Fund shares and the assumption by the Large Cap
Core Fund of the Common Stock Fund's liabilities, or upon the distribution of
Large Cap Core Fund shares by the Common Stock Fund to its shareholders in
liquidation;
- - under Section 354 of the Code, no gain or loss will be recognized by
shareholders of the Common Stock Fund on the distribution of Large Cap Core
Fund shares to them in exchange for their shares of the Common Stock Fund;
- - under Section 358 of the Code, the aggregate tax basis of the Large Cap Core
Fund shares that the Common Stock Fund's shareholders receive in exchange for
their Common Stock Fund shares will be the same as the aggregate tax basis of
the Common Stock Fund shares exchanged therefor;
- - under Section 1223(1) of the Code, an Common Stock Fund shareholder's holding
period for the Large Cap Core Fund shares received will be determined by
including the holding period for the Common Stock Fund shares exchanged
therefor, provided that the shareholder held the Common Stock Fund shares as a
capital asset;
- - under Section 1032 of the Code, no gain or loss will be recognized by the
Large Cap Core Fund upon receipt of the assets transferred to the Large Cap
Core Fund in exchange for Large Cap Core Fund shares and the assumption by the
Large Cap Core Fund of the liabilities of the Common Stock Fund;
- - under Section 362(b) of the Code, the Large Cap Core Fund's tax basis in the
assets that the Large Cap Core Fund receives from the Common
25
Stock Fund will be the same as the Common Stock Fund's tax basis in such
assets immediately prior to such exchange;
- - under Section 1223(2) of the Code, the Large Cap Core Fund's holding periods
in such assets will include the Common Stock Fund's holding periods in such
assets; and
- - under Section 381 of the Code, the Large Cap Core Fund will succeed to the
capital loss carryovers of the Common Stock Fund, if any, but the use by the
Large Cap Core Fund of any such capital loss carryovers (and of capital loss
carryovers of the Large Cap Core Fund) may be subject to limitation under
Section 383 of the Code.
The opinion is, and the confirming letter will be, based on certain factual
certifications made by officers of the Common Stock Fund and Trust XI and will
also be based on customary assumptions. Neither the opinion nor the confirmation
letter is a guarantee that the tax consequences of the Acquisition will be as
described above.
Ropes & Gray LLP will express no view with respect to the effect of the
Acquisition 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.
Prior to the closing of the Acquisition, the Common Stock Fund will, and the
Large Cap Core Fund may, declare a distribution to shareholders, which together
with all previous distributions, will have the effect of distributing to
shareholders all of its investment company taxable income (computed without
regard to the deduction for dividends paid) and net realized capital gains
(after reduction by any available capital loss carryforwards), if any, through
the closing of the Acquisition. Such distributions will be taxable to
shareholders.
The Large Cap Core Fund's ability to carry forward the pre-Acquisition losses of
the Common Stock Fund will technically be limited as a result of the Acquisition
due to the effect of loss limitation rules under applicable tax law. The effect
of this limitation, however, will depend on the amount of losses in each Fund at
the time of the Acquisition. For example, based on data as of September 29,
2004, the Common Stock Fund had pre-Acquisition "net losses" (i.e., capital loss
carryforwards as of last fiscal year end as adjusted by year-to-date realized
gains or losses and all unrealized gains) equal to 14% of its net assets. At
that time, the Large Cap Core Fund had net realized and unrealized gains that
exceeded its capital loss carryforwards, and, hence, no net losses. If the
Acquisition were to have occurred on September 29, 2004, the combined fund would
have had net losses equal to 1% of its net assets. Due to the combined effects
of loss
26
limitation rules and the spreading of losses over a larger asset base, the
amount of net losses as a percentage of net assets available to shelter future
growth of the Common Stock Fund would have decreased from 14% to 1% (a
difference of 13 percentage points), and the same figure with respect to the
Large Cap Core Fund would have increased from 0% to 1% (a difference of 1
percentage point). In addition, the Common Stock Fund's pre-Acquisition losses
would have been unavailable to offset the pre-Acquisition unrealized gains of
the Large Cap Core Fund. If those unrealized gains had been recognized as of the
date of the Acquisition, the combined fund would have been required to make a
taxable distribution equal to 5.23% of its net assets to all its shareholders.
As a result, shareholders of the Common Stock Fund could, under certain
circumstances, pay more taxes, or pay taxes sooner, than they would if the
Acquisition had not occurred.
This description of the federal income tax consequences of the Acquisition is
made without regard to the particular facts and circumstances of any
shareholder. Shareholders are urged to consult their own tax advisors as to the
specific consequences to them of the Acquisitions, including the applicability
and effect of state, local, non-U.S. and other tax laws.
THE DIRECTORS OF THE COMMON STOCK FUND UNANIMOUSLY RECOMMEND APPROVAL OF THE
AGREEMENT AND PLAN OF REORGANIZATION AND THE DISSOLUTION OF THE COMMON STOCK
FUND IN ACCORDANCE WITH THE AGREEMENT AND PLAN OF REORGANIZATION.
Required Vote for the Proposal
Approval of the Agreement and Plan of Reorganization and dissolution under state
law will require the affirmative vote of the holders of more than 50% of the
outstanding shares of the Common Stock Fund. A vote of the shareholders of the
Large Cap Core Fund is not needed to approve the Acquisition.
27
GENERAL
INVESTMENT ADVISOR
Columbia Management Advisors, Inc., located at 100 Federal Street, Boston,
Massachusetts 02110, is each Fund's investment advisor. Columbia Management is
responsible for each Fund's management, subject to oversight by the Fund's Board
of Trustees or Board of Directors, as the case may be. In its duties as
investment advisor, Columbia Management runs each Fund's day-to-day business,
including placing all orders for the purchase and sale of the Fund's portfolio
securities. Columbia Management is a direct wholly owned subsidiary of Columbia
Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of
America Corporation. Prior to April 1, 2004, Columbia was an indirect wholly
owned subsidiary of FleetBoston Financial Corporation. Effective April 1, 2004,
FleetBoston Financial Corporation was acquired by Bank of America Corporation.
Columbia Management, a registered investment advisor, has been an investment
advisor since 1969.
VOTING INFORMATION
The Directors of the Common Stock Fund are soliciting proxies from the
shareholders of the Common Stock Fund in connection with the Meeting, which has
been called to be held at 2:00 p.m. Eastern Time on Wednesday, February 16,
2005, at One Financial Center, Boston, Massachusetts 02111. The meeting notice,
this combined Prospectus/Proxy Statement and proxy inserts are being mailed to
shareholders beginning on or about December [__], 2004.
Information About Proxies and the Conduct of the Meeting
Solicitation of Proxies. Proxies will be solicited primarily by mailing this
combined Prospectus/Proxy Statement and its enclosures, but proxies may also be
solicited through further mailings, telephone calls, personal interviews or
e-mail by officers of the Common Stock Fund or by employees or agents of
Columbia and its affiliated companies. In addition, [Georgeson Shareholder] has
been engaged to assist in the solicitation of proxies, at an estimated cost of
approximately $11,811. [Columbia Management will bear the cost of such
solicitation.]
28
Voting Process
You can vote in any one of the following ways:
a. By mail, by filling out and returning the enclosed proxy card;
b. By phone, fax or Internet (see enclosed proxy insert for instructions);
or
c. In person at the Meeting.
Shareholders who owned shares on the record date, December 1, 2004, are entitled
to vote at the Meeting. Shareholders of the Common Stock Fund are entitled to
cast one vote for each share owned on the record date. If you choose to vote by
mail or fax and you are an individual account owner, please sign exactly as your
name appears on the proxy insert. Either owner of a joint account may sign the
proxy insert, but the signer's name must exactly match the name that appears on
the card.
Costs. The estimated costs of the Meeting, including the costs of soliciting
proxies, and the costs of the Acquisition to be borne by the Large Cap Core Fund
and the Common Stock Fund are approximately $63,913 and $0, respectively.
Columbia is also bearing a portion of such costs. This portion to be borne by
Columbia is in addition to the amounts to be borne by the Funds. In the event
that the shareholders of the Common Stock Fund do not approve the Agreement and
Plan of Reorganization or the Acquisition does not close for any reason,
Columbia will bear the costs of the failed Acquisition which would otherwise
have been borne by the Large Cap Core Fund and the Common Stock Fund.
Voting and Tabulation of Proxies. Shares represented by duly executed proxies
will be voted as instructed on the proxy. If no instructions are given, the
proxy will be voted in favor of the Proposal. You can revoke your proxy by
sending a signed, written letter of revocation to the Secretary of the Common
Stock Fund, by properly executing and submitting a later-dated proxy or by
attending the Meeting and voting in person.
Votes cast in person or by proxy at the Meeting will be counted by persons
appointed by the Large Cap Core Fund as tellers for the Meeting (the "Tellers").
A majority of the shares of the Common Stock Fund entitled to vote on the record
date, present in person or represented by proxy, constitute a quorum for the
transaction of business by the shareholders of the Common Stock Fund at the
Meeting. 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. Abstentions and broker non-votes
have the effect of a negative vote on the Proposal. "Broker non-votes" are
shares held by brokers or nominees as
29
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.
Advisors' and Underwriter's Addresses. The address of each Fund's investment
advisor, Columbia Management, is 100 Federal Street, Boston, Massachusetts
02110. The address of each Fund's principal underwriter, Columbia Funds
Distributor, Inc., is One Financial Center, Boston, Massachusetts 02111.
Outstanding Shares and Significant Shareholders. Appendix B to this
Prospectus/Proxy Statement lists the total number of shares outstanding as of
December 1, 2004, for each class of the Common Stock Fund entitled to vote at
the Meeting. It also identifies holders of more than five percent of any class
of shares of each Fund, and contains information about the executive officers,
Directors and Trustees of the Funds and their shareholdings in the Funds and the
Trusts.
Adjournments; Other Business. If the Common Stock Fund has not received enough
votes by the time of the Meeting to approve the Proposal, the persons named as
proxies may propose that such Meeting be adjourned one or more times to permit
further solicitation of proxies. Any adjournment requires the affirmative vote
of a majority of the total number of shares of the Common Stock Fund that are
present in person or by proxy on the question when the adjournment is being
voted on. The persons named as proxies will vote in favor of any such
adjournment all proxies that they are entitled to vote in favor of the Proposal.
They will vote against any such adjournment any proxy that directs them to vote
against the Proposal. They will not vote any proxy that directs them to abstain
from voting on the Proposal.
The Meeting has been called to transact any business that properly comes before
it. The only business that management of the Common Stock Fund intends to
present or knows that others will present is the Proposal.
30
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of [ ____________ ], 2004, is
by and among Columbia Funds Trust XI (the "Trust"), a Massachusetts business
trust established under a Declaration of Trust dated January 8, 1987, as
amended, on behalf of Columbia Large Cap Core Fund (the "Acquiring Fund");
Columbia Common Stock Fund, Inc. (the "Acquired Fund"), an Oregon corporation
established under Articles of Incorporation dated June 12, 1991, as amended; and
Columbia Management Group, Inc. ("Columbia").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Sections 361(a) and Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), and any
successor provision. The reorganization will consist of the transfer of all of
the assets of the Acquired Fund attributable to its Class A shares in exchange
for Class A shares of beneficial interest of the Acquiring Fund ("Class A
Acquisition Shares"), the transfer of all of the assets of the Acquired Fund
attributable to its Class B shares in exchange for Class B shares of beneficial
interest of the Acquiring Fund ("Class B Acquisition Shares"), the transfer of
all of the assets of the Acquired Fund attributable to its Class C shares in
exchange for Class C shares of beneficial interest of the Acquiring Fund ("Class
C Acquisition Shares"), the transfer of all of the assets of the Acquired Fund
attributable to its Class D shares in exchange for Class C shares of beneficial
interest of the Acquiring Fund ("Class D/C Acquisition Shares") the transfer of
all of the assets of the Acquired Fund attributable to its Class Z shares in
exchange for Class Z shares of beneficial interest of the Acquiring Fund ("Class
Z Acquisition Shares" and together with the Class A Acquisition Shares, Class B
Acquisition Shares, Class C Acquisition Shares and Class D/C Acquisition Shares,
the "Acquisition Shares") and the assumption by the Acquiring Fund of the
liabilities of the Acquired Fund (other than certain expenses of the
reorganization contemplated hereby) and the distribution of the Class A
Acquisition Shares, the Class B Acquisition Shares, the Class C Acquisition
Shares, the Class D/C Acquisition Shares and the Class Z Acquisition Shares to
the Class A, Class B, Class C, Class D and Class Z shareholders, respectively,
of the Acquired Fund in liquidation of the Acquired Fund, all upon the terms and
conditions set forth in this Agreement.
A-1
In consideration of the premises and of the covenants and agreements hereinafter
set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ACQUISITION SHARES AND LIQUIDATION OF ACQUIRED FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein,
(a) The Trust, on behalf of the Acquired Fund, will transfer and
deliver to the Acquiring Fund, and the Acquiring Fund will
acquire, all the assets of the Acquired Fund as set forth in
paragraph 1.2;
(b) The Acquiring Fund will assume all of the Acquired Fund's
liabilities and obligations of any kind whatsoever, whether
absolute, accrued, contingent or otherwise, in existence on the
Closing Date (as defined in paragraph 1.2 hereof) (the
"Obligations"), except that expenses of the reorganization
contemplated hereby to be paid by the Acquired Fund pursuant to
paragraph 9.2 shall not be assumed or paid by the Acquiring Fund;
and
(c) The Acquiring Fund will issue and deliver to the Acquired Fund in
exchange for such assets the number of Class A, Class B, Class C,
Class D/C and Class Z Acquisition Shares (including fractional
shares, if any) determined by dividing the net asset values of the
Class A, Class B, Class C, Class D and Class Z shares of the
Acquired Fund, respectively, computed in the manner and as of the
time and date set forth in paragraph 2.1, by the net asset value
of one Class A, Class B, Class C or Class Z Acquisition Share, as
applicable, computed in the manner and as of the time and date set
forth in paragraph 2.2. Such transactions shall take place at the
closing provided for in paragraph 3.1 (the "Closing").
1.2 The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all cash, securities, dividends and interest
receivable, receivables for shares sold and all other assets which are
owned by the Acquired Fund on the closing date provided in paragraph
3.1 (the "Closing Date") and any deferred expenses, other than
unamortized organizational expenses, shown as an asset on the books of
the Acquired Fund on the Closing Date. The Acquiring Fund agrees that
all rights to indemnification and all limitations of liability
existing in favor of the Trust's current and
A-2
former Trustees and officers, acting in their capacities as such,
under the Trust's Declaration of Trust and Bylaws as in effect as of
the date of this Agreement shall survive the reorganization as
obligations of the Acquiring Fund and shall continue in full force and
effect, without any amendment thereto, and shall constitute rights
which may be asserted against the Trust, its successors or assigns.
1.3 As provided in paragraph 3.4, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to its Class A shareholders of
record ("Acquired Fund Class A Shareholders"), determined as of the
close of business on the Valuation Date (as defined in paragraph 2.1),
Class A Acquisition Shares received by the Acquired Fund pursuant to
paragraph 1.1; to its Class B shareholders of record ("Acquired Fund
Class B Shareholders"), determined as of the close of business on the
Valuation Date, Class B Acquisition Shares received by the Acquired
Fund pursuant to paragraph 1.1; to its Class C shareholders of record
("Acquired Fund Class C Shareholders"), determined as of the close of
business on the Valuation Date, Class C Acquisition Shares received by
the Acquired Fund pursuant to paragraph 1.1; to its Class D
shareholders of record ("Acquired Fund Class D Shareholders"),
determined as of the close of business on the Valuation Date, Class
D/C Acquisition Shares received by the Acquired Fund pursuant to
paragraph 1.1; and to its Class Z shareholders of record ("Acquired
Fund Class Z Shareholders," and collectively with Acquired Fund Class
A Shareholders, Acquired Fund Class B Shareholders, Acquired Fund
Class C Shareholders and Acquired Fund Class D Shareholders, the
"Acquired Fund Shareholders"), determined as of the close of business
on the Valuation Date, Class Z Acquisition Shares received by the
Acquired Fund pursuant to paragraph 1.1. Such liquidation and
distribution will be accomplished by the transfer of the Acquisition
Shares then credited to the account of the Acquired Fund on the books
of the Acquiring Fund to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund Shareholders and
representing the respective pro rata number of Acquisition Shares due
such shareholders. The Acquiring Fund shall not be obligated to issue
certificates representing Acquisition Shares in connection with such
exchange.
A-3
1.4 With respect to Acquisition Shares distributable pursuant to paragraph
1.3 to an Acquired Fund Shareholder holding a certificate or
certificates for shares of the Acquired Fund, if any, on the Valuation
Date, the Trust will not permit such shareholder to receive
Acquisition Share certificates therefor, exchange such Acquisition
Shares for shares of other investment companies, effect an account
transfer of such Acquisition Shares, or pledge or redeem such
Acquisition Shares until the Trust has been notified by the Acquired
Fund or its agent that such Acquired Fund Shareholder has surrendered
all his or her outstanding certificates for Acquired Fund shares or,
in the event of lost certificates, posted adequate bond.
1.5 As soon as practicable after the Closing Date, the Acquired Fund shall
file an application pursuant to Section 8(f) of the Investment Company
Act of 1940, as amended (the "1940 Act"), for an order declaring that
it has ceased to be an investment company and, upon receipt of such
order, shall make all filings and take all other steps as shall be
necessary and proper to effect its complete dissolution under Oregon
law. After the Closing Date, the Acquired Fund shall not conduct any
business except in connection with its liquidation, deregistration,
and dissolution.
2. VALUATION.
2.1 For the purpose of paragraph 1, the value of the Acquired Fund's
assets to be acquired by the Acquiring Fund hereunder shall be the net
asset value computed as of the close of regular trading on the New
York Stock Exchange on the business day next preceding the Closing
(such time and date being herein called the "Valuation Date") using
the valuation procedures set forth in the Declaration of Trust of the
Trust and the then current prospectus or prospectuses or statement or
statements of additional information of the Acquiring Fund
(collectively, as amended or supplemented from time to time, the
"Acquiring Fund Prospectus"), after deduction for the expenses of the
reorganization contemplated hereby to be paid by the Acquired Fund
pursuant to paragraph 9.2, and shall be certified by the Acquired
Fund.
2.2 For the purpose of paragraph 2.1, the net asset value of a Class A,
Class B, Class C, Class D/C or Class Z Acquisition Share shall be the
net asset value per share computed as of the close of regular trading
on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the
A-4
Declaration of Trust of the Trust and the Acquiring Fund Prospectus.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be on February 25, 2005, or on such other date
as the parties may agree. The Closing shall be held at 9:00 a.m. at
Columbia's offices, One Financial Center, Boston, Massachusetts 02111,
or at such other time and/or place as the parties may agree.
3.2 The portfolio securities of the Acquired Fund shall be made available
by the Acquired Fund to State Street Bank and Trust Company, as
custodian for the Acquiring Fund (the "Custodian"), for examination no
later than five business days preceding the Valuation Date. On the
Closing Date, such portfolio securities and all the Acquired Fund's
cash shall be delivered by the Acquired Fund to the Custodian for the
account of the Acquiring Fund, such portfolio securities to be duly
endorsed in proper form for transfer in such manner and condition as
to constitute good delivery thereof in accordance with the custom of
brokers or, in the case of portfolio securities held in the U.S.
Treasury Department's book-entry system or by the Depository Trust
Company, Participants Trust Company or other third party depositories,
by transfer to the account of the Custodian in accordance with Rule
17f-4, Rule 17f-5 or Rule 17f-7, as the case may be, under the 1940
Act accompanied by all necessary federal and state stock transfer
stamps or a check for the appropriate purchase price thereof. The cash
delivered shall be in the form of currency or certified or official
bank checks, payable to the order of "State Street Bank and Trust
Company, custodian for Columbia Large Cap Core Fund."
3.3 In the event that on the Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be
restricted, or (b) trading or the reporting of trading on said
Exchange or elsewhere shall be disrupted so that accurate appraisal of
the value of the net assets of the Acquired Fund or the Acquiring Fund
is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed
and reporting shall have been restored; provided that if trading shall
not be fully resumed and reporting restored within three business days
of the Valuation Date, this Agreement may be terminated by either the
Trust or
A-5
the Acquiring Fund upon the giving of written notice to the other
party.
3.4 At the Closing, the Acquired Fund or its transfer agent shall deliver
to the Acquiring Fund or its designated agent a list of the names and
addresses of the Acquired Fund Shareholders and the number of
outstanding shares of common stock of the Acquired Fund owned by each
Acquired Fund Shareholder, all as of the close of business on the
Valuation Date, certified by the Vice President, Secretary or
Assistant Secretary of the Trust. The Trust will provide to the
Acquired Fund evidence satisfactory to the Acquired Fund that the
Acquisition Shares issuable pursuant to paragraph 1.1 have been
credited to the Acquired Fund's account on the books of the Acquiring
Fund. On the Liquidation Date, the Trust will provide to the Acquired
Fund evidence satisfactory to the Acquired Fund that such Acquisition
Shares have been credited pro rata to open accounts in the names of
the Acquired Fund Shareholders as provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other such bills of
sale, instruments of assumption of liabilities, checks, assignments,
stock certificates, receipts or other documents as such other party or
its counsel may reasonably request in connection with the transfer of
assets, assumption of liabilities and liquidation contemplated by
paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants the following to the Trust
and to the Acquiring Fund as of the date hereof and agrees to confirm
the continuing accuracy and completeness in all material respects of
the following on the Closing Date:
(a) The Acquired Fund is a corporation duly organized and validly
existing under the laws of the State of Oregon;
(b) The Acquired Fund is a duly registered investment company classified
as a management company of the open-end type and its registration
with the Securities and Exchange Commission as an investment company
under the 1940 Act is in full force and effect;
(c) The Acquired Fund is not in violation in any material respect of any
provision of its Articles of Incorporation or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Fund is a party or
A-6
by which the Acquired Fund is bound, and the execution, delivery and
performance of this Agreement will not result in any such violation;
(d) The Acquired Fund has no material contracts or other commitments
(other than this Agreement and such other contracts as may be
entered into in the ordinary course of its business) which if
terminated may result in material liability to the Acquired Fund or
under which (whether or not terminated) any material payments for
periods subsequent to the Closing Date will be due from the Acquired
Fund;
(e) To the knowledge of the Acquired Fund, except as has been disclosed
in writing to the Acquiring Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Acquired Fund, any
of its properties or assets, or any person whom the Acquired Fund
may be obligated to indemnify in connection with such litigation,
proceeding or investigation, and is not a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
(f) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the schedule
of investments of the Acquired Fund at, as of and for the year ended
August 31, 2004, audited by PricewaterhouseCoopers LLP, copies of
which have been furnished to the Acquiring Fund, fairly reflect the
financial condition and results of operations of the Acquired Fund
as of such dates and for the periods then ended in accordance with
generally accepted accounting principles consistently applied, and
the Acquired Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on the statements of
assets referred to above or those incurred in the ordinary course of
its business since August 31, 2004;
(g) Since August 31, 2004, there has not been any material adverse
change in the Acquired Fund's financial condition, assets,
liabilities or business (other than changes occurring in the
ordinary course of business), or any incurrence by the Acquired Fund
of indebtedness, except as disclosed in
A-7
writing to the Acquiring Fund. For the purposes of this subparagraph
(g), distributions of net investment income and net realized capital
gains, changes in portfolio securities, changes in the market value
of portfolio securities or net redemptions shall be deemed to be in
the ordinary course of business;
(h) As of the Closing Date, all federal and other tax returns and
reports of the Acquired Fund required by law to have been filed by
such date (giving effect to extensions) shall have been filed, and
all federal and other taxes shown to be due on such returns and
reports or on any assessment received shall have been paid, or
provisions shall have been made for the payment thereof. All of the
Acquired Fund's tax liabilities will have been adequately provided
for on its books. To the best of the Acquired Fund's knowledge, it
will not have had any tax deficiency or liability asserted against
it or question with respect thereto raised, and it will not be under
audit by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
(i) The Acquired Fund meets the requirements of subchapter M of the Code
for treatment as a "regulated investment company" within the meaning
of Section 851 of the Code, and will continue meeting such
requirements at all times through the Closing Date. The Acquired
Fund has not at any time since its inception been liable for nor is
now liable for any material income or excise tax pursuant to Section
852 or 4982 of the Code. The Acquired Fund has duly filed all
federal, state, local and foreign tax returns which are required to
have been filed, and all taxes of the Acquired Fund which are due
and payable have been paid except for amounts that alone or in the
aggregate would not reasonably be expected to have a material
adverse effect. The Acquired Fund is in compliance in all material
respects with applicable regulations of the Internal Revenue Service
pertaining to the reporting of dividends and other distributions on
and redemptions of its capital stock and to withholding in respect
of dividends and other distributions to shareholders, and is not
liable for any material penalties which could be imposed thereunder;
(j) The authorized capital of the Acquired Fund consists of Class A
shares, Class B shares, Class C shares, Class D
A-8
shares and Class Z shares of common stock. All issued and
outstanding shares of the Acquired Fund are, and at the Closing Date
will be, duly and validly issued and outstanding, fully paid and
non-assessable (except as set forth in the Acquired Fund's then
current prospectus or prospectuses or statement or statements of
additional information (collectively, as amended or supplemented
from time to time, the "Acquired Fund Prospectus")) by the Acquired
Fund and will have been issued in compliance with all applicable
registration or qualification requirements of federal and state
securities laws. Except for Class B shares which convert to Class A
shares after the expiration of a period of time, no options,
warrants or other rights to subscribe for or purchase, or securities
convertible into, any shares of common stock of the Acquired Fund
are outstanding and none will be outstanding on the Closing Date;
(k) The Acquired Fund's investment operations from inception to the date
hereof have been in compliance in all material respects with the
investment policies and investment restrictions set forth in its
prospectus or prospectuses and statement or statements of additional
information as in effect from time to time, except as previously
disclosed in writing to the Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has been
duly authorized by the Directors of the Acquired Fund, and, upon
approval thereof by the required majority of the shareholders of the
Acquired Fund, this Agreement will constitute the valid and binding
obligation of the Acquired Fund enforceable in accordance with its
terms except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles;
(m) The Acquisition Shares to be issued to the Acquired Fund pursuant to
paragraph 1 will not be acquired for the purpose of making any
distribution thereof other than to the Acquired Fund Shareholders as
provided in paragraph 1.3;
(n) The information provided by the Acquired Fund for use in the
Registration Statement and Prospectus/Proxy Statement referred to in
paragraph 5.3 shall be accurate and complete in
A-9
all material respects and shall comply with federal securities and
other laws and regulations as applicable thereto;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement,
except such as may be required under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act and [state insurance,
securities or "Blue Sky" laws (which terms used herein shall include
the laws of the District of Columbia and of Puerto Rico)];
(p) At the Closing Date, the Trust, on behalf of the Acquired Fund, will
have good and marketable title to its assets to be transferred to
the Acquiring Fund pursuant to paragraph 1.1 and will have full
right, power and authority to sell, assign, transfer and deliver the
Investments (as defined below) and any other assets and liabilities
of the Acquired Fund to be transferred to the Acquiring Fund
pursuant to this Agreement. At the Closing Date, subject only to the
delivery of the Investments and any such other assets and
liabilities and payment therefor as contemplated by this Agreement,
the Acquiring Fund will acquire good and marketable title thereto
and will acquire the Investments and any such other assets and
liabilities subject to no encumbrances, liens or security interests
whatsoever and without any restrictions upon the transfer thereof,
except as previously disclosed to the Acquiring Fund. As used in
this Agreement, the term "Investments" shall mean the Acquired
Fund's investments shown on the schedule of its investments as of
June 30, 2004, referred to in subparagraph 4.1(f) hereof, as
supplemented with such changes in the portfolio as the Acquired Fund
shall make, and changes resulting from stock dividends, stock
split-ups, mergers and similar corporate actions through the Closing
Date;
(q) At the Closing Date, the Acquired Fund will have sold such of its
assets, if any, as are necessary to assure that, after giving effect
to the acquisition of the assets of the Acquired Fund pursuant to
this Agreement, the Acquiring Fund will remain a "diversified
company" within the meaning of Section 5(b)(1) of the 1940 Act and
in compliance with such other mandatory investment restrictions as
are set forth
A-10
in the Acquiring Fund Prospectus, as amended through the Closing
Date; and
(r) No registration of any of the Investments would be required if they
were, as of the time of such transfer, the subject of a public
distribution by either of the Acquiring Fund or the Acquired Fund,
except as previously disclosed by the Acquired Fund to the Acquiring
Fund.
4.2 The Trust, on behalf of the Acquiring Fund, represents and warrants
the following to the Acquired Fund as of the date hereof and agrees to
confirm the continuing accuracy and completeness in all material
respects of the following on the Closing Date:
(a) The Trust is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Massachusetts;
(b) The Trust is a duly registered investment company classified as a
management company of the open-end type and its registration with
the Securities and Exchange Commission as an investment company
under the 1940 Act is in full force and effect, and the Acquiring
Fund is a separate series thereof duly designated in accordance with
the applicable provisions of the Declaration of Trust of the Trust
and the 1940 Act;
(c) The Acquiring Fund Prospectus conforms in all material respects to
the applicable requirements of the 1933 Act and the rules and
regulations of the Securities and Exchange Commission thereunder and
does not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading, and there are no material
contracts to which the Acquiring Fund is a party that are not
referred to in such Prospectus or in the registration statement of
which it is a part;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to its assets;
(e) The Trust is not in violation in any material respect of any
provisions of its Declaration of Trust or By-laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust is a party or by which the
A-11
Acquiring Fund is bound, and the execution, delivery and performance
of this Agreement will not result in any such violation;
(f) To the knowledge of such counsel, except as has been disclosed in
writing to the Acquired Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Trust or the
Acquiring Fund, any of their properties or assets, or any person
whom the Acquiring Fund may be obligated to indemnify in connection
with such liquidation, proceeding or investigation, and neither the
Trust nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
(g) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the schedule
of investments at, as of and for the year ended September 30, 2004,
of the Acquiring Fund, audited by PricewaterhouseCoopers LLP, copies
of which have been furnished to the Acquired Fund, fairly reflect
the financial condition and results of operations of the Acquiring
Fund as of such dates and for the periods then ended in accordance
with generally accepted accounting principles consistently applied,
and the Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on the
statements of assets referred to above or those incurred in the
ordinary course of its business since September 30, 2004;
(h) Since September 30, 2004, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets,
liabilities or business (other than changes occurring in the
ordinary course of business), or any incurrence by the Acquiring
Fund of indebtedness. For the purposes of this subparagraph (h),
changes in portfolio securities, changes in the market value of
portfolio securities or net redemptions shall be deemed to be in the
ordinary course of business;
(i) As of the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law to have been filed by
such date (giving effect to extensions) shall have
A-12
been filed, and all federal and other taxes shown to be due on such
returns and reports or any assessments received shall have been
paid, or provisions shall have been made for the payment thereof.
All of the Acquiring Fund's tax liabilities will have been
adequately provided for on its books. To the best of the Acquiring
Fund's knowledge, it will not have not have had any tax deficiency
or liability asserted against it or question with respect thereto
raised, and it will not be under audit by the Internal Revenue
Service or by any state or local tax authority for taxes in excess
of those already paid.
(j) The Acquiring Fund meets the requirements of subchapter M of the
Code for treatment as a "regulated investment company" within the
meaning of Section 851 of the Code, and will continue meeting such
requirements at all times through the Closing Date. Neither the
Trust nor the Acquiring Fund has at any time since its inception
been liable for nor is now liable for any material income or excise
tax pursuant to Section 852 or 4982 of the Code. The Acquiring Fund
has duly filed all federal, state, local and foreign tax returns
which are required to have been filed, and all taxes of the
Acquiring Fund which are due and payable have been paid except for
amounts that alone or in the aggregate would not reasonably be
expected to have a material adverse effect. The Acquiring Fund is in
compliance in all material respects with applicable regulations of
the Internal Revenue Service pertaining to the reporting of
dividends and other distributions on and redemptions of its capital
stock and to withholding in respect of dividends and other
distributions to shareholders, and is not liable for any material
penalties which could be imposed thereunder;
(k) The authorized capital of the Trust consists of an unlimited number
of shares of beneficial interest, no par value, of such number of
different series as the Board of Trustees may authorize from time to
time. The outstanding shares of beneficial interest in the Acquiring
Fund are, and at the Closing Date will be, divided into Class A
shares, Class B shares, Class C Shares, Class G Shares, Class T
shares and Class Z shares, each having the characteristics described
in the Acquiring Fund Prospectus. All issued and outstanding shares
of the Acquiring Fund are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and non-assessable
(except as set forth in the Acquiring
A-13
Fund Prospectus) by the Trust, and will have been issued in
compliance with all applicable registration or qualification
requirements of federal and state securities laws. Except for Class
B shares and Class G shares which convert to Class A shares and
Class T shares, respectively, no options, warrants or other rights
to subscribe for or purchase, or securities convertible into, any
shares of beneficial interest in the Acquiring Fund of any class are
outstanding and none will be outstanding on the Closing Date;
(l) The Acquiring Fund's investment operations from inception to the
date hereof have been in compliance in all material respects with
the investment policies and investment restrictions set forth in the
Acquiring Fund Prospectus;
(m) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Trust,
and this Agreement constitutes the valid and binding obligation of
the Trust and the Acquiring Fund enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles;
(n) The Acquisition Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement will at the Closing
Date have been duly authorized and, when so issued and delivered,
will be duly and validly issued Class A, Class B, Class C and Class
Z shares of beneficial interest in the Acquiring Fund, and will be
fully paid and non-assessable (except as set forth in the Acquiring
Fund Prospectus) by the Trust, and no shareholder of the Trust will
have any preemptive right of subscription or purchase in respect
thereof;
(o) The information to be furnished by the Acquiring Fund for use in the
Registration Statement and Prospectus/Proxy Statement referred to in
paragraph 5.3 shall be accurate and complete in all material
respects and shall comply with federal securities and other laws and
regulations applicable thereto; and
(p) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this
A-14
Agreement, except such as may be required under the 1933 Act, the
1934 Act, the 1940 Act and state insurance, securities or "Blue Sky"
laws (which term as used herein shall include the laws of the
District of Columbia and of Puerto Rico).
5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND.
The Acquired Fund and the Trust, on behalf of the Acquiring Fund, each hereby
covenants and agrees with the other as follows:
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of
business will include regular and customary periodic dividends and
distributions.
5.2 The Acquired Fund will call a meeting of its shareholders to be held
prior to the Closing Date to consider and act upon this Agreement and
take all other reasonable action necessary to obtain the required
shareholder approval of the transactions contemplated hereby.
5.3 In connection with the Acquired Fund shareholders' meeting referred to
in paragraph 5.2, the Acquired Fund will prepare a Prospectus/Proxy
Statement for such meeting, to be included in a Registration Statement
on Form N-14 (the "Registration Statement") which the Trust will
prepare and file for the registration under the 1933 Act of the
Acquisition Shares to be distributed to the Acquired Fund shareholders
pursuant hereto, all in compliance with the applicable requirements of
the 1933 Act, the 1934 Act, and the 1940 Act.
5.4 The information to be furnished by the Acquired Fund for use in the
Registration Statement and the information to be furnished by the
Acquiring Fund for use in the Prospectus/Proxy Statement, each as
referred to in paragraph 5.3, shall be accurate and complete in all
material respects and shall comply with federal securities and other
laws and regulations thereunder applicable thereto.
5.5 The Acquiring Fund will advise the Acquired Fund promptly if at any
time prior to the Closing Date the assets of the Acquired Fund include
any securities which the Acquiring Fund is not permitted to acquire.
A-15
5.6 Subject to the provisions of this Agreement, the Acquired Fund and the
Acquiring Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or
advisable to cause the conditions to the other party's obligations to
consummate the transactions contemplated hereby to be met or fulfilled
and otherwise to consummate and make effective such transactions.
5.7 The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state securities or "Blue Sky" laws as it may deem
appropriate in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions provided for
herein shall be subject, at its election, to the performance by the Trust and
the Acquiring Fund of all the obligations to be performed by them hereunder on
or before the Closing Date and, in addition thereto, to the following further
conditions:
6.1 The Trust, on behalf of the Acquiring Fund, shall have delivered to
the Acquired Fund, a certificate executed in its name by its President
or Vice President and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and warranties of
the Trust on behalf of the Acquiring Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and that
the Trust and the Acquiring Fund have complied with all the covenants
and agreements and satisfied all of the conditions on their parts to
be performed or satisfied under this Agreement at or prior to the
Closing Date.
6.2 The Acquired Fund shall have received a favorable opinion of Ropes &
Gray LLP, counsel to the Trust for the transactions contemplated
hereby, dated the Closing Date and, in a form satisfactory to the
Trust, to the following effect:
(a) The Trust is a business trust duly organized and validly existing
under the laws of the Commonwealth of Massachusetts and has power to
own all of its properties and assets and to carry on its business as
presently conducted, and
A-16
the Acquiring Fund is a separate series thereof duly constituted in
accordance with the applicable provisions of the 1940 Act and the
Declaration of Trust and By-laws of the Trust;
(b) This Agreement has been duly authorized, executed and delivered on
behalf of the Acquiring Fund and, assuming the Registration
Statement and the Prospectus/Proxy Statement referred to in
paragraph 5.3 comply with applicable federal securities laws and
assuming the due authorization, execution and delivery of this
Agreement by the Acquired Fund is the valid and binding obligation
of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles;
(c) The Acquiring Fund has the power to assume the liabilities to be
assumed by it hereunder and upon consummation of the transactions
contemplated hereby the Acquiring Fund will have duly assumed such
liabilities;
(d) The Acquisition Shares to be issued for transfer to the Acquired
Fund Shareholders as provided by this Agreement are duly authorized
and upon such transfer and delivery will be validly issued and
outstanding and fully paid and nonassessable Class A, Class B, Class
C and Class Z shares of beneficial interest in the Acquiring Fund,
and no shareholder of the Acquiring Fund has any preemptive right of
subscription or purchase in respect thereof;
(e) The execution and delivery of this Agreement did not, and the
performance by the Trust and the Acquiring Fund of their respective
obligations hereunder will not, violate the Trust's Declaration of
Trust or By-laws, or any provision of any agreement known to such
counsel to which the Trust or the Acquiring Fund is a party or by
which it is bound or, to the knowledge of such counsel, result in
the acceleration of any obligation or the imposition of any penalty
under any agreement, judgment, or decree to which the Trust or the
Acquiring Fund is a party or by which either of them is bound;
A-17
(f) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the Trust or the Acquiring Fund of
the transactions contemplated by this Agreement except such as may
be required under state securities or "Blue Sky" laws or such as
have been obtained;
(g) Such counsel does not know of any legal or governmental proceedings
relating to the Trust or the Acquiring Fund existing on or before
the date of mailing of the Prospectus/ Proxy Statement referred to
in paragraph 5.3 or the Closing Date required to be described in the
Registration Statement which are not described as required;
(h) The Trust is registered with the Securities and Exchange Commission
as an investment company under the 1940 Act; and
(i) To the knowledge of such counsel, except as has been disclosed in
writing to the Acquired Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Trust or the
Acquiring Fund or any of their properties or assets or any person
whom the Acquired Fund may be obligated to indemnify in connection
with such litigation, proceeding or investigation, and neither the
Trust nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its
business or its ability to consummate the transaction contemplated
hereby.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided for
herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, to the following further conditions:
7.1 The Acquired Fund shall have delivered to the Trust, on behalf of the
Acquiring Fund, a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Trust and dated as of the Closing Date,
to the effect that the representations
A-18
and warranties of the Acquired Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and that
the Acquired Fund have complied with all the covenants and agreements
and satisfied all of the conditions on their parts to be performed or
satisfied under this Agreement at or prior to the Closing Date;
7.2 The Trust shall have received a favorable opinion of
[ ], counsel to the Acquired Fund, dated the Closing
Date and in a form satisfactory to the Trust, to the following effect:
(a) The Acquired Fund is a corporation duly organized and validly
existing under the laws of the State of Oregon and has power to own
all of its properties and assets and to carry on its business as
presently conducted;
(b) This Agreement has been duly authorized, executed and delivered on
behalf of the Acquired Fund and, assuming the Registration Statement
and the Prospectus/Proxy Statement referred to in paragraph 5.3
comply with applicable federal securities laws and assuming the due
authorization, execution and delivery of this Agreement by the Trust
on behalf of the Acquiring Fund, is the valid and binding obligation
of the Acquired Fund enforceable against the Acquired Fund in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles;
(c) The Acquired Fund has the power to sell, assign, transfer and
deliver the assets to be transferred by it hereunder, and, upon
consummation of the transactions contemplated hereby, the Acquired
Fund will have duly transferred such assets to the Fund;
(d) The execution and delivery of this Agreement did not, and the
performance by the Acquired Fund of their respective obligations
hereunder will not, violate the Acquired Fund's Articles of
Incorporation or By-laws, or any provision of any agreement known to
such counsel to which the Acquired Fund is a party or by which it is
bound or, to the knowledge of such counsel, result in the
acceleration of any obligation or the imposition of any penalty
under any agreement,
A-19
judgment, or decree to which the Acquired Fund is a party or by
which it is bound;
(e) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the Acquired Fund of the
transactions contemplated by this Agreement, except such as have
been obtained;
(f) Such counsel does not know of any legal or governmental proceedings
relating to the Acquired Fund existing on or before the date of
mailing of the Prospectus/Proxy Statement referred to in paragraph
5.3 or the Closing Date required to be described in the Registration
Statement which are not described as required;
(g) The Acquired Fund is registered with the Securities and Exchange
Commission as an investment company under the 1940 Act; and
(h) To the knowledge of such counsel, except as has been disclosed in
writing to the Acquiring Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental
body is presently pending or threatened as to the Acquired Fund or
any of its properties or assets or any person whom the Acquiring
Fund may be obligated to indemnify in connection with such
litigation, proceeding or investigation, and the Acquired Fund is
not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body, which materially and
adversely affects its business or its ability to consummate the
transaction contemplated thereby.
7.3 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous dividends,
shall have the effect of distributing all of the Acquired Fund's
investment company taxable income for its taxable years ending on or
after September 30, 2004, and on or prior to the Closing Date
(computed without regard to any deduction for dividends paid), and all
of its net capital gains realized in each of its taxable years ending
on or after September 30, 2004, and on or prior to the Closing Date.
7.4 The Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer of the Acquired Fund, as to the adjusted tax basis in
A-20
the hands of the Acquired Fund of the securities delivered to the
Acquiring Fund pursuant to this Agreement.
7.5 The custodian of the Acquired Fund shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the
Acquired Fund held by such custodian as of the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
The respective obligations of the Acquired Fund and the Trust hereunder are each
subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
received all necessary shareholder approvals at the meeting of
shareholders of the Acquired Fund referred to in paragraph 5.2.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought
to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated
hereby.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including
those of the Securities and Exchange Commission and of state "Blue
Sky" and securities authorities) deemed necessary by the Acquired Fund
or the Trust to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except
where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop order suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933
Act.
8.5 The Acquired Fund shall have received a favorable opinion of Ropes &
Gray LLP satisfactory to the Acquired Fund, and the Trust, on behalf
of the Acquiring Fund, shall have received a favorable opinion of
Ropes & Gray LLP satisfactory to the Trust,
A-21
each substantially to the effect that, for federal income tax
purposes:
(a) The acquisition by the Acquiring Fund of the assets of the Acquired
Fund in exchange for the Acquiring Fund's assumption of the
liabilities and obligations of the Acquired Fund and issuance of the
Acquisition Shares, followed by the distribution by the Acquired
Fund of such Acquisition Shares to the shareholders of the Acquired
Fund in exchange for their shares of the Acquired Fund, all as
provided in paragraph 1 hereof, will constitute a reorganization
within the meaning of Section 368(a) of the Code, and the Acquired
Fund and the Acquiring Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund (i) upon the
transfer of its assets to the Acquiring Fund in exchange for the
Acquisition Shares and the assumption by the Acquiring Fund of the
liabilities of the Acquired Fund or (ii) upon the distribution of
the Acquisition Shares by the Acquired Fund to its shareholders in
liquidation, as contemplated in paragraph 1 hereof;
(c) No gain or loss will be recognized by the Acquiring Fund upon
receipt of the assets of the Acquired Fund in exchange for the
assumption of liabilities and obligations and issuance of the
Acquisition Shares as contemplated in paragraph 1 hereof;
(d) The tax basis of the assets of the Acquired Fund acquired by the
Acquiring Fund will be the same as the tax basis of such assets in
the hands of the Acquired Fund immediately prior to the transfer,
and the holding period of the assets of the Acquired Fund in the
hands of the Acquiring Fund will include the period during which
those assets were held by the Acquired Fund;
(e) The holding periods of the assets of the Acquired Fund in the hands
of the Acquiring Fund will include the periods during which such
assets were held by the Acquired Fund;
(f) No gain or loss will be recognized by the Acquired Fund shareholders
upon the exchange of all of their Acquired Fund shares for the
Acquisition Shares;
A-22
(g) The aggregate tax basis of the Acquisition Shares to be received by
each shareholder of the Acquired Fund will be the same as the
aggregate tax basis of the Acquired Fund shares exchanged therefor;
(h) An Acquired Fund shareholder's holding period for the Acquisition
Shares to be received will include the period during which the
Acquired Fund shares exchanged therefor were held, provided that the
shareholder held the Acquired Fund shares as a capital asset on the
date of the exchange; and
(i) The Acquiring Fund will succeed to and take into account the items
of the Acquired Fund described in Section 381(c) of the Code,
subject to the conditions and limitations specified in Sections 381,
382, 383 and 384 of the Code and the regulations thereunder.
The opinion and the confirming letter will be based on certain factual
certifications made by officers of the Acquired Fund and the Trust and
will also be based on customary assumptions. Neither the opinion nor
the confirming letter is a guarantee that the tax consequences of the
relevant Acquisition will be as described above.
Ropes & Gray LLP will express no view with respect to the effect of
the Acquisition 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.
8.6 At any time prior to the Closing, any of the foregoing conditions of
this Agreement may be waived jointly by the Board of Directors of the
Acquired Fund and the Board of Trustees of the Trust, if, in their
judgment, such waiver will not have a material adverse effect on the
interests of the shareholders of the Acquired Fund or the Acquiring
Fund.
9. BROKERAGE FEES AND EXPENSES.
9.1 The Acquired Fund and the Trust, on behalf of the Acquiring Fund, each
represents and warrants to the other that there are no brokers or
finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2 All fees paid to governmental authorities for the registration or
qualification of the Acquisition Shares and all transfer agency
A-23
costs related to the Acquisition Shares shall be allocated
[ ]. All fees and expenses related to printing, mailing,
solicitation of proxies and tabulation of votes of Acquired Fund
shareholders shall be allocated to [ ]. All of the other
expenses of the transactions, including without limitation,
accounting, legal and custodial expenses, contemplated by this
Agreement shall be allocated equally between the [ ]. The
expenses detailed above shall be borne [ ].
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 The Acquired Fund and the Trust, on behalf of the Acquiring Fund,
agree that neither party has made any representation, warranty or
covenant not set forth herein and that this Agreement constitutes the
entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in
connection herewith shall not survive the consummation of the
transactions contemplated hereunder except paragraphs 1.1, 1.3, 1.5,
5.4, 9, 10, 13 and 14.
11. TERMINATION.
11.1 This Agreement may be terminated by the mutual agreement of the
Acquired Fund and the Trust. In addition, either the Acquired Fund or
the Trust may at its option terminate this Agreement at or prior to
the Closing Date because:
(a) Of a material breach by the other of any representation, warranty,
covenant or agreement contained herein to be performed by the other
party at or prior to the Closing Date;
(b) A condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it
will not or cannot be met; or
(c) Any governmental authority of competent jurisdiction shall have issued
any judgment, injunction, order, ruling or decree or taken any other
action restraining, enjoining or otherwise prohibiting this Agreement
or the consummation of any of the transactions contemplated herein and
such judgment, injunction, order, ruling, decree or other action
becomes final and non-appealable; provided that the party seeking to
terminate this Agreement pursuant to this Section 11.1(c) shall have
used its reasonable best efforts to have such judgment, injunction,
order, ruling, decree or other action lifted, vacated or denied.
A-24
If the transactions contemplated by this Agreement have not been
substantially completed by December 31, 2005, this Agreement shall
automatically terminate on that date unless a later date is agreed to
by both the Acquired Fund and the Trust.
11.2 If for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to any other party for any
damages resulting therefrom, including without limitation
consequential damages.
12. AMENDMENTS.
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon in writing by the authorized officers of the Acquired Fund
and the Trust, on behalf of the Acquiring Fund; provided, however, that
following the shareholders' meeting called by the Acquired Fund pursuant to
paragraph 5.2 no such amendment may have the effect of changing the provisions
for determining the number of the Acquisition Shares to be issued to
shareholders of the Acquired Fund under this Agreement to the detriment of such
shareholders without their further approval.
13. NOTICES.
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to Columbia Common Stock Fund, Inc. or
Columbia Funds Trust XI, One Financial Center, Boston, Massachusetts 02111,
Attention: Secretary.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; NON-RECOURSE.
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of the Commonwealth of Massachusetts,
without giving effect to any choice or conflicts of law rule or
provision that would result in the application of the domestic
substantive laws of any other jurisdiction.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no
A-25
assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of
the other party. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, firm or
corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of
this Agreement.
14.5 A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that no trustee, officer, agent or employee of the Trust shall
have any personal liability under this Agreement, and that this
Agreement is binding only upon the assets and properties of the
Acquiring Fund.
A-26
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as a sealed instrument by its President or Treasurer and its corporate
seal to be affixed thereto and attested by its Secretary or Assistant Secretary.
COLUMBIA COMMON STOCK FUND, INC.
By:
---------------------------------
Name:
-----------------------------
Title:
-------------------------------
ATTEST:
- ----------------------------------------
Name:
---------------------------------
Title:
-----------------------------------
COLUMBIA FUNDS TRUST XI
on behalf of its Columbia Large Cap
Core Fund series
By:
---------------------------------
Name:
-----------------------------
Title:
-------------------------------
ATTEST:
- ----------------------------------------
Name:
---------------------------------
Title:
-----------------------------------
A-27
Solely for purposes of Paragraph 9.2
of the Agreement
COLUMBIA MANAGEMENT GROUP, INC.
By:
---------------------------------
Name:
-----------------------------
Title:
-------------------------------
ATTEST:
- ----------------------------------------
Name:
---------------------------------
Title:
-----------------------------------
A-28
APPENDIX B -- FUND INFORMATION
SHARES OUTSTANDING AND ENTITLED TO VOTE OF THE COMMON STOCK FUND
For each class of the Common Stock Fund's shares entitled to vote at the
Meeting, the number of shares outstanding as of December 1, 2004 was as follows:
<Table>
<Caption>
NUMBER OF SHARES OUTSTANDING
FUND CLASS AND ENTITLED TO VOTE
- ---- ----- ----------------------------
Common Stock Fund A
B
C
D
Z
</Table>
OWNERSHIP OF SHARES
As of November 30, 2004, each of Trust XI and the Common Stock Fund believes
that, as a group, the Trustees, Directors, and officers, as the case may be, of
the respective Funds owned less than one percent of each class of shares of each
Fund and of Trust XI as a whole. As of December 1, 2004, the following
shareholders of record owned five percent or more of the outstanding shares of
the noted class of shares of the noted Fund:
<Table>
<Caption>
NUMBER OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
FUND NAME AND ADDRESS SHARES OF SHARES OF
AND CLASS OF SHAREHOLDER CLASS OWNED CLASS OWNED
- --------- ---------------- ----------- -------------
LARGE CAP CORE FUND
Class A
Class B
Class C
Class G
Class T
Class Z
COMMON STOCK FUND
Class A
Class B
Class C
Class D
Class Z
</Table>
B-1
OWNERSHIP OF SHARES UPON CONSUMMATION OF ACQUISITION
As of December 1, 2004, the shareholders of record that owned five percent or
more of the outstanding shares of the noted class of shares of the noted Fund
would own the following percentage of the Large Cap Core Fund upon consummation
of the Acquisition:
<Table>
<Caption>
PERCENTAGE OF
OUTSTANDING SHARES
OF CLASS
OWNED UPON
CONSUMMATION OF
FUND AND CLASS NAME AND ADDRESS OF SHAREHOLDER ACQUISITION
- -------------- ------------------------------- ------------------
LARGE CAP CORE FUND
Class A
Class B
Class C
Class T
Class G
Class Z
</Table>
B-2
APPENDIX C -- CAPITALIZATION
The following table shows on an unaudited basis the capitalization of the Common
Stock Fund and the Large Cap Core Fund as of October 29, 2004, and on a pro
forma combined basis, giving effect to the acquisition of the assets and
liabilities of the Common Stock Fund by the Large Cap Core Fund at net asset
value as of that date:
<Table>
<Caption>
LARGE CAP
LARGE CAP CORE FUND
COMMON STOCK CORE FUND PRO FORMA PRO FORMA
FUND (ACQUIRING FUND) ADJUSTMENTS COMBINED(1)
-------------- ---------------- ----------- ------------
CLASS A
Net asset value $ 1,168,044 $ 9,012,361 $ (1,509)(3) $ 10,178,896
Shares outstanding 62,969 744,731 33,564 841,264
Net asset value per share $ 18.55 $ 12.10 $ 12.10
CLASS B
Net asset value $ 2,110,621 $ 3,394,719 $ (568)(3) $ 5,504,772
Shares outstanding 115,279 288,698 64,195 468,172
Net asset value per share $ 18.31 $ 11.76 $ 11.76
CLASS C
Net asset value $ 48,272 $ 366,236 $ 115,198(2)(3) $ 529,706
Shares outstanding 2,636 31,140 11,270(2) 45,046
Net asset value per share $ 18.31 $ 11.76 $ 11.76
CLASS D
Net asset value $ 115,259 $ -- $ (115,259)(2) $ --
Shares outstanding 6,298 -- (6,298) --
Net asset value per share 18.30 -- $ --
CLASS G
Net asset value $ -- $ 15,764,485 $ (2,639)(3) $ 15,761,846
Shares outstanding -- 1,353,255 -- 1,353,255
Net asset value per share $ -- $ 11.65 $ 11.65
CLASS T
Net asset value $ -- $178,563,684 $ (29,896)(3) $178,533,788
Shares outstanding -- 14,826,147 -- 14,826,147
Net asset value per share $ -- $ 12.04 $ 12.04
CLASS Z
Net asset value $289,210,925 $174,648,111 $ (29,240)(3) $463,829,796
Shares outstanding 15,565,144 14,379,434 8,257,832 38,202,410
Net asset value per share $ 18.58 $ 12.15 $ 12.14
</Table>
C-1
(1) Assumes the Acquisition was consummated on October 29, 2004, and is for
information purposes only. No assurance can be given as to how many shares
of the Large Cap Core Fund will be received by the shareholders of the
Common Stock Fund on the date the Acquisition takes place, and the
foregoing should not be relied upon to reflect the number of shares of the
Large Cap Core Fund that actually will be received on or after such date.
(2) Includes net assets and shares from Class D. Class D shareholders will
receive Class C shares in connection with the Acquisition.
(3) Adjustments reflect one time proxy, accounting, legal and other costs of
the reorganization of $0 and $63,913 to be borne by the Common Stock Fund
and the Large Cap Core Fund, respectively.
C-2
APPENDIX D
INFORMATION APPLICABLE TO CLASS A, CLASS B, CLASS C AND CLASS Z SHARES OF THE
LARGE CAP CORE FUND
HOW TO BUY SHARES
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public price. "Good form" means that you placed your order with your
financial advisor or your payment has been received and your application is
complete, including all necessary signatures. The USA Patriot Act may require us
to obtain certain personal information from you which we will use to verify your
identity. If you do not provide the information, we may not be able to open your
account. If we are unable to verify your customer information, we reserve the
right to close your account or take such other steps as we deem reasonable.
<Table>
Investment Minimums for Class A, B, and C Shares
Initial Investment $1,000
Subsequent Investments $ 50
Automatic Investment Plan* $ 50
Retirement Plan* $ 25
</Table>
* The initial investment minimum of $1,000 is waived on these plans.
The Fund reserves the right to change these investment minimums. The Fund also
reserves the right to refuse a purchase order for any reason, including if it
believes that doing so would be in the best interest of the Fund and its
shareholders.
ELIGIBLE INVESTORS FOR CLASS Z SHARES
Only Eligible Investors may purchase Class Z shares, directly or by exchange.
The Eligible Investors described below are subject to different minimum initial
investment requirements. Eligible Investors and their applicable investment
minimums are as follows:
$1,000 minimum initial investment
- - Any shareholder (as well as any family member of a shareholder or person
listed on an account registration for any account of the shareholder) of a
fund distributed by Columbia Funds Distributor, Inc. (i) who holds Class Z
shares; (ii) who holds Class A shares that were obtained by exchange of Class
Z shares; or (iii) who purchased certain
D-1
no-load shares of funds merged with funds distributed by Columbia Funds
Distributor, Inc.;
- - Any trustee or director (or family member of a trustee or director) of any
fund distributed by Columbia Funds Distributor, Inc.; and
- - Any employee (or family member of an employee) of FleetBoston Financial
Corporation or its subsidiaries.
$100,000 minimum initial investment
- - Clients of broker-dealers or registered investment advisors that both
recommend the purchase of Fund shares and charge such clients an asset-based
fee; and
- - Any insurance company, trust company, bank, endowment, investment company or
foundation purchasing shares for its own account.
No minimum initial investment
- - Any client of Fleet National Bank or a subsidiary (for shares purchased
through an asset management, trust, retirement plan administration or similar
arrangement with Fleet National Bank or the subsidiary);
- - A retirement plan (or the custodian for such plan) with aggregate plan assets
of at least $5 million at the time of purchase and which purchases shares
directly from Columbia Funds Distributor, Inc. or through a third-party
broker-dealer;
- - Investors purchasing through Columbia Management Group state tuition plans
organized under Section 529 of the Internal Revenue Code; and
- - Any person investing all or part of the proceeds of a distribution, rollover
or transfer of assets into a Columbia Individual Retirement Account, from any
deferred compensation plan which was a shareholder of any of the funds of
Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29,
2000, in which the investor was a participant and through which the investor
invested in one or more of the funds of Columbia Acorn Trust immediately prior
to the distribution, transfer or rollover.
The Fund reserves the right to change the criteria for Eligible Investors and
the investment minimums. No minimum investment applies to accounts participating
in the automatic investment plan, however, each investment requires a $25
minimum purchase. The Fund also reserves the right to refuse a purchase order
for any reason, including if it believes that doing so would be in the best
interest of the Fund and its shareholders.
D-2
Outlined below are the various options for buying shares:
<Table>
<Caption>
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
- ---------------------------------------------------------------------------------
By check (new For new accounts send a completed application and check made
account) payable to the Fund and mail to the transfer agent, Columbia
Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
- ---------------------------------------------------------------------------------
By check (existing For existing accounts fill out and return the additional
account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
- ---------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Funds Distributor, Inc. for
shares of the same class of the Fund at no additional cost.
There may be an additional charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
Please see "How to Exchange Shares" for more information.
- ---------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
- ---------------------------------------------------------------------------------
By electronic funds You may purchase shares of the Fund by electronically
transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
- ---------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
- ---------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
You must have a current balance of at least $5,000 in the
fund the money is coming from. Exchanges will continue so
long as your fund balance is sufficient to complete the
transfers. You may terminate your program or change the
amount of the exchange (subject to the $100 minimum) by
calling 1-800-345-6611. Be sure to complete the appropriate
section of the account application for this feature.
- ---------------------------------------------------------------------------------
</Table>
D-3
<Table>
<Caption>
METHOD INSTRUCTIONS
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
</Table>
CHOOSING A SHARE CLASS
The Fund offers Class A, B, C and Z shares in this prospectus.
Each of Class A, Class B and Class C has its own sales charge and expense
structure. Determining which of Class A, Class B, or Class C is best for you
depends on the dollar amount you are investing and the number of years for which
you are willing to invest. If your financial advisor does not participate in the
Class B discount program, purchases of $250,000 or more but less than $1 million
can be made only in Class A or Class C shares. Purchases of $1 million or more
can be made only in Class A shares. Based on your personal situation, your
financial advisor can help you decide which class of shares makes the most sense
for you.
As described below, the Fund also offers Class Z shares in this prospectus, but
Class Z shares are available exclusively to certain institutional and other
investors. In general, anyone who is eligible to purchase Class Z shares, which
do not incur Rule 12b-1 fees or sales charges, should do so in preference over
other classes. The Fund also offers Class G and Class T shares through a
separate prospectus.
SALES CHARGES FOR CLASS A, B, AND C SHARES
You may be subject to an initial sales charge when you purchase, or a contingent
deferred sales charge (CDSC) when you sell, shares of the Fund. These sales
charges are described below. In certain circumstances, the sales charge may be
waived, as described below and in the Statement of Additional Information.
Class A shares. Your purchases of Class A shares are made at the public
offering price for these shares. This price includes a sales charge that is
based on the amount of your initial investment when you open your account. The
sales charge you pay on an additional investment is based on the total amount of
your purchase and the current value of your account. Shares you purchase with
reinvested dividends or other distributions are not subject to a sales charge. A
portion of the sales charge is paid as a commission to your financial advisor on
the sale of Class A shares. The amount of the sales charge differs depending on
the amount you invest as shown in the table below.
D-4
CLASS A SALES CHARGES
<Table>
<Caption>
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % OF RETAINED BY
OFFERING YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
- -------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
- -------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
- -------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
- -------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
- -------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
</Table>
Class A shares bought without an initial sales charge in accounts aggregating $1
million to $25 million at the time of purchase are subject to a 1.00% CDSC if
the shares are sold within 18 months of the time of purchase. Subsequent Class A
share purchases that bring your account value above $1 million (but less than
$25 million) are subject to a CDSC if redeemed within 18 months of the date of
purchase. The 18-month period begins on the first day of the month in which the
purchase was made. The CDSC does not apply to retirement plans purchasing
through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a
cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
<Table>
<Caption>
AMOUNT PURCHASED COMMISSION %
Less than $3 million 1.00
- --------------------------------------------------------------------------
$3 million to less than $5 million 0.80
- --------------------------------------------------------------------------
$5 million to less than $25 million 0.50
- --------------------------------------------------------------------------
$25 million or more 0.25
</Table>
The commission to financial advisors for Class A share purchases of $25 million
or more is paid over 12 months but only to the extent the shares remain
outstanding.
For Class A share purchases by participants in certain group retirement plans
offered through a fee-based program, financial advisors receive a 1.00%
commission from the distributor on all purchases of less than $3 million.
D-5
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
Certain investments in Class A, B and C shares are subject to a CDSC, a sales
charge applied at the time you sell your shares. You will pay the CDSC only on
shares you sell within a certain amount of time after purchase. The CDSC
generally declines each year until there is no charge for selling shares. The
CDSC is applied to the net asset value at the time of purchase or sale,
whichever is lower. For purposes of calculating the CDSC, the start of the
holding period is the first day of the month in which the purchase was made.
Shares you purchase with reinvested dividends or capital gains are not subject
to a CDSC. When you place an order to sell shares, the Fund will automatically
sell first those shares not subject to a CDSC and then those you have held the
longest.
Reduced Sales Charges for Larger Investments. You may pay a lower sales charge
when purchasing Class A shares through Rights of Accumulation. If the combined
value of the Fund accounts in all classes maintained by you, your spouse or your
minor children, together with the value of your current purchase, reaches a
sales charge discount level (according to the chart on the previous page), your
current purchase will receive the lower sales charge; provided that you have
notified your financial advisor in writing of the identity of such other
accounts and your relationship to the other account holders. You may also pay a
lower sales charge when purchasing Class A shares by signing a Statement of
Intent within 90 days of your purchase. By doing so, you would be able to pay
the lower sales charge on all purchases by agreeing to invest a total of at
least $50,000 within 13 months. If your Statement of Intent purchases are not
completed within 13 months, you will be charged the applicable sales charge on
the amount you had invested to that date. In addition, certain investors may
purchase shares at a reduced sales charge or net asset value, which is the value
of a fund share excluding any sales charges. See the Statement of Additional
Information for a description of these situations. Upon request, a Statement of
Intent may be backdated to reflect purchases within 90 days.
Class B Shares. Your purchases of Class B shares are made at Class B's net
asset value. Class B shares have no front-end sales charge, but they do carry a
CDSC that is imposed only on shares sold prior to elimination of the CDSC as
shown in the applicable chart below. The CDSC generally declines each year and
eventually disappears over time. The distributor pays your financial advisor an
up-front commission on sales of Class B shares as described in the charts below.
D-6
PURCHASES OF LESS THAN $250,000
CLASS B SALES CHARGES
<Table>
<Caption>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
- --------------------------------------------------------------------------
Through second year 4.00
- --------------------------------------------------------------------------
Through third year 3.00
- --------------------------------------------------------------------------
Through fourth year 3.00
- --------------------------------------------------------------------------
Through fifth year 2.00
- --------------------------------------------------------------------------
Through sixth year 1.00
- --------------------------------------------------------------------------
Longer than six years 0.00
</Table>
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
You can pay a lower CDSC and reduce the holding period when making purchases of
Class B shares through a financial advisor that participates in the Class B
share discount program for larger purchases as described in the charts below.
Some financial advisors are not able to participate because their record keeping
or transaction processing systems are not designed to accommodate these
reductions. For non-participating financial advisors, purchases of Class B
shares must be less than $250,000. Consult your financial advisor to see whether
it participates in the discount program for larger purchases. For participating
financial advisors, Rights of Accumulation apply, so that if the combined value
of the Fund accounts in all classes maintained by you, your spouse or your minor
children, together with the value of your current purchase, is at or above a
discount level, your current purchase will be subject to the lower CDSC and the
applicable reduced holding period; provided that you have notified your
financial advisor in writing of the identity of such other accounts and your
relationship to the other account holders.
D-7
PURCHASES OF $250,000 TO LESS THAN $500,000:
CLASS B SALES CHARGES
<Table>
<Caption>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 3.00
- ---------------------------------------------------------------------------
Through second year 2.00
- ---------------------------------------------------------------------------
Through third year 1.00
- ---------------------------------------------------------------------------
Longer than three years 0.00
</Table>
Commission to financial advisors is 2.50%.
Automatic conversion to Class A shares occurs four years after purchase.
PURCHASES OF $500,000 TO LESS THAN $1 MILLION:
CLASS B SALES CHARGES
<Table>
<Caption>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 3.00
- --------------------------------------------------------------------------
Through second year 2.00
- --------------------------------------------------------------------------
Through third year 1.00
</Table>
Commission to financial advisors is 1.75%.
Automatic conversion to Class A shares occurs three years after purchase.
If you exchange into a fund participating in the Class B share discount program
or transfer your fund account from a financial advisor that does not participate
in the program to one that does, the exchanged or transferred shares will retain
the pre-existing CDSC but any additional purchases of Class B shares which,
together with the exchanged or transferred account, exceed the applicable
discount level will be subject to the lower CDSC and the reduced holding period
for amounts in excess of the discount level. Your financial advisor will receive
the lower commission for purchases in excess of the applicable discount level.
If you exchange from a participating fund or transfer your account from a
financial advisor that does participate in the program into a non-participating
fund or financial advisor that does not participate in the program, the
exchanged or transferred shares will retain the pre-existing CDSC schedule and
holding period but all additional purchases of Class B shares will be subject to
the higher CDSC and longer holding period of the non-participating fund or
applicable to the non-participating financial advisor.
D-8
Please see the Statement of Additional Information for the CDSCs and conversion
schedule applicable to Class B shares received by Galaxy Fund Prime B
shareholders in connection with the reorganization of the Galaxy Fund into the
Fund.
Class C shares. Your purchases of Class C shares are made at Class C's net
asset value. Although Class C shares have no front-end sales charge, they carry
a CDSC of 1.00% that is applied to shares sold within the first year after they
are purchased. After holding shares for one year, you may sell them at any time
without paying a CDSC. The distributor pays your financial advisor an up-front
commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
<Table>
<Caption>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
- --------------------------------------------------------------------------
Longer than one year 0.00
</Table>
SALES CHARGES FOR CLASS Z SHARES
Your purchases of Class Z shares are at net asset value, which is the value of a
Class Z share excluding any sales charge. Class Z shares are not subject to an
initial sales charge when purchased or a contingent deferred sales charge when
sold.
HOW TO EXCHANGE SHARES
You may exchange your shares for shares of the same share class (and in some
cases, certain other classes) of another fund distributed by Columbia Funds
Distributor, Inc. at net asset value. If your shares are subject to a CDSC, you
will not be charged a CDSC upon the exchange. However, when you sell the shares
acquired through the exchange, the shares sold may be subject to a CDSC,
depending upon when you originally purchased the shares you are exchanging. For
purposes of computing the CDSC, the length of time you have owned your shares
will be computed from the date of your original purchase and the applicable CDSC
will be the CDSC of the original fund. Unless your account is part of a
tax-deferred retirement plan, an exchange is a taxable event, and you may
realize a gain or a loss for tax purposes. The Fund may terminate your exchange
privilege if the advisor determines that your exchange activity is likely to
adversely impact its ability to manage the Fund. See "Fund Policy on Trading of
Fund Shares" for the Fund's policy. To exchange by telephone, call
1-800-422-3737.
D-9
Please have your account and taxpayer identification numbers available when
calling.
HOW TO SELL SHARES
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the
NYSE is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. "Good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" also means (i) your letter has complete instructions, the proper
signatures and Medallion Signature Guarantees, (ii) you have included any
certificates for shares to be sold, and (iii) any other required documents are
attached. For additional documents required for sales by corporations, agents,
fiduciaries, surviving joint owners and other legal entities, please call
1-800-345-6611. Retirement plan accounts have special requirements; please call
1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in "good
form"). However, if you purchased your shares by check, the Fund may delay
sending the proceeds from the sale of your shares for up to 15 days after your
purchase to protect against checks that are returned. No interest will be paid
on uncashed redemption checks. Redemption proceeds may be paid in securities,
rather than in cash, under certain circumstances. For more information, see the
paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the
Statement of Additional Information.
Outlined below are the various options for selling shares:
<Table>
<Caption>
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
- ---------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Funds Distributor, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
- ---------------------------------------------------------------------------------
</Table>
D-10
<Table>
<Caption>
METHOD INSTRUCTIONS
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
- ---------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power
form along with any share certificates to be sold to the
address below. In your letter of instruction, note the
Fund's name, share class, account number, and the dollar
value or number of shares you wish to sell. All account
owners must sign the letter. Signatures must be guaranteed
by either a bank, a member firm of a national stock exchange
or another eligible guarantor institution that participates
in the Medallion Signature Guarantee Program for amounts
over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611. Mail your letter of instruction to Columbia
Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
- ---------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the account application for this
feature.
- ---------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly,
quarterly or semi-annual basis and have the proceeds sent to
you if your account balance is at least $5,000. This feature
is not available if you hold your shares in certificate
form. All dividend and capital gains distributions must be
reinvested. Be sure to complete the appropriate section of
the account application for this feature.
- ---------------------------------------------------------------------------------
By electronic funds You may sell shares of the Fund and request that the
transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
</Table>
FUND POLICY ON TRADING OF FUND SHARES
The interests of the Fund's long-term shareholders may be adversely affected by
certain short-term trading activity by Fund shareholders. Such short-term
trading activity, when excessive, has the potential to interfere with efficient
portfolio management, generate transaction and other costs, dilute the value of
Fund shares held by long-term shareholders and have other adverse effects on the
Fund. This type of excessive short-term trading activity is referred to herein
as "market timing". The Columbia Funds are not intended as vehicles for market
timing.
D-11
The Fund, directly and through its agents, takes various steps designed to deter
and curtail market timing. For example, if the Fund detects that any shareholder
has conducted two "round trips" (as defined below) in the Fund that are deemed
material by the Fund in any 28-day period, the Fund will generally reject the
shareholder's future purchase orders, including exchange purchase orders,
involving any Columbia Fund (other than a Money Market Fund). In addition, if
the Fund determines that any person, group or account has engaged in any type of
market timing activity (independent of the two-round-trip limit), the Fund may,
in its discretion, reject future purchase orders by the person, group or
account, including exchange purchase orders, involving the same or any other
Columbia Fund, and also retains the right to modify these market timing policies
at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any
of the limits mentioned above. However, certain Funds impose a redemption fee on
the proceeds of Fund shares that are redeemed or exchanged within 60 days of
their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia
Fund followed by a redemption, of any amount, by any means out of the same
Columbia Fund. Under this definition, an exchange into the Fund followed by an
exchange out of the Fund is treated as a single round trip. Also for these
purposes, where known, accounts under common ownership or control generally will
be counted together. Accounts maintained or managed by a common intermediary,
such as an adviser, selling agent or trust department, generally will not be
considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic
Investment Plan, Systematic Withdrawal Plan or similar automated plans generally
are not subject to the two-round-trip limit. The two-round-trip limit may be
modified for, or may not be applied to, accounts held by certain retirement
plans to conform to plan limits, considerations relating to the Employee
Retirement Income Security Act of 1974 or regulations of the Department of
Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail
market timing in the Fund. However, there can be no assurance that these
policies, individually or collectively, will be totally effective in this regard
because of various factors. In particular, a substantial portion of purchase,
redemption and exchange orders are received through omnibus accounts. Omnibus
accounts, in which shares are held in the name of an intermediary on behalf of
multiple beneficial owners, are a common form of holding
D-12
shares among financial intermediaries and retirement plans. The Fund typically
is not able to identify trading by a particular beneficial owner through an
omnibus account, which may make it difficult or impossible to determine if a
particular account is engaged in market timing. Certain financial intermediaries
have different policies regarding monitoring and restricting market timing in
the underlying beneficial owner accounts that they maintain through an omnibus
account that may be more or less restrictive than the Fund practices discussed
above.
The Fund seeks to act in a manner that it believes is consistent with the best
interests of Fund shareholders in making any judgments regarding market timing.
Neither the Fund nor its agents shall be held liable for any loss resulting from
rejected purchase orders or exchanges.
DISTRIBUTION AND SERVICE FEES
Rule 12b-1 Plan. The Fund has adopted a plan under Rule 12b-1 that permits it
to pay its distributor marketing and other fees to support the sale and
distribution of Class A, B and C shares and certain services provided to you by
your financial advisor. The annual service fee may equal up to 0.25% for each of
Class A, Class B and Class C shares. The annual distribution fee may equal up to
0.10% for Class A shares and 0.75% for each of Class B and Class C shares.
Distribution and service fees are paid out of the assets of these classes. The
Fund's Board of Trustees currently limits total payments under the Rule 12b-1
plan for Class A shares to 0.25% annually. Over time, these fees will reduce the
return on your investment and may cost you more than paying other types of sales
charges. Class B shares automatically convert to Class A shares after a certain
number of years, eliminating a portion of the distribution fee upon conversion.
Conversion may occur three, four or eight years after purchase, depending on the
program under which you purchased your shares. See "Your Account -- Sales
Charges" for the conversion schedule applicable to Class B shares.
Additional Intermediary Compensation. In addition to the commissions specified
in this prospectus, the distributor, or its advisory affiliates, from their own
resources, may make cash payments to financial service firms that agree to
promote the sale of shares of funds that the distributor distributes. A number
of factors may be considered in determining the amount of those payments,
including the financial service firm's sales, client assets invested in the
funds and redemption rates, the quality of the financial service firm's
relationship with the distributor and/or its affiliates, and the nature of the
services provided by financial service firms to its clients. The payments may be
made in recognition of such factors as marketing support, access to sales
D-13
meetings and the financial service firm's representatives, and inclusion of the
Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation
to financial service firms and their representatives, including: (i) occasional
gifts (ii) occasional meals, or other entertainment; and/or (iii) support for
financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer
agent or their affiliates, may pay service, administrative or other similar fees
to broker/dealers, banks, third-party administrators or other financial
institutions (each commonly referred to as an "intermediary"). Those fees are
generally for subaccounting, sub-transfer agency and other shareholder services
associated with shareholders whose shares are held of record in omnibus or other
group accounts. The rate of those fees may vary and is generally calculated on
the average daily net assets of a Fund attributable to a particular
intermediary.
In some circumstances, the payments discussed above may create an incentive for
an intermediary or its employees or associated persons to recommend or sell
shares of the Fund. For further information about payments made by the
distributor and its affiliates to financial service firms and intermediaries,
please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR
FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY
RECEIVE.
OTHER INFORMATION ABOUT YOUR ACCOUNT
How the Fund's Share Price is Determined The price of each class of the Fund's
shares is based on its net asset value. The net asset value is determined at the
close of regular trading on the NYSE, usually 4:00 p.m. Eastern time, on each
business day that the NYSE is open for trading (typically Monday through
Friday). Shares are not priced the days on which the NYSE is closed for trading.
When you request a transaction, it will be processed at the net asset value
(plus any applicable sales charges) next determined after your request is
received in "good form" by the distributor. In most cases, in order to receive
that day's price, the distributor must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor, your financial advisor must receive your order by the close of trading
on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each
class's total net assets by the number of that class's outstanding shares. In
determining the net asset value, the Fund must determine the price of
D-14
each security in its portfolio at the close of each trading day. Securities for
which market quotations are available are valued each day at the current market
value. However, where market quotations are unavailable, or when the advisor
believes that subsequent events have made them unreliable, the Fund may use
other data to determine the fair value of the securities.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the heading "Columbia." You can find daily prices for all
share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of
depreciation in share value) your account may be subject to an annual fee of
$10. The Fund's transfer agent will send you written notification of any such
action and provide details on how you can add money to your account to avoid
this penalty.
Share Certificates Share certificates are not available for any class of shares
offered by the Fund.
Dividends, Distributions and Taxes The Fund has the potential to make the
following distributions:
TYPES OF DISTRIBUTIONS
<Table>
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
- ----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
</Table>
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize
capital gains or losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
Distribution Options The Fund distributes any dividends annually and any capital
gains (including short term capital gains) at least annually. You can choose one
of the options listed in the table below for these distributions when you open
your account. To change your distribution option call 1-800-345-6611.
Tax Consequences Unless you are an entity exempt from income taxes or invest
under a retirement account, regardless of whether you receive your
D-15
distributions in cash or reinvest them in additional Fund shares, all Fund
distributions are subject to federal income tax. Depending on where you live,
distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital
gains are taxable as ordinary income unless such dividends are "qualified
dividend income" (as defined in the Internal Revenue Code) eligible for a
reduced rate of tax. Distributions of long-term capital gains are generally
taxable as such, regardless of how long you have held your Fund shares. You will
be provided with information each year regarding the amount of ordinary income
and capital gains distributed to you for the previous year and any portion of
your distribution which is exempt from state and local taxes. Your investment in
the Fund may have additional personal tax implications. Please consult your tax
advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling or exchanging shares of the
Fund. Such transactions also may be subject to federal, state and local income
tax.
MANAGING THE FUND
INVESTMENT ADVISOR
Columbia Management Advisors, Inc. (Columbia Management), located at 100 Federal
Street, Boston, Massachusetts 02110, is the Fund's investment advisor. The
investment advisor is responsible for the Fund's management, subject to
oversight by the Fund's Board of Trustees. In its duties as investment advisor,
Columbia Management runs the Fund's day-to-day business, including placing all
orders for the purchase and sale of the Fund's portfolio securities. Columbia
Management is a direct wholly owned subsidiary of Columbia Management Group,
Inc. (Columbia), which is an indirect wholly owned subsidiary of Bank of
America. Columbia Management, a registered investment advisor, has been an
investment advisor since 1969.
On April 1, 2003, several advisory subsidiaries of Columbia, including Fleet
Management Advisors, Inc. (Fleet), merged into Columbia Management (which
previously had been known as Columbia Management Company). Before April 1, 2003,
Fleet was the investment advisor to the Fund. As a result of the merger,
Columbia Management is now the investment advisor to the Fund.
For the 2003 fiscal year, aggregate advisory fees paid to the advisor by the
Fund not including administration, pricing and bookkeeping, and other fees
D-16
paid to Columbia Management by the Fund, amounted to 0.75% of average daily net
assets of the Fund.
PORTFOLIO MANAGERS
Sean P. Wilson, CFA, is a co-manager of the Fund and has managed the Fund since
October 2003. Mr. Wilson is also co-head of Columbia Management's institutional
large cap core equity team. Prior to joining the advisor in June 2003, Mr.
Wilson was managing director, director of equity research and senior portfolio
manager at Rockefeller & Company.
Michael R. Pelosi, CFA, is a co-manager of the Fund and has managed the Fund
since October 2003. Mr. Pelosi joined the advisor in 1986, and is also co-head
of Columbia Management's institutional large cap core equity team.
Other members of the advisor's institutional large cap core equity team also
participate in the management of the Fund.
LITIGATION MATTERS
1. Columbia Management Advisors, Inc. ("CMA"), the Fund's adviser, and Columbia
Funds Distributor, Inc. ("CFDI") the distributor of the Fund's shares, and
certain of their affiliates (collectively, "Columbia") have received information
requests and subpoenas from various regulatory and law enforcement authorities
in connection with their investigations of late trading and market timing in
mutual funds. Columbia has not uncovered any instances where CMA or CFDI were
knowingly involved in late trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against CMA and CFDI, alleging that they had violated certain
provisions of the federal securities laws in connection with trading activity in
mutual fund shares. Also on February 24, 2004, the New York Attorney General
("NYAG") filed a civil complaint in New York Supreme Court, County of New York
against CMA and CFDI alleging that CMA and CFDI had violated certain New York
anti-fraud statutes. If either CMA or CFDI is unsuccessful in its defense of
these proceedings, it could be barred from serving as an investment adviser or
distributor for any investment company registered under the Investment Company
Act of 1940, as amended (a "registered investment company"). Such results could
prevent CMA, CFDI or any company that is an affiliated person of CMA and CFDI
from serving as an investment adviser or distributor for any registered
investment company, including your fund. Your fund has been
D-17
informed by CMA and CFDI that, if these results occur, they will seek exemptive
relief from the SEC to permit them to continue to serve as your fund's
investment adviser and distributor. There is no assurance that such exemptive
relief will be granted. On March 15, 2004, CMA and CFDI entered into agreements
in principle with the SEC Division of Enforcement and NYAG in settlement of the
charges. Under the agreements, CMA and CFDI agreed, inter alia, to the following
conditions: payment of $70 million in disgorgement; payment of $70 million in
civil penalties; an order requiring CMA and CFDI to cease and desist from
violations of the antifraud provisions and other provisions of the federal
securities laws; governance changes designed to maintain the independence of the
mutual fund boards of trustees and ensure compliance with securities laws and
their fiduciary duties; and retention of an independent consultant to review
CMA's and CFDI's compliance policies and procedures. The agreement requires the
final approval of the SEC. In a separate agreement with the NYAG, Columbia and
its affiliate Banc of America Capital Management LLC have agreed to collectively
reduce mutual fund fees by $160 million over a five-year period. As a result of
these matters or any adverse publicity or other developments resulting from
them, there may be increased redemptions or reduced sales of Fund shares, which
could increase transaction costs or operating expenses, or have other adverse
consequences for the Funds.
2. On April 1, 2004, FleetBoston Financial Corporation was acquired by Bank of
America Corporation. As a result of this acquisition, CMA and CFDI are now
indirect wholly-owned subsidiaries of Bank of America Corporation.
D-18
APPENDIX E
FINANCIAL HIGHLIGHTS FOR THE LARGE CAP CORE FUND
The financial highlights table is intended to help you understand the Fund's
financial performance. Information is shown for the Fund's fiscal years since
inception, which run from October 1 to September 30, unless otherwise indicated.
Information for Class A shares and Class B shares prior to December 9, 2002, the
date of reorganization, is for Prime A shares and Prime B shares, respectively,
of the Galaxy Growth & Income Fund. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that you would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
derived from the Fund's financial statements which, for the year ended September
30, 2004, have been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, whose report, along with the Fund's financial
statements, is included in the Fund's annual report. The information for the
four years ended October 31, 2002, and for the period ended September 30, 2003,
has been derived from the Fund's financial statements which have been audited by
Ernst & Young LLP, an independent registered public accounting firm, whose
report expressed an unqualified opinion on those financial statements and
highlights. You can request a free annual report by calling 1-800-426-3750.
E-1
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, ---------------------------------------------------------
CLASS A SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999(D)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $11.22 $10.08 $12.74 $16.41 $16.00 $14.88
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) --(e)(f) 0.03(e) 0.03(e) 0.02 0.04 0.11(e)
Net realized and unrealized
gain (loss) on investments 0.80 1.16 (2.23) (2.38) 1.34 2.03
------ ------ ------- ------- ------ ------
Total from investment
operations 0.80 1.19 (2.20) (2.36) 1.38 2.14
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions declared to
shareholders:
From net investment income (0.01) (0.05) (0.02) (0.03) (0.06) (0.11)
In excess of net investment
income -- -- -- --(f) -- --
From net realized gains -- -- (0.44) (1.28) (0.91) (0.91)
------ ------ ------- ------- ------ ------
Total distributions declared
to shareholders (0.01) (0.05) (0.46) (1.31) (0.97) (1.02)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.01 $11.22 $10.08 $12.74 $16.41 $16.00
Total return(g) 7.09%(h) 11.82%(i) (18.14)%(h) (15.34)%(h) 9.27%(h) 14.81%(h)
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/
Supplemental data:
Expenses(j) 1.35% 1.48%(k) 1.28% 1.19% 1.14% 1.15%
Net investment income(loss)(j) (0.02)% 0.37%(k) 0.25% 0.22% 0.30% 0.66%
Waiver/reimbursement --%(l) -- 0.24% 0.03% 0.10% 0.15%
Portfolio turnover rate 115% 55%(i) 13% 19% 42% 20%
Net assets, end of period
(000's) $9,304 $7,570 $15 $60 $156 $150
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
(a) On October 13, 2003, the Liberty Large Cap Core Fund was renamed the
Columbia Large Cap Core Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On December 9, 2002, the Galaxy Growth & Income Fund, Prime A shares were
redesignated Liberty Large Cap Core Fund, Class A shares.
E-2
(d) The Fund began offering Prime A shares on November 1, 1998.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Rounds to less than $0.01 per share.
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------------------------------------
CLASS B SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999(D)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $10.99 $ 9.90 $12.59 $16.32 $15.97 $14.88
- -------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (0.09)(e) (0.04)(e) (0.06)(e) (0.07) (0.07) (0.01)(e)
Net realized and
unrealized gain
(loss) on
investments 0.78 1.14 (2.19) (2.38) 1.33 2.03
------ ------ ------ ------ ------ ------
Total from
investment
operations 0.69 1.10 (2.25) (2.45) 1.26 2.02
- -------------------------------------------------------------------------------------------------------------
Less distributions
declared to
shareholders:
From net investment
income -- (0.01) -- -- -- (0.02)
From net realized
gains -- -- (0.44) (1.28) (0.91) (0.91)
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders -- (0.01) (0.44) (1.28) (0.91) (0.93)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $11.68 $10.99 $9.90 $12.59 $16.32 $15.97
Total return(f) 6.28%(g) 11.12%(h) (18.75)%(g) (15.95)%(g) 8.38%(g) 13.98%(g)
- -------------------------------------------------------------------------------------------------------------
</Table>
E-3
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, ---------------------------------------------
CLASS B SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999(D)
- ----------------------------------------------------------------------------------------------------
Ratios to average net
assets/Supplemental
data:
Expenses(i) 2.09% 2.19%(j) 2.02% 1.96% 1.89% 1.90%
Net investment
loss(i) (0.76)% (0.38)%(j) (0.49)% (0.55)% (0.45)% (0.09)%
Waiver/reimbursement --%(k) -- 0.02% 0.04% 0.18% 0.27%
Portfolio turnover
rate 115% 55%(h) 13% 19% 42% 20%
Net assets, end of
period (000's) $3,425 $1,755 $55 $109 $ 129 $ 129
- ----------------------------------------------------------------------------------------------------
</Table>
(a) On October 13, 2003, the Liberty Large Cap Core Fund was redesignated the
Columbia Large Cap Core Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On December 9, 2002, the Galaxy Growth & Income Fund, Prime B shares were
redesignated Liberty Large Cap Core Fund, Class B shares.
(d) The Fund began offering Prime B shares on November 1, 1998.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
E-4
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
CLASS C SHARES 2004(A) 2003(B)(C)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.99 $10.21
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment loss(d) (0.09) (0.04)
Net realized and unrealized gain on
investments 0.78 0.83
------ ------
Total from investment operations 0.69 0.79
- ------------------------------------------------------------------------------
Less distributions declared to shareholders:
From net investment income -- (0.01)
- ------------------------------------------------------------------------------
Net asset value, end of period $11.68 $10.99
Total return(e) 6.28%(f) 7.74%(g)
- ------------------------------------------------------------------------------
Ratios to average net assets/Supplemental data:
Expenses(h) 2.09% 2.18%(i)
Net investment loss(h) (0.74)% (0.42)%(i)
Waiver/reimbursement --%(j) --
Portfolio turnover rate 115% 55%(g)
Net assets, end of period (000's) $345 $223
- ------------------------------------------------------------------------------
</Table>
(a) On October 13, 2003, the Liberty Large Cap Core Fund was renamed the
Columbia Large Cap Core Fund.
(b) The Fund has changed its fiscal year end from October 31 to September 30.
(c) Class C shares were initially offered on December 9, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
E-5
The financial highlights table below is intended to help you understand the
Fund's Class Z financial performance. Information is shown for the last five
fiscal years, which run from October 1 to September 30, unless otherwise
indicated. Information for Class Z shares prior to December 9, 2002, the date of
reorganization, is for the former Trust shares of the Galaxy Growth & Income
Fund. Certain information reflects financial results for a single Class Z share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been derived from the Fund's financial
statements which, for the year ended September 30, 2004, have been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report. The information for the four years ended October 31, 2002,
and for the period ended September 30, 2003, has been derived from the Fund's
financial statements which have been audited by Ernst & Young LLP, an
independent registered public registered accounting firm, whose report expressed
an unqualified opinion on those financial statements and highlights. You can
request a free annual report by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------
CLASS Z SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $11.25 $10.11 $12.77 $16.43 $16.02 $14.90
- -------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.03(d) 0.08(d) 0.07(d) 0.06 0.08 0.13(d)
Net realized and
unrealized gain
(loss) on
investments 0.79 1.15 (2.23) (2.39) 1.32 2.02
-------- -------- -------- -------- -------- --------
Total from
investment
operations 0.82 1.23 (2.16) (2.33) 1.40 2.15
- -------------------------------------------------------------------------------------------------------------
Less distributions
declared to
shareholders:
From net investment
income (0.02) (0.09) (0.06) (0.05) (0.08) (0.12)
In excess of net
investment income -- -- -- --(e) --(e) --
From net realized
gains -- -- (0.44) (1.28) (0.91) (0.91)
-------- -------- -------- -------- -------- --------
Total distributions
declared to
shareholders (0.02) (0.09) (0.50) (1.33) (0.99) (1.03)
- -------------------------------------------------------------------------------------------------------------
</Table>
E-6
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------
CLASS Z SHARES 2004(A) 2003(B)(C) 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $12.05 $11.25 $10.11 $12.77 $16.43 $16.02
Total return(f) 7.28%(g) 12.20%(h) (17.85)%(g) (15.12)% 9.38% 14.85%
- -------------------------------------------------------------------------------------------------------------
Ratios to average net
assets/Supplemental
data:
Expenses(i) 1.07% 1.03%(j) 0.97% 0.97% 1.00% 1.05%
Net investment
income(i) 0.26% 0.89%(j) 0.56% 0.44% 0.44% 0.76%
Waiver/reimbursement --%(k) -- 0.03% -- -- --
Portfolio turnover rate 115% 55%(h) 13% 19% 42% 20%
Net assets, end of
period (000's) $175,124 $190,195 $340,496 $460,302 $678,398 $309,106
- -------------------------------------------------------------------------------------------------------------
</Table>
(a) On October 13, 2003, the Liberty Large Cap Core Fund was renamed the
Columbia Large Cap Core Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On December 9, 2002, the Galaxy Growth & Income Fund, Trust shares were
redesignated Liberty Large Cap Core Fund, Class Z shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Rounds to less than $0.01 per share.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
E-7
APPENDIX F -- COMPARISON OF A MASSACHUSETTS BUSINESS TRUST WITH AN OREGON
CORPORATION
As a series of Trust XI, a Massachusetts business trust, the Large Cap Core Fund
is subject to the provisions of Trust XI's Declaration of Trust and Bylaws. The
provisions of Trust XI's Declaration of Trust and Bylaws differ in some respects
from the Common Stock Fund's Articles of Incorporation and Bylaws and Chapter 60
of the Oregon Revised Statutes ("ORS"), referred to as the Oregon Business
Corporations Act ("OBCA"), which governs Oregon corporations.
The following is a summary of significant differences between (i) the Common
Stock Fund's Articles of Incorporation and Bylaws and the OBCA and (ii) Trust
XI's Declaration of Trust and Bylaws and Massachusetts business trust law. For
additional information regarding all of the differences, shareholders of the
Common Stock Fund should refer directly to the Funds' organizational documents,
copies of which may be obtained by contacting the Large Cap Core Fund at its
address listed on the cover of this Prospectus/Proxy Statement or toll-free at
[ ].
SHAREHOLDER LIABILITY. Under the OBCA, a shareholder of an Oregon corporation
who has fully paid the subscription price for his shares generally has no
personal liability in excess of his shares. Under Massachusetts law,
shareholders of a Massachusetts business trust could, in certain circumstances,
be held personally liable for the obligations of the trust. Trust XI's
Declaration of Trust, however, disclaims shareholder liability for acts or
obligations of Trust XI or the Large Cap Core Fund and requires that every note,
bond, contract, instrument, certificate or undertaking made or issued by any
Trustees or Trustee or by any officers or officer shall recite that the
obligations of such instrument are not binding on the shareholders individually.
Trust XI's Declaration of Trust provides that a shareholder or former
shareholder held to be personally liable solely by reason his or her being or
having been a shareholder shall be entitled to be held harmless from and
indemnified against all loss and expense arising from such liability. Thus, the
risk of a shareholder's incurring financial loss from shareholder liability is
limited to circumstances in which Trust XI would be unable to meet its
obligations. The likelihood of such a circumstance is considered by the Large
Cap Core Fund's advisor to be remote.
SHAREHOLDER VOTING RIGHTS, INTERESTS AND MEETINGS. Trust XI's Declaration of
Trust provides that meetings of shareholders of the Trust or of any series or
class thereof shall be called upon written application by shareholders holding
at least 10% of the outstanding shares of the Trust (if shareholders of all
series or classes are required to vote in the
F-1
aggregate), or 10% of the outstanding shares of any series or class (if
shareholders of such series or class are entitled to vote by individual series
or class at such meeting) provided that such application shall state the purpose
or purposes of such meeting and the matters proposed to be acted on.
The Common Stock Fund's Bylaws give holders of not less than one-tenth of all
the votes entitled to be cast on any issue proposed to be considered at the
meeting the right to call a special meeting for any purposes.
Directors of the Common Stock Fund may only be removed by the shareholders. A
Trustee of Trust XI may be removed (a) at any meeting called for such purpose by
a vote of two-thirds of the outstanding Shares, (b) by the holders of two-thirds
of the outstanding Shares by declaration in writing filed with the Custodian of
the securities of the Trust, or (c) by vote of a majority of the Trustees then
in office.
The shareholders of the Large Cap Core Fund may vote together with shareholders
of other series of Trust XI on certain matters because of the single trust
structure, whereas the shareholders of the Common Stock Fund vote separately
from the shareholders of other funds because the funds are separate
corporations. Although any such combined voting would be subject to requirements
of the 1940 Act as to separate series or class voting rights, the shareholders
of Trust XI would still vote together on matters such as the election of
Trustees or ratification of auditors. Indeed, in an election of Trustees of
Trust XI, the shareholders of all funds that are series of Trust XI vote
together for a single Board of Trustees for Trust XI. By contrast, in an
election of directors of the Common Stock Fund, only shareholders of the Common
Stock Fund vote for a Board of Directors for that Fund because the Fund is a
separate corporation.
Neither Trust XI nor the Common Stock Fund is required to hold annual
shareholder meetings for matters such as the election of Trustees or directors,
although the requirements of the 1940 Act may effectively require that Trust XI
or the Common Stock Fund call special shareholder meetings from time to time.
Except when otherwise required by the 1940 Act, Trust XI's Declaration of Trust
may be amended at any time by a majority of the Trustees then in office,
provided notice of any amendment (other than amendments having the purpose of
changing the Trust's name, supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
contained therein, or having any other purpose which is ministerial or clerical
in nature) shall be mailed promptly to Shareholders of record at the close of
business on the effective date of such amendment.
F-2
The Trustees may amend Trust XI's Bylaws (except for Articles IX and X thereof,
which may only be amended by shareholders) without shareholder consent. The
shareholders of Trust XI may also amend its bylaws. The shareholders or board of
directors of the Common Stock Fund may amend the Fund's Bylaws.
A termination of Trust XI or any series of Trust XI may be effected by action of
the Trustees by written notice to the shareholders. The shareholders of the
Common Stock Fund have the right to vote on a dissolution of the Fund, with a
required affirmative vote of the holders of more than 50% of the outstanding
shares of the Common Stock Fund.
The shareholders of the Large Cap Core Fund have the right to vote on a merger,
consolidation or share exchange involving the Large Cap Core Fund to the extent
required under the 1940 Act, with a required vote of a majority of the
outstanding shares. The shareholders of the Common Stock Fund have the right to
vote on a merger, consolidation, share exchange or sale of all or substantially
all assets, with a required affirmative vote of the holders of more than 50% of
the outstanding shares of the Common Stock Fund.
The shareholders of the Large Cap Core Fund do not have dissenters' rights for
these types of extraordinary transactions. The OBCA provides that the
shareholders of the Common Stock Fund have dissenters' rights for these types of
extraordinary transactions, although such dissenters' rights may be preempted by
the 1940 Act.
Trust XI's Declaration of Trust provides that a majority consent is required for
a shareholder action taken without a meeting. The Common Stock Fund's Bylaws
provide that unanimous consent is required for a shareholder action taken
without a meeting.
Trust XI's Declaration of Trust provides that a quorum for a shareholder meeting
is 30% of the shares entitled to vote, except that if any provision of law or
the Declaration of Trust permits or requires that holders of any series or class
shall vote as a series or class, then 30% of the aggregate number of shares of
each series or class entitled to vote shall be necessary to constitute a quorum
for the transaction of business by that series or class. The Common Stock Fund's
Bylaws provide that a quorum for a shareholder meeting is a majority of the
shares entitled to vote at the meeting.
Trust XI's Declaration of Trust provides that notice of a shareholder meeting is
to be mailed, postage prepaid, not less than seven days before the date of such
meeting, to each shareholder entitled to vote at such meeting, at his address as
it appears on the records of the Trust. The Common Stock
F-3
Fund's Bylaws require that notice of shareholder meetings be mailed not earlier
than sixty days nor less than ten days prior to the meeting.
A shareholder of the Large Cap Core Fund may put a voting proxy in place for a
duration of up to six months, compared with eleven months for shareholders of
the Common Stock Fund.
The Common Stock Fund must make available a list of all shareholders beginning
two business days after notice of the meeting is given and continuing through
the meeting. No such requirement is applicable to the Large Cap Core Fund.
Trust XI's Declaration of Trust specifically disclaims any shareholder right to
partition of the assets of the Large Cap Core Fund. No such disclaimer is
present in the Common Stock Fund's Articles of Incorporation, although Oregon
law limits shareholder rights in dissolution of the Common Stock Fund.
Director vacancies for the Common Stock Fund are filled by action of either the
shareholders, the Board of Directors, the remaining Directors if less than a
quorum (by the vote of a majority thereof) or by a sole remaining Director. A
Trustee vacancy for Trust XI may be filled by the Trustees, unless immediately
after filling any such vacancy, less than two-thirds of the Trustees then
holding office would have been elected to such office by the shareholders. The
Board of Trustees shall call a meeting of shareholders for the purpose of
electing Trustees whenever less than a majority of the Trustees have been
elected by shareholders.
Boards of directors or trustees form committees of subgroups of their number to
perform certain tasks. Such a committee formed by the directors of the Common
Stock Fund may not take certain actions including: authorizing distributions;
approving or proposing to the shareholders any actions which require shareholder
approval; filling vacancies on the board or any committees; amending the Fund's
Articles of Incorporation, to the extent Directors may do so without shareholder
consent; adopting, amending or repealing the Fund's Bylaws; approving a plan of
merger not requiring shareholder approval; authorizing or approving
reacquisition of shares unless within limits prescribed by the board; generally
authorizing or approving the issuance or sale of shares; or determining the
designation, rights, preferences, or limitations of any class or series of
shares. Trustee committees for Trust XI are not so limited.
DIVIDENDS. The OBCA imposes certain limitations on distributions in
circumstances where the corporation would be unable to pay its debts as they
become due in the ordinary course of business, or its total assets would
F-4
be less than its total liabilities and certain other obligations. No similar
limitations are contained in Trust XI's Declaration of Trust.
DIRECTOR AND TRUSTEE LIABILITY AND INDEMNIFICATION. Under the OBCA and the
Common Stock Fund's Amended and Restated Articles of Incorporation, the
directors of the Common Stock Fund are not personally liable for monetary
damages to the Common Stock Fund or its shareholders for their conduct as
directors, but are personally liable for: acts in breach of the director's duty
of loyalty to the corporation or its shareholders; acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of the law;
an unlawful distribution to shareholders; and transactions from which the
director derived an improper personal benefit. Under Trust XI's Declaration of
Trust, Trust XI will not indemnify Trustees against liability to the Trust or
its Shareholders resulting from the Trustee's willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct as
Trustee. Oregon law provides for mandatory indemnification of a corporation's
directors against reasonable expenses incurred in connection with a proceeding
or claim with respect to which the director is successful in defending. This
mandatory indemnification also extends to officers unless a fund's articles of
incorporation provide otherwise. In addition, the OBCA permits the Common Stock
Fund to include a provision in its Articles of Incorporation providing that it
will indemnify an individual made party to a proceeding because the individual
is or was an officer or director against liability (including obligations to pay
a judgment, settlement, penalty, fine and reasonable expenses of counsel)
incurred in the proceeding provided such persons:
- - acted in good faith;
- - reasonably believed that their conduct was in the best interests of the
corporation or at least not opposed to its interests; and
- - in a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
The Common Stock fund now provides for such indemnification of current and
former officers and directors to the fullest extent not prohibited by law for
any such liability. No indemnification may be granted if such person is adjudged
liable (1) to the Fund in connection with a proceeding by or in right of the
Fund or (2) on the basis that personal benefit was improperly received. In
addition, the Fund shall pay for or reimburse the reasonable expenses incurred
by any such person in any such proceeding in advance of the final disposition of
the proceeding if the person sets forth in writing (i) the person's good faith
belief that the person is entitled to
F-5
indemnification and (ii) the person's agreement to repay all advances if it is
ultimately determined that the person is not entitled to indemnification.
Pursuant to Trust XI's Declaration of Trust, Trust XI will indemnify each of its
trustees and officers against all liabilities and expenses, including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties, and as
counsel fees, reasonably incurred by such person while in office or thereafter,
by reason of the indemnified person's service as a trustee or officer. Trust XI
will not indemnify its trustees and officers against any liability to the Trust
or to its Shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office. Legal expenses may be paid from
time to time by Trust XI in advance of the final disposition of any such
proceeding if Trust XI receives a written undertaking by the indemnified person
to reimburse Trust XI in the event it is subsequently determined that the
indemnified person is not entitled to such indemnification and (a) the
indemnified person shall provide security for his undertaking, or (b) the Trust
shall be insured against losses arising by reason of any lawful advances, or (c)
a majority of the disinterested, non-party trustees of the Trust or an
independent legal counsel, as expressed in a written opinion, shall determine,
based on a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the indemnified person ultimately
will be found entitled to indemnification.
F-6
APPENDIX G -- DISSENTERS' RIGHTS
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
60.551 DEFINITIONS FOR 60.551 TO 60.594. As used in ORS 60.551 to 60.594:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under ORS 60.554 and who exercises that right when and in the manner
required by ORS 60.561 to 60.587.
(4) "Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(6) "Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
[1987 c.52 sec.124; 1989 c.1040 sec.30]
60.554 RIGHT TO DISSENT. (1) Subject to subsection (2) of this section, a
shareholder is entitled to dissent from, and obtain payment of the fair value of
the shareholder's shares in the event of, any of the following corporate acts:
(a) Consummation of a plan of merger to which the corporation is a party if
shareholder approval is required for the merger by ORS 60.487 or the
articles of incorporation and the shareholder is entitled to vote on
the merger or if the corporation is a subsidiary that is merged with
its parent under ORS 60.491;
G-1
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all or substantially all of the
property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities; or
(B) Reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for
cash under ORS 60.141;
(e) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled
to dissent and obtain payment for their shares; or
(f) Conversion to a noncorporate business entity pursuant to ORS 60.472.
(2) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under ORS 60.551 to 60.594 may not challenge the corporate action
creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(3) Dissenters' rights shall not apply to the holders of shares of any class or
series if the shares of the class or series were registered on a national
securities exchange or quoted on the National Association of Securities
Dealers, Inc. Automated Quotation System as a National Market System issue
on the record date for the meeting of shareholders at which the corporate
action described in subsection (1) of this section is to be approved or on
the date a copy or summary of the plan of merger is mailed to shareholders
under ORS 60.491, unless the articles of incorporation otherwise provide.
[1987 c.52 sec.125; 1989 c.1040 sec.31; 1993 c.403 sec.9; 1999 c.362 sec.15]
G-2
60.557 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record shareholder may
assert dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf the shareholder asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares regarding which the shareholder dissents and the
shareholder's other shares were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held on
the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote. [1987 c.52 sec.126]
PROCEDURE FOR EXERCISE OF RIGHTS
60.561 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action creating
dissenters' rights under ORS 60.554 is submitted to a vote at a shareholders'
meeting, the meeting notice must state that shareholders are or may be entitled
to assert dissenters' rights under ORS 60.551 to 60.594 and be accompanied by a
copy of ORS 60.551 to 60.594.
(2) If corporate action creating dissenters' rights under ORS 60.554 is taken
without a vote of shareholders, the corporation shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send the shareholders entitled to assert dissenters' rights the
dissenters' notice described in ORS 60.567. [1987 c.52 sec.127]
60.564 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate action
creating dissenters' rights under ORS 60.554 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights
shall deliver to the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated and shall not vote such shares in favor of the
proposed action.
G-3
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under
this chapter. [1987 c.52 sec.128]
60.567 DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under ORS 60.554 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of ORS 60.564.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action was taken, and shall:
(a) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement of the terms of the proposed corporate action to news
media or to shareholders and requires that the person asserting
dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand.
This date may not be fewer than 30 nor more than 60 days after the date
the subsection (1) of this section notice is delivered; and
(e) Be accompanied by a copy of ORS 60.551 to 60.594. [1987 c.52 sec.129]
60.571 DUTY TO DEMAND PAYMENT. (1) A shareholder sent a dissenters' notice
described in ORS 60.567 must demand payment, certify whether the shareholder
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to ORS 60.567 (2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's shares
under subsection (1) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(3) A shareholder who does not demand payment or deposit the shareholder's share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for the shareholder's shares under this chapter.
[1987 c.52 sec.130]
G-4
60.574 SHARE RESTRICTIONS. (1) The corporation may restrict the transfer of
uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
ORS 60.581.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action. [1987
c.52 sec.131]
60.577 PAYMENT. (1) Except as provided in ORS 60.584, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with ORS 60.571, the amount the
corporation estimates to be the fair value of the shareholder's shares, plus
accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement
for that year and the latest available interim financial statements, if
any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under ORS
60.587; and
(e) A copy of ORS 60.551 to 60.594. [1987 c.52 sec.132; 1987 c.579 sec.4]
60.581 FAILURE TO TAKE ACTION. (1) If the corporation does not take the
proposed action within 60 days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under ORS 60.567 and repeat the payment demand procedure.
[1987 c.52 sec.133]
60.584 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold payment
required by ORS 60.577 from a dissenter unless the dissenter was the beneficial
owner of the shares before the date set forth in the dissenters'
G-5
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction
of such demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares an explanation of how the interest
was calculated and a statement of the dissenter's right to demand payment
under ORS 60.587. [1987 c.52 sec.134]
60.587 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (1) A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and amount of interest due, and
demand payment of the dissenter's estimate, less any payment under ORS 60.577 or
reject the corporation's offer under ORS 60.584 and demand payment of the
dissenter's estimate of the fair value of the dissenter's shares and interest
due, if:
(a) The dissenter believes that the amount paid under ORS 60.577 or offered
under ORS 60.584 is less than the fair value of the dissenter's shares
or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under ORS 60.577 within 60 days
after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless the
dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within 30 days after the corporation
made or offered payment for the dissenter's shares. [1987 c.52 sec.135]
JUDICIAL APPRAISAL OF SHARES
60.591 COURT ACTION. (1) If a demand for payment under ORS 60.587 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand under ORS 60.587 and petition the court under
subsection (2) of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the
G-6
proceeding within the 60-day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court of the
county where a corporation's principal office is located, or if the
principal office is not in this state, where the corporation's registered
office is located. If the corporation is a foreign corporation without a
registered office in this state, it shall commence the proceeding in the
county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the circuit court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the court order appointing them, or in any amendment to the
order. The dissenters are entitled to the same discovery rights as parties
in other civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to judgment for:
(a) The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation; or
(b) The fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment
under ORS 60.584. [1987 c.52 sec.136]
60.594 COURT COSTS AND COUNSEL FEES. (1) The court in an appraisal proceeding
commenced under ORS 60.591 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under ORS
60.587.
G-7
(2) The court may also assess the fees and expenses of counsel and experts of
the respective parties in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of ORS 60.561 to 60.587; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by this chapter.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to counsel reasonable fees to be paid out of the amount
awarded the dissenters who were benefited. [1987 c.52 sec.137]
G-8
COLUMBIA FUNDS TRUST XI
COLUMBIA LARGE CAP CORE FUND
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
___________, 2004
This Statement of Additional Information (the "SAI") relates to the
proposed Acquisition (the "Acquisition") of Columbia Common Stock Fund, Inc.
(the "Acquired Fund") by Columbia Large Cap Core Fund (the "Acquiring Fund"), a
series of Columbia Funds Trust XI. This SAI contains information which may be of
interest to shareholders but which is not included in the combined
Prospectus/Proxy Statement dated _________, 2004 (the "Prospectus/Proxy
Statement") which relates to the Acquisition. As described in the
Prospectus/Proxy Statement, the Acquisition would involve the transfer of all
the assets of the Acquired Fund in exchange for shares of the Acquiring Fund and
the assumption of all the liabilities of the Acquired Fund. The Acquired Fund
would distribute the Acquiring Fund shares it receives to its shareholders in
complete liquidation of the Acquired Fund. The Acquiring Fund will be the
survivor for accounting purposes. This SAI is not a prospectus and should be
read in conjunction with the Prospectus/Proxy Statement. The Prospectus/Proxy
Statement has been filed with the Securities and Exchange Commission and is
available upon request and without charge by writing to your Fund at One
Financial Center, Boston, Massachusetts 02111-2621, or by calling
1-800-426-3750.
-1-
TABLE OF CONTENTS
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND
AND THE ACQUIRED FUND ............................................. 3
FINANCIAL STATEMENTS ................................................. 3
APPENDIX A ........................................................... A-1
-2-
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND AND THE ACQUIRED FUND.
Attached hereto as Appendix A is the Statement of Additional Information of the
Acquiring Fund dated February 1, 2004 as supplemented through November 1, 2004.
Further information about the Acquired Fund is contained in the Statement of
Additional Information for the Acquired Fund dated January 1, 2004, as
supplemented through October 21, 2004, which is available upon request and
without charge by writing to the Acquired Fund at One Financial Center, Boston,
Massachusetts 02111-2621, or by calling 1-800-426-3750.
FINANCIAL STATEMENTS.
The Annual Report for the twelve months ended September 30, 2004, of the
Acquiring Fund, which contains historical financial information regarding the
Acquiring Fund, has been filed with the Securities and Exchange Commission and
is incorporated herein by reference.
The Annual Report for the twelve months ended August 31, 2004, of the Acquired
Fund, which contains historical financial information regarding the Acquired
Fund, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference.
Pro forma financial statements of the Acquiring Fund for the Acquisition are
provided on the following pages.
-3-
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 (UNAUDITED)
NOTE 1. ORGANIZATION
Columbia Large Cap Core Fund (the "Acquiring Fund"), a series of Columbia Trust
XI (the "Trust") is a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
INVESTMENT GOAL
The Fund seeks to provide a relatively high total return through long-term
capital appreciation and current income.
FUND SHARES
The Fund may issue an unlimited number of shares. The Fund offers six classes of
shares: Class A, Class B, Class C, Class G, Class T and Class Z shares. Each
share class has its own expense structure.
NOTE 2. BASIS OF COMBINATION
The accompanying pro-forma financial statements are presented to show the effect
of the proposed merger of Columbia Common Stock Fund ("Target Fund"), by the
Acquiring Fund as if such merger had occurred on October 1, 2004.
Under the terms of the merger, the combination of the Target Fund and Acquiring
Fund will be accounted for by the method of accounting for tax-free mergers of
investment companies. The merger will be accomplished by a combination of the
net assets of the Target Fund into the Acquiring Fund in exchange for new shares
of the Acquiring Fund at net asset value.
The Investment Portfolio and Statement of Assets and Liabilities of the Target
and Acquiring Funds have been combined to reflect balances as of September 30,
2004. The Statement of Operations of the Target and Acquiring Funds has been
combined to reflect twelve months ended September 30, 2004.
Following the merger the Acquiring Fund will be the accounting survivor. In
accordance with accounting principles generally accepted in the United States of
America, the historical cost of investment securities will be carried forward to
the Acquiring Fund and the results of operations for pre-combined periods will
not be re-stated.
The accompanying pro-forma financial statements should be read in conjunction
with the financial statements of the Acquiring Fund and the Target Fund included
within their respective annual shareholder reports dated September 30, 2004 and
August 31, 2004, respectively.
The following notes refer to the accompanying pro-forma financial statements as
if the above mentioned merger of the Target Fund by the Acquiring Fund had
occurred on October 1, 2004.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Funds in the preparation of their financial statements.
SECURITY VALUATION
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
REPURCHASE AGREEMENTS
The Funds may engage in repurchase agreement transactions with institutions that
each Fund's investment advisor has determined are creditworthy. Each Fund,
through its custodian, receives delivery of underlying securities
collateralizing a repurchase agreement. Collateral is at least equal, at all
times, to the value of the repurchase obligation including interest. A
repurchase agreement transaction involves certain risks in the event of default
or insolvency of the counterparty. These risks include possible delays or
restrictions upon each Fund's ability to dispose of the underlying securities
and a possible decline in the value of the underlying securities during the
period while the Fund seeks to assert its rights.
DETERMINATION OF CLASS NET ASSET VALUES
All income, expenses (other than class-specific expenses, as shown on the
Statement of Operations), and realized and unrealized gains (losses), are
allocated to each class of each Fund on a daily basis, based on the relative net
assets of each class, for purposes of determining the net asset value of each
class.
FEDERAL INCOME TAX STATUS
Each Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable income, if any, for its tax year, and as such
will not be subject to federal income taxes. In addition, each Fund intends to
distribute in each calendar year substantially all of its net investment income,
capital gains and certain other amounts, if any, such that the Fund should not
be subject to federal excise tax. Therefore, no federal income or excise tax
provision is recorded.
NOTE 4. CAPITAL SHARES
The pro-forma combining net asset value per share assumes the issuance of
Acquiring Fund shares to Target Fund shareholders in connection with the
proposed merger. The number of shares assumed to be issued is equal to the net
asset value of the Target Fund divided by the net asset value per share of the
Acquiring Fund as of September 30, 2004. The pro-forma number of shares
outstanding, by class, for the combined entity consists of the following at
September 30, 2004.
<Table>
<Caption>
Shares of Additional Shares Total Shares
Acquiring Fund Assumed Issued Outstanding
Class of Shares Pre-Combination with Merger Post Combination
- --------------- --------------- ----------------- ----------------
Class A 774,729 93,488 868,217
Class B 293,289 178,292 471,581
Class C 29,516 13,369 42,885
Class Z 14,532,215 24,672,782 39,204,997
</Table>
NOTE 5. LEGAL PROCEEDINGS
Columbia, the Distributor, and certain of their affiliates (collectively, "The
Columbia Group") have received information requests and subpoenas from various
regulatory and law enforcement authorities in connection with their
investigations of late trading and market timing in mutual funds as well as
other industry wide issues. The Columbia Group has not uncovered any instances
where Columbia or the Distributor were knowingly involved in late trading of
mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group and its affiliate Banc
of America Capital Management, LLC have agreed to collectively reduce mutual
fund fees by $160 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). More than 300 cases (including those filed against
entities unaffiliated with the funds, their Boards and/or FleetBoston and its
affiliated entities) have been consolidated in a multi-district proceeding and
transferred to the Federal District Court in Maryland. Recently, certain
Columbia funds and affiliated entities have been named as defendants in several
derivative actions under various sections of the Investment Company Act of 1940,
as amended, alleging, among other things, that the fees and expenses paid by
those funds are excessive. The funds and the other defendants to these actions,
including Columbia and various of its affiliates, certain other mutual funds
advised by Columbia and its affiliates, and various directors of such funds,
have denied these allegations and are contesting the plaintiffs' claims. These
suits and certain regulatory investigations are ongoing, however, based on
currently available information, Columbia believes that these lawsuits are
without merit, that the likelihood they will have a material adverse impact on
any fund is remote, and that the lawsuits are not likely to materially affect
its ability to provide investment management services to its clients, including
the funds.
For the twelve months ended September 30, 2004, Columbia has assumed legal,
consulting services and Trustees' fees incurred by the Funds in connection with
these matters.
Pro-forma Combining
Statement of Assets & Liabilities
As of September 30, 2004 (unaudited)
<Table>
<Caption>
Columbia Columbia
Common Stock Large Cap Core
Fund Fund
Pro Forma Pro Forma
Target Fund Acquiring Fund Adjustments Combined
------------- --------------- ------------ -------------
ASSETS:
Investments, at cost $ 277,750,289 $ 361,214,523 $ -- $ 638,964,812
------------- ------------- ------------ -------------
Investments, at value $ 299,949,274 $ 385,173,467 $ -- $ 685,122,741
Cash 540 534 1,074
Receivable for:
Investments sold 4,178,127 28,675,351 -- 32,853,478
Fund shares sold 228,692 329,944 -- 558,636
Interest 335 44 -- 379
Dividends 323,765 291,766 -- 615,531
Foreign tax reclaims -- 3,899 -- 3,899
Deferred Trustees' compensation plan 1,508 24,329 -- 25,837
------------- ------------- ------------ -------------
TOTAL ASSETS 304,682,241 414,499,334 -- 719,181,575
------------- ------------- ------------ -------------
LIABILITIES:
Payable for:
Investments purchased 1,098,706 29,374,346 30,473,052
Fund shares repurchased 2,506,764 687,760 -- 3,194,524
Investment advisory fee 154,121 239,536 -- 393,657
Administration fee -- 22,352 -- 22,352
Transfer agent fee 103,735 96,714 -- 200,449
Pricing and bookkeeping fees 12,936 4,696 -- 17,632
Trustees' fees 960 1,389 -- 2,349
Custody fee 4,759 3,682 -- 8,441
Distribution and Service fees 2,200 63,220 -- 65,420
Deferred Trustees' fees 1,508 24,329 -- 25,837
Other liabilities 64,423 54,192 63,913(f) 182,528
------------- ------------- ------------ -------------
TOTAL LIABILITIES 3,950,112 30,572,216 63,913 34,586,241
------------- ------------- ------------ -------------
NET ASSETS $ 300,732,129 $ 383,927,118 $ (63,913)(f) $ 684,595,334
============= ============= ============ =============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 343,327,407 $ 350,411,858 -- $ 693,739,265
Undistributed (overdistributed) net investment income 846,686 (16,638) $ (63,913)(f) 766,135
Accumulated net realized gain (loss) (65,640,949) 9,572,954 -- (56,067,995)
Unrealized appreciation on investments 22,198,985 23,958,944 -- 46,157,929
------------- ------------- ------------ -------------
NET ASSETS $ 300,732,129 $ 383,927,118 $ (63,913)(f) $ 684,595,334
============= ============= ============ =============
CLASS A:(a)
Net assets $ 1,123,719 $ 9,304,104 $ (973) $ 10,426,850
Shares outstanding 61,304 774,729 93,488(g) 868,217
============= ============ =============
Net asset value per share(c) $ 18.33 $ 12.01 $ 12.01
============= ============ =============
Maximum sales charge 5.75% 5.75% 5.75%
Maximum offering price per share(d) $ 19.45 $ 12.74 $ 12.74
CLASS B:(a)
Net assets $ 2,082,384 $ 3,424,661 $ (514) $ 5,506,531
Shares outstanding 115,022 293,289 178,292(g) 471,581
============= ============ =============
Net asset value and offering price per share(c) $ 18.10 $ 11.68 $ 11.68
============= ============ =============
CLASS C:(a)(b)
Net assets $ 26,089 $ 344,713 $ 130,040 $ 500,842
Shares outstanding 1,441 29,516 13,369(g) 42,885
============= ============ =============
Net asset value and offering price per share(c) $ 18.10 $ 11.68 $ 11.68
============= ============ =============
CLASS D:(b)
Net assets $ 130,087 -- $ (130,087) --
Shares outstanding 7,189 -- (7,189) --
============ ============= =============
Net asset value and offering price per share(c) $ 18.10 -- --
============ ============= =============
CLASS G:
Net assets $ -- $ 16,418,967 $ (1,533) $ 16,417,434
Shares outstanding -- 1,419,394 -- 1,419,394
============= ============ =============
Net asset value and offering price per share(c) -- $ 11.57 $ 11.57
============= ============ =============
CLASS T:
Net assets $ -- $ 179,310,453 $ (16,739) $ 179,293,714
Shares outstanding -- 15,001,630 -- 15,000,230
============= ============ =============
Net asset value per share(c) -- $ 11.95 $ 11.95
============= ============ =============
Maximum sales charge $ -- 5.75% 5.75%
Maximum offering price per share(d) -- $ 12.68 $ 12.68
CLASS Z: (a)
Net assets $ 297,369,850 $ 175,124,220 $ (44,107) $ 472,449,963
Shares outstanding 16,198,934 14,532,215 24,672,782(g) 39,204,997
============= ============ =============
Net asset value, offering and
redemption price per share(e) $ 18.36 $ 12.05 $ 12.05
============= ============ =============
</Table>
(a) Class A,B,C and Z shares of Columbia Common Stock Fund are exchanged for new
Class A,B,C and Z shares of Columbia Large Cap Core Fund, respectively, based on
the net asset value per share of Columbia Large Cap Core Fund's Class A,B,C and
Z shares, respectively, at the time of the merger.
(b) Class D shares of Columbia Common Stock Fund are exchanged for new Class C
shares of Columbia Large Cap Core Fund based on the net asset value per share of
Columbia Large Cap Core Fund's Class C shares at the time of the merger.
(c) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(d) On sales of $50,000 or more the offering price is reduced.
(e) Redemption price per share is equal to net asset value less any applicable
redemption fees.
(f) Adjustment reflects the one time proxy, accounting, legal and other costs of
the reorganization as approved by the Board of Trustees of $ 0 and $63,913 to be
borne by Columbia Common Stock Fund and Columbia Large Cap Core Fund,
respectively.
(g) Reflects estimated shares issued to Target Fund shareholders at the time of
the merger.
Pro-forma Combining
Statement of Operations
For the Twelve Months Ended September 30, 2004 (Unaudited)
<Table>
<Caption>
Columbia Columbia
Common Stock Large Cap Core
Fund Fund
Pro Forma Pro Forma
Target Fund Acquiring Fund Adjustments Combined
------------- --------------- ------------- -------------
INVESTMENT INCOME:
Dividends $ 4,910,847 $ 5,600,615 $ -- $ 10,511,462
Dividends from affiliates $ 133,332 $ -- $ -- $ 133,332
Interest 41,533 17,851 -- 59,384
Foreign taxes withheld (12,059) (48,130) -- (60,189)
------------- ------------- ------------- -------------
Total Investment Income 5,073,653 5,570,336 -- 10,643,989
------------- ------------- ------------- -------------
EXPENSES:
Investment advisory fee 2,306,451 3,150,172 624,047 6,080,670(a)
Administration fee -- 281,415 261,792 543,207(a)
Distribution fee:
Class B 12,928 24,301 -- 37,229(a)
Class C 258 2,875 1,060 4,193(a)(e)
Class D 1,060 -- (1,060) --(e)
Class G -- 155,589 -- 155,589(a)
Service fee:
Class A 1,724 23,439 -- 25,163(a)
Class B 4,297 8,090 -- 12,387(a)
Class C 85 958 352 1,395(a)(e)
Class D 352 -- (352) --(e)
Class G -- 71,810 -- 71,810(a)
Shareholder services fees-Class T -- 575,263 -- 575,263(a)
Transfer agent fee:
Class A 1,631 20,258 (3,711) 18,178(b)
Class B 4,289 6,577 (1,929) 8,937(b)
Class C 78 795 143 1,016(b)(e)
Class D 267 -- (267) --(e)
Class G -- 61,528 (18,261) 43,267(b)
Class T -- 423,519 (76,132) 347,387(b)
Class Z 865,143 353,912 (168,515) 1,050,540(b)
Pricing and bookkeeping fees 128,313 57,406 (89,022) 96,697(b)
Trustees' fees 12,899 15,110 (4,301) 23,708
Custody fee 37,230 27,542 575 65,347(f)
Non-recurring costs ( see Note 5) 17,852 -- -- 17,852
Other expenses 207,606 185,544 (158,430) 234,720(b)
------------- ------------- ------------- -------------
Total Operating Expenses 3,602,463 5,446,103 365,989 9,414,555
Interest expense 721 -- -- 721
Total Expenses 3,603,184 5,446,103 365,989 9,415,276
Fees and expenses waived or reimbursed by
Investment Advisor -- -- (1,108,315) (1,108,315)(c)
Fees waived by Transfer Agent:
Class A -- (317) 317 --(d)
Class B -- (115) 115 --(d)
Class C -- (13) 13 --(d)
Class G -- (717) 717 --(d)
Class T -- (6,203) 6,203 --(d)
Class Z -- (6,157) 6,157 --(d)
Custody earnings credit (166) -- -- (166)
Non-recurring costs assumed by Investment
Advisor (see Note 5) (17,852) -- -- (17,852)
------------- ------------- ------------- -------------
Net Expenses 3,585,166 5,432,581 (728,804) 8,288,943
------------- ------------- ------------- -------------
Net Investment Income 1,488,487 137,755 728,804 2,355,046
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments 74,186,401 31,566,846 -- 105,753,247
Net realized gain on affiliated investments 3,770,605 -- -- 3,770,605
Net change in unrealized appreciation/depreciation
on investments (40,719,723) (1,396,341) -- (42,116,064)
------------- ------------- ------------- -------------
Net Gain 37,237,283 30,170,505 -- 67,407,788
------------- ------------- ------------- -------------
Net Increase in Net Assets from Operations $ 38,725,770 $ 30,308,260 $ 728,804 $ 69,762,834
------------- ------------- ------------- -------------
</Table>
(a) Based on the contract in effect for Columbia Large Cap Core Fund, the
surviving fund.
(b) Reflects elimination of duplicate expenses achieved as a result of merging
funds.
(c) Expense limit set at lowest pre-merger expense ratio, expected to be
contractual at date of merger.
(d) Voluntary fee waiver, not anticipated post merger.
(e) Class D shares of Columbia Common Stock Fund are exchanged for new Class C
shares of Columbia Large Cap Core Fund.
(f) Adjustment to realign Columbia Common Stock Fund's fees to Columbia Large
Cap Core Fund's current fee structure.
Pro-forma Combining
Investment Portfolio
September 30, 2004 (unaudited)
<Table>
<Caption>
COLUMBIA COMMON COLUMBIA LARGE CAP
STOCK FUND CORE FUND
% OF NET
ASSETS TARGET FUND ACQUIRING FUND PRO FORMA COMBINED
------- ---------------------- ----------------------- -----------------------
COMMON STOCKS 96.6% SHARES VALUE SHARES VALUE SHARES VALUE
-------- ------------ -------- ------------ -------- ------------
CONSUMER DISCRETIONARY 12.6%
AUTO COMPONENTS 0.3%
Magna International, Inc., Class A -- $ -- 25,800 $ 1,911,264 25,800 $ 1,911,264
------------ ------------
HOTELS, RESTAURANTS & LEISURE 1.2%
Darden Restaurants 190,300 4,437,796 -- -- 190,300 4,437,796
Yum! Brands, Inc. -- -- 98,400 4,000,944 98,400 4,000,944
------------- --------- ------------ --------- ------------
4,437,796 4,000,944 288,700 8,438,740
------------ ------------ --------- ------------
HOUSEHOLD DURABLES 0.9%
Garmin Ltd. 95,400 4,126,050 -- -- 95,400 4,126,050
Lennar Corp., Class A -- -- 41,300 1,965,880 41,300 1,965,880
------------ ------------ ------------
4,126,050 1,965,880 6,091,930
------------ ------------ ------------
LEISURE EQUIPMENT & PRODUCTS 0.3%
Hasbro 100,400 1,887,520 -- -- 100,400 1,887,520
------------ ------------
MEDIA 5.4%
Comcast Corp., Class A(a) 194,442 5,491,042 -- -- 194,442 5,491,042
DirecTV Group, Inc.(a) 382,800 6,733,452 -- -- 382,800 6,733,452
Fox Entertainment Group, Inc., Class A(a) -- -- 69,500 1,927,930 69,500 1,927,930
Liberty Media Corp., Class A(a) 567,200 4,945,984 217,800 1,899,216 785,000 6,845,200
Liberty Media International, Inc.(a) 31,433 1,048,668 -- -- 31,433 1,048,668
McGraw-Hill Companies, Inc. -- -- 41,000 3,267,290 41,000 3,267,290
Time Warner, Inc.(a) 370,400 5,978,256 -- -- 370,400 5,978,256
Viacom, Inc., Class B -- -- 169,900 5,701,844 169,900 5,701,844
------------ ------------ ------------
24,197,402 12,796,280 36,993,682
------------ ------------ ------------
MULTILINE RETAIL 1.8%
J.C. Penney Co., Inc. -- 78,200 2,758,896 78,200 2,758,896
Kohl's Corp.(a) 99,500 4,794,905 -- -- 99,500 4,794,905
Sears Roebuck & Co. 125,500 5,001,175 -- -- 125,500 5,001,175
------------ ------------ ------------
9,796,080 2,758,896 12,554,976
------------ ------------ ------------
SPECIALTY RETAIL 2.3%
Abercrombie & Fitch Co., Class A -- -- 99,400 3,131,100 99,400 3,131,100
Best Buy Co., Inc. -- -- 85,600 4,642,944 85,600 4,642,944
Radio Shack Corp. 151,000 4,324,640 -- -- 151,000 4,324,640
Staples, Inc. -- -- 131,900 3,933,258 131,900 3,933,258
------------ ------------ ------------
4,324,640 11,707,302 16,031,942
------------ ------------ ------------
TEXTILES & APPAREL 0.4%
Liz Claiborne, Inc. 63,800 2,406,536 -- -- 63,800 2,406,536
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 8.0%
BEVERAGES 2.7%
Coca Cola Femsa SA CV 115,100 2,242,148 -- 115,100 2,242,148
Diageo PLC, ADR -- -- 114,500 5,774,235 114,500 5,774,235
PepsiCo, Inc. -- -- 210,000 10,216,500 210,000 10,216,500
------------ ------------ ------------
2,242,148 15,990,735 18,232,883
------------ ------------ ------------
FOOD & STAPLES RETAILING 2.1%
Costco Wholesale Corp. -- -- 116,700 4,850,052 116,700 4,850,052
Safeway, Inc.(a) 245,700 4,744,467 -- -- 245,700 4,744,467
Wal-Mart Stores, Inc. 94,800 5,043,360 -- -- 94,800 5,043,360
------------ ------------ ------------
9,787,827 4,850,052 14,637,879
------------ ------------ ------------
FOOD PRODUCTS 0.6%
Sara Lee Corp. 182,700 4,176,522 -- -- 182,700 4,176,522
------------ ------------
HOUSEHOLD PRODUCTS 1.7%
Procter & Gamble Co. -- -- 213,600 11,560,032 213,600 11,560,032
------------ ------------
TOBACCO 0.9%
Altria Group, Inc. 83,365 3,921,490 42,900 2,018,016 126,265 5,939,506
------------ ------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY 6.6%
ENERGY EQUIPMENT & SERVICES 0.3%
Transocean, Inc.(a) 60,600 2,168,268 -- -- 60,600 2,168,268
------------ ------------
OIL & GAS 6.3%
Anadarko Petroleum Corp. 39,800 2,641,128 -- -- 39,800 2,641,128
Apache Corp. -- -- 41,900 2,099,609 41,900 2,099,609
</Table>
<Table>
<Caption>
COLUMBIA COMMON COLUMBIA LARGE CAP
STOCK FUND CORE FUND
% OF NET
ASSETS TARGET FUND ACQUIRING FUND PRO FORMA COMBINED
--------- ---------------------- ----------------------- -----------------------
COMMON STOCKS (continued) SHARES VALUE SHARES VALUE SHARES VALUE
-------- ------------ -------- ------------ -------- ------------
BP PLC 300,000 $ 1,725,900 -- 300,000 $ 1,725,900
ConocoPhillips -- -- 119,000 $ 9,859,150 119,000 9,859,150
Devon Energy Corp. 45,600 3,238,056 -- -- 45,600 3,238,056
EL Paso Corp. 326,000 2,995,940 -- -- 326,000 2,995,940
EOG Resources, Inc. -- -- 63,200 4,161,720 63,200 4,161,720
Exxon Mobil Corp. -- -- 230,300 11,130,399 230,300 11,130,399
Kerr McGee Corp. 90,500 5,181,125 -- -- 90,500 5,181,125
------------ ------------ ------------
15,782,149 27,250,878 43,033,027
------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIALS 19.2%
CAPITAL MARKETS 3.1%
A.G. Edwards, Inc. 49,600 1,717,152 49,600 1,717,152
Bank of New York Co., Inc. -- -- 101,900 2,972,423 101,900 2,972,423
E*TRADE Financial Corp.(a) 146,400 1,671,888 255,200 2,914,384 401,600 4,586,272
Goldman Sachs Group, Inc. -- -- 41,100 3,832,164 41,100 3,832,164
Merrill Lynch & Co., Inc. -- -- 76,200 3,788,664 76,200 3,788,664
Morgan Stanley 96,000 4,732,800 -- -- 96,000 4,732,800
------------ ------------ ------------
8,121,840 13,507,635 21,629,475
------------ ------------ ------------
COMMERCIAL BANKS 4.9%
Fifth Third Bancorp 63,900 3,145,158 -- -- 63,900 3,145,158
M&T Bank Corp. -- -- 19,700 1,885,290 19,700 1,885,290
National City Corp. -- -- 76,400 2,950,568 76,400 2,950,568
SouthTrust Corp. -- -- 68,760 2,864,542 68,760 2,864,542
SunTrust Banks, Inc. -- -- 28,400 1,999,644 28,400 1,999,644
U.S. Bancorp -- -- 162,500 4,696,250 162,500 4,696,250
Wachovia Corp. -- -- 157,100 7,375,845 157,100 7,375,845
Wells Fargo & Co. -- -- 116,300 6,934,969 116,300 6,934,969
Zions Bancorp -- -- 31,700 1,934,968 31,700 1,934,968
------------ ------------ ------------
3,145,158 30,642,076 33,787,234
------------ ------------ ------------
CONSUMER FINANCE 0.5%
American Express Co. 62,550 3,218,823 -- -- 62,550 3,218,823
------------ ------------
DIVERSIFIED FINANCIAL SERVICES 3.1%
Citigroup, Inc. 111,989 4,940,955 169,600 7,482,752 281,589 12,423,707
JPMorgan Chase & Co. 132,112 5,248,810 97,200 3,861,756 229,312 9,110,566
------------ ------------ ------------
10,189,765 11,344,508 21,534,273
------------ ------------ ------------
INSURANCE 4.8%
Ace Ltd. 115,900 4,642,954 115,900 4,642,954
Aflac, Inc. -- -- 101,900 3,995,499 101,900 3,995,499
Allstate Corp. 39,400 1,890,806 -- -- 39,400 1,890,806
American International Group, Inc. -- -- 26,700 1,815,333 26,700 1,815,333
Chubb Corp. 37,300 2,621,444 -- -- 37,300 2,621,444
Hartford Financial Services Group, Inc. -- -- 64,400 3,988,292 64,400 3,988,292
Marsh & McLennan Companies, Inc. 55,600 2,544,256 -- -- 55,600 2,544,256
Metlife, Inc. -- -- 51,100 1,975,015 51,100 1,975,015
UmumProvident Corp. 338,500 5,311,065 -- -- 338,500 5,311,065
XL Capital Ltd., Class A -- -- 53,900 3,988,061 53,900 3,988,061
------------ ------------ ------------
17,010,525 15,762,200 32,772,725
------------ ------------ ------------
</Table>
<Table>
<Caption>
COLUMBIA COMMON COLUMBIA LARGE CAP
STOCK FUND CORE FUND
% OF NET
ASSETS TARGET FUND ACQUIRING FUND PRO FORMA COMBINED
---------------------- ----------------------- -----------------------
COMMON STOCKS (continued) SHARES VALUE SHARES VALUE SHARES VALUE
-------- ------------ -------- ------------ -------- ------------
THRIFTS & MORTGAGE FINANCE 2.8%
Fannie Mae 88,465 $5,608,681 81,400 $5,160,760 169,865 $ 10,769,441
MGIC Investment Corp. 123,000 8,185,650 -- 123,000 8,185,650
------------ ------------ ------------
13,794,331 5,160,760 18,955,091
------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE 14.4%
BIOTECHNOLOGY 1.7%
Amgen(a) 94,882 5,377,912 -- -- 94,882 5,377,912
Genetech, Inc.(a) -- -- 39,800 2,086,316 39,800 2,086,316
Invitrogen Corp.(a) -- -- 23,100 1,270,269 23,100 1,270,269
Medimmune,Inc.(a) 127,200 3,014,640 -- -- 127,200 3,014,640
------------ ------------ ------------
8,392,552 3,356,585 11,749,137
------------ ------------ ------------
HEALTH CARE EQUIPMENT & SUPPLIES 1.4%
Alcon, Inc. -- -- 25,000 2,005,000 25,000 2,005,000
Boston Scientific Corp.(a) -- -- 57,700 2,292,421 57,700 2,292,421
Medtronic, Inc. -- -- 57,800 2,999,820 57,800 2,999,820
Varian Medical Systems, Inc.(a) -- -- 59,600 2,060,372 59,600 2,060,372
------------ ------------
9,357,613 9,357,613
------------ ------------
HEALTH CARE PROVIDERS & SERVICES 3.1%
Anthem, Inc. -- -- 47,400 4,135,650 47,400 4,135,650
Cardinal Health, Inc. 121,400 5,313,678 -- -- 121,400 5,313,678
Caremark Rx, Inc.(a) -- -- 100,500 3,223,035 100,500 3,223,035
McKesson Corp. 134,880 3,459,672 -- -- 134,880 3,459,672
WebMD Corp. 748,200 5,207,472 -- -- 748,200 5,207,472
------------ ------------ ------------
13,980,822 7,358,685 21,339,507
------------ ------------ ------------
PHARMACEUTICALS 8.2%
Abbott Laboratories -- -- 98,800 4,185,168 98,800 4,185,168
Allergen, Inc. -- -- 49,600 3,598,480 49,600 3,598,480
Barr Pharmaceuticals, Inc. 141,100 5,845,773 -- -- 141,100 5,845,773
Biovail Corp.(a) 258,660 4,474,818 -- -- 258,660 4,474,818
Endo Pharmaceuticals Holdings(a) 148,200 2,720,952 -- -- 148,200 2,720,952
GlaxoSmithKline PLC, ADR -- -- 68,160 2,980,637 68,160 2,980,637
Johnson & Johnson 54,225 3,054,494 59,500 3,351,635 113,725 6,406,129
Merck & Co., Inc. -- -- 85,800 2,831,400 85,800 2,831,400
Pfizer, Inc. 188,504 5,768,222 456,700 13,975,020 645,204 19,743,242
Teva Pharmaceutical Industries Ltd., ADR -- -- 117,000 3,036,150 117,000 3,036,150
------------ ------------ ------------
21,864,259 33,958,490 55,822,749
------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS 8.6%
AIRLINES 0.6%
Southwest Airlines Co. 306,700 4,177,254 -- -- 306,700 4,177,254
------------ ------------
AEROSPACE & DEFENSE 1.5%
Northorp Grumman Corp. -- -- 56,600 3,018,478 56,600 3,018,478
United Technologies Corp. -- -- 77,000 7,190,260 77,000 7,190,260
------------ ------------
10,208,738 10,208,738
------------ ------------
AIR FREIGHT & LOGISTICS 0.9%
United Parcel Service, Inc., Class B -- -- 79,200 6,012,864 79,200 6,012,864
------------ ------------
BUILDING PRODUCTS 0.6%
Masco Corp. -- -- 115,900 4,002,027 115,900 4,002,027
------------ ------------
COMMERCIAL SERVICES & SUPPLIES 1.7%
Cendant Corp. -- -- 142,500 3,078,000 142,500 3,078,000
Manpower, Inc. -- -- 45,300 2,015,397 45,300 2,015,397
Republic Services, Inc. -- -- 75,600 2,249,856 75,600 2,249,856
ServiceMaster Co. 132,100 1,698,806 -- -- 132,100 1,698,806
Waste Management, Inc. 110,075 3,009,450 -- -- 110,075 3,009,450
------------ ------------ ------------
4,708,256 7,343,253 12,051,509
------------ ------------ ------------
CONSTRUCTION & ENGINEERING 0.2%
Jacobs Engineering Group, Inc. 29,000 1,110,410 -- -- 29,000 1,110,410
------------ ------------
INDUSTRIAL CONGLOMERATES 1.0%
General Electric Co. -- -- 211,404 7,098,946 211,404 7,098,946
------------ ------------
MACHINERY 1.7%
Eaton Corp. -- -- 36,000 2,282,760 36,000 2,282,760
Fowserve Corp.(a) -- -- 88,000 2,127,840 88,000 2,127,840
Ingersoll-Rand Co., Class A -- -- 45,800 3,113,026 45,800 3,113,026
PACCAR, Inc. -- -- 61,300 4,237,056 61,300 4,237,056
------------ ------------
11,760,682 11,760,682
------------ ------------
ROAD & RAIL 0.4%
Union Pacific Corp. 43,450 2,546,170 -- -- 43,450 2,546,170
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY 16.2%
COMMUNICATIONS EQUIPMENT 1.2%
Avaya, Inc. -- -- 139,900 1,950,206 139,900 1,950,206
Cisco Systems, Inc.(a) -- -- 177,300 3,209,130 177,300 3,209,130
Nortel Networks Corp.(a) 981,900 3,338,460 -- -- 981,900 3,338,460
</Table>
<Table>
<Caption>
COLUMBIA COMMON COLUMBIA LARGE CAP
STOCK FUND CORE FUND
% OF NET
ASSETS TARGET FUND ACQUIRING FUND PRO FORMA COMBINED
---------------------- ----------------------- -----------------------
COMMON STOCKS (continued) SHARES VALUE SHARES VALUE SHARES VALUE
-------- ------------ -------- ------------ -------- ------------
------------ ------------ ------------
$3,338,460 $5,159,336 $8,497,796
------------ ------------ ------------
COMPUTERS & PERIPHERALS 3.6%
Hewlett Packard Co. 247,200 4,635,000 -- -- 247,200 4,635,000
International Business Machines 65,725 5,635,261 -- -- 65,725 5,635,261
Lexmark International, Inc., Class A(a) -- -- 99,781 8,382,602 99,781 8,382,602
Sandisk Corp.(a) 204,750 5,962,320 -- -- 204,750 5,962,320
------------ ------------ ------------
16,232,581 8,382,602 24,615,183
------------ ------------ ------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 0.4%
Tektronix, Inc. -- -- 82,900 2,756,425 82,900 2,756,425
------------ ------------
IT SERVICES 0.9%
Accenture Ltd., Class A(a) -- -- 219,600 5,940,180 219,600 5,940,180
------------ ------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 4.5%
Altera Corp.(a) -- -- 104,800 2,050,936 104,800 2,050,936
Analog Devices, Inc. 105,600 4,095,168 78,900 3,059,742 184,500 7,154,910
ASML Holding NV, Registered Shares(a) -- -- 211,500 2,722,005 211,500 2,722,005
Broadcom Corp. 56,300 1,536,427 -- -- 56,300 1,536,427
Intel Corp. 147,000 2,948,820 -- -- 147,000 2,948,820
Linear Technology Corp. 131,000 4,747,440 -- -- 131,000 4,747,440
Marvell Technology Group Ltd.(a) -- -- 94,800 2,477,124 94,800 2,477,124
Maxim Integrated Products, Inc. 36,000 1,522,440 58,800 2,486,652 94,800 4,009,092
Taiwan Semiconductor Manufacturing
Co., Ltd., ADR -- -- 485,300 3,465,042 485,300 3,465,042
------------ ------------ ------------
14,850,295 16,261,501 31,111,796
------------ ------------ ------------
SOFTWARE 5.6%
Fair Issac Corp. 48,100 1,404,520 48,100 1,404,520
Microsoft Corp. 422,200 11,673,830 544,700 15,060,955 966,900 26,734,785
Oracle Corp.(a) 302,820 3,415,810 -- -- 302,820 3,415,810
Symantec Corp.(a) -- -- 76,700 4,209,296 76,700 4,209,296
Synopsys, Inc.(a) 163,800 2,592,954 -- -- 163,800 2,592,954
------------ ------------ ------------
19,087,114 19,270,251 38,357,365
------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
MATERIALS 4.8%
CHEMICALS 0.6%
E.I. du Pont de Nemours & Co. 95,500 4,087,400 -- -- 95,500 4,087,400
------------ ------------
CONTAINERS & PACKAGING 1.8%
Sealed Air Corp.(a) 88,800 4,115,880 -- -- 88,800 4,115,880
Smurfit-Stone Container Corp.(a) 287,400 5,566,938 124,400 2,409,628 411,800 7,976,566
------------ ------------ ------------
9,682,818 2,409,628 12,092,446
------------ ------------ ------------
METALS & MINING 2.1%
Arch Coal, Inc. -- -- 77,600 2,754,024 77,600 2,754,024
Companhia Vale do Rio Doce, ADR -- -- 138,900 2,673,825 138,900 2,673,825
International Steel Group, Inc.(a) 113,200 3,814,840 113,200 -- -- 3,814,840
Peabody Energy Corp. -- -- 45,700 2,719,150 45,700 2,719,150
Phelps Dodge Corp. -- -- 23,400 2,153,502 23,400 2,153,502
------------ ------------ ------------
3,814,840 10,300,501 14,115,341
------------ ------------ ------------
PAPER & FOREST PRODUCTS 0.3%
MeadWestvaco Corp. -- -- 75,500 2,408,450 75,500 2,408,450
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES 4.6%
DIVERSIFIED TELECOMMUNICATION SERVICES 4.2%
ALLTEL Corp. -- -- 71,100 3,904,101 71,100 3,904,101
BellSouth Corp. -- -- 108,300 2,937,096 108,300 2,937,096
Brasil Telecommunication Participacoes 119,400 3,868,560 -- -- 119,400 3,868,560
CenturyTel, Inc. 57,900 1,982,496 -- -- 57,900 1,982,496
Citizens Communications, Inc. -- -- 153,100 2,050,009 153,100 2,050,009
Qwest Communications International, Inc.(a) 421,000 1,401,930 -- -- 421,000 1,401,930
SBC Communications, Inc. -- -- 74,900 1,943,655 74,900 1,943,655
Telefonos de Mexico SA 186,200 6,008,674 -- -- 186,200 6,008,674
Verizon Communications, Inc. 59,500 2,343,110 53,100 2,091,078 112,600 4,434,188
------------ ------------ ------------
15,604,770 12,925,939 28,530,709
------------ ------------ ------------
WIRELESS TELECOMMUNICATIONS SERVICES 0.4%
Nextel Communications, Inc., Class A(a) 114,300 2,724,912 -- -- 114,300 2,724,912
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
UTILITIES 1.6%
ELECTRIC UTILITIES 1.0%
American Electric Power Co., Inc. -- -- 66,500 2,125,340 66,500 2,125,340
Entergy Corp. -- -- 78,400 4,751,824 78,400 4,751,824
------------ ------------
6,877,164 6,877,164
------------ ------------
MULTI-UTILITIES & UNREGULATED POWER 0.6%
Sempra Energy -- -- 110,700 4,006,233 110,700 4,006,233
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 290,937,783 370,383,551 661,321,334
------------ ------------ ------------
</Table>
<Table>
<Caption>
COLUMBIA COMMON COLUMBIA LARGE CAP
STOCK FUND CORE FUND
% OF NET
ASSETS TARGET FUND ACQUIRING FUND PRO FORMA COMBINED
------- ---------------------- ----------------------- -----------------------
SHARES VALUE SHARES VALUE SHARES VALUE
-------- ------------ -------- ------------ -------- ------------
PREFERRED STOCK 0.8%
CONSUMER DISCRETIONARY 0.8%
MEDIA
News Corp., Ltd., ADR 42,850 $1,342,491 126,100 $3,950,713 168,950 $5,293,204
------------ ------------ ------------
INVESTMENT MANAGEMENT COMPANIES 1.4%
Nasdaq-100 Index Tracking Stock -- -- 77,500 2,724,125 77,500 2,724,125
Consumer Staples Select SPDR Fund -- -- 310,900 6,734,094 310,900 6,734,094
SPDR Trust Series 1 -- -- 3,400 379,984 3,400 379,984
------------ ------------
9,838,203 9,838,203
------------ ------------
SHORT-TERM OBLIGATIONS 1.3% PAR PAR PAR
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with State Street
Bank & Trust Co., dated 09/30/04, due
10/01/04 at 1.580%, collateralized by a
U.S. Treasury Bond, maturing 05/15/14,
market value $1,022,400
(repurchase proceeds $1,001,044) -- -- $1,001,000 1,001,000 $1,001,000 1,001,000
Repurchase agreement with State Street
Bank & Trust Co., dated 09/30/04, due
10/01/04 at 1.570%, collateralized by a
U.S. Treasury Note, maturing 01/31/05,
market value $7,824,513)
(repurchase proceeds $7,669,334) $7,669,000 7,669,000 -- -- 7,669,000 7,669,000
------------ ------------ ------------
TOTAL SHORT-TERM OBLIGATIONS AT MARKET
AND COST 7,669,000 1,001,000 8,670,000
------------ ------------ ------------
TOTAL INVESTMENTS 100.1% 299,949,274 385,173,467 685,122,741
OTHER ASSETS & LIABILITIES, NET -0.1% 782,855 (1,310,262) (527,407)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.0% $300,732,129 $383,863,205 $684,595,334
============ ============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AT COST $277,750,289(b) $361,214,523(c) $638,964,812
============ ============ ============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for both financial statement and federal income tax purposes is the
same.
(c) Cost for federal income tax purposes is $362,485,330.
<Table>
<Caption>
ACRONYM NAME
------- ----
ADR American Depositary Receipt
</Table>
APPENDIX A
Columbia Funds Trust I
Columbia High Yield Opportunity Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Tax-Managed Growth Fund II
Columbia Tax-Managed Value Fund
Columbia Tax-Managed Aggressive Growth Fund
Columbia Funds Trust II
Columbia Newport Greater China Fund
Columbia Money Market Fund
Columbia Funds Trust III
Columbia Mid Cap Value Fund
Columbia Liberty Fund
Columbia Global Equity Fund
Columbia Contrarian Income Fund
Columbia Intermediate Government Income Fund
Columbia Quality Plus Bond Fund
Columbia Corporate Bond Fund
Columbia Federal Securities Fund
Columbia Funds Trust IV
Columbia Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Municipal Money Market Fund
Columbia Funds Trust V
Columbia California Tax-Exempt Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Large Company Index Fund
Columbia U.S. Treasury Index Fund
Columbia Intermediate Tax-Exempt Bond Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia Florida Intermediate Municipal Bond Fund
Columbia Pennsylvania Intermediate Municipal Bond Fund
Columbia Funds Trust VI
Columbia Growth & Income Fund
Columbia Small Cap Value Fund
Columbia Newport Asia Pacific Fund
Columbia Funds Trust VII
Columbia Newport Tiger Fund
Columbia Europe Fund
Columbia Funds Trust VIII
Columbia Income Fund
Columbia Intermediate Bond Fund
A-1
Columbia Funds Trust IX
Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
Columbia Funds Trust XI
Columbia Young Investor Fund
Columbia Growth Stock Fund
Columbia Global Thematic Equity Fund
Columbia European Thematic Equity Fund
Columbia Asset Allocation Fund
Columbia Dividend Income Fund
Columbia Large Cap Core Fund
Columbia International Equity Fund
Columbia Large Cap Growth Fund
Columbia Disciplined Value Fund
Columbia Small Cap Fund
Columbia Small Company Equity Fund
The Funds listed above are referred to collectively as the "Funds" and the
Trusts listed above are referred to collectively as the "Trusts."
Supplement to the Statements of Additional Information
Under the heading "HOW TO BUY SHARES", the seventh paragraph is deleted and
replaced with the following:
In addition to the commissions specified in a Fund's prospectus and this SAI,
CFD, or its advisory affiliates, from their own resources, may make cash
payments to FSFs that agree to promote the sale of shares of funds that CFD
distributes. A number of factors may be considered in determining the amount of
those payments, including the FSF's sales, client assets invested in the funds
and redemption rates, the quality of the FSF's relationship with CFD and/or its
affiliates, and the nature of the services provided by FSFs to its clients. The
payments may be made in recognition of such factors as marketing support, access
to sales meetings and the FSF's representatives, and inclusion of the Fund on
focus, select or other similar lists.
Subject to applicable rules, CFD may also pay non-cash compensation to FSFs and
their representatives, including: (i) occasional gifts (ii) occasional meals, or
other entertainment; and/or (iii) support for FSF educational or training
events.
In addition, CFD, and/or the Fund's investment advisor, transfer agent or their
affiliates, may pay service, administrative or other similar fees to
broker/dealers, banks, third-party administrators or other financial
institutions (each commonly referred to as an "intermediary"). Those fees are
generally for subaccounting, sub-transfer agency and other shareholder services
associated with shareholders whose shares are held of record in omnibus or other
group accounts. The rate of those fees may vary and is generally calculated on
the average daily net assets of a Fund attributable to a particular
intermediary.
In some circumstances, the payments discussed above may create an incentive for
an intermediary or its employees or associated persons to recommend or sell
shares of a Fund.
As of the date of this Supplement, CFD and its affiliates anticipate that the
FSFs and intermediaries that will receive the additional compensation described
above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
A-2
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
A-3
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
A-4
Webster Investment Services
Wells Fargo
Wilmington Trust
Please contact your FSF or intermediary for details about payments it may
receive.
G-35/554T-1004 November 1, 2004
A-5
COLUMBIA FUNDS TRUST I
Columbia High Yield Opportunity Fund
Columbia Strategic Income Fund
COLUMBIA FUNDS TRUST II
Columbia Money Market Fund
COLUMBIA FUNDS TRUST III
Columbia Global Equity Fund
Columbia Contrarian Income Fund
Columbia Intermediate Government Income Fund
Columbia Quality Plus Bond Fund
Columbia Corporate Bond Fund
COLUMBIA FUNDS TRUST IV
Columbia Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Municipal Money Market Fund
COLUMBIA FUNDS TRUST V
Columbia Large Company Index Fund
Columbia U.S. Treasury Index Fund
Columbia Small Company Index Fund
COLUMBIA FUNDS TRUST VIII
Columbia Income Fund
Columbia Intermediate Bond Fund
The funds listed above are all referred to collectively as the "Funds" and the
Trusts listed above are all referred to collectively as the "Trusts."
SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION
The disclosure following the caption "Trustees and Officers" located in the
section "Management of the Funds" in Part 2 of the Statement of Information is
restated in its entirety:
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names,
addresses and ages of the Trustees and officers of the Fund Complex, the year
each was first elected or appointed to office,
A-6
their principal business occupations during at least the last five years, the
number of portfolios overseen by each Trustee and other directorships they hold
are shown below.
DISINTERESTED TRUSTEES
<Table>
<Caption>
Number of
Portfolios
Year First in
Elected or Fund
Appointed Complex Other
Position to Office Principal Occupation(s) Overseen Directorships
Name, Address and Age with Funds (1) During Past Five Years By Trustee Held by Trustee
- -------------------------- ------------ ------------ ----------------------------- ------------ ------------------
Douglas A. Hacker Trustee 1996 Executive Vice President - 118 Orbitz, Inc.
(Age 48) Strategy of United Airlines (on-line travel
P.O. Box 66100 Chicago, (airline) from December, company)
IL 60666 2002 (formerly President
of UAL Loyalty Services
(airline) from September,
2001 to December, 2002;
Executive Vice President
and Chief Financial Officer
of United Airlines from
March, 1999 to September,
2001; Senior Vice
President-Finance from
March, 1993 to July, 1999).
Janet Langford Kelly Trustee 1996 Private Investor since 118 None
(Age 46) March, 2004 (formerly Chief
9534 W. Gull Lake Drive Administrative Officer and
Richland, MI 49083-8530 Senior Vice President,
Kmart Holding Corporation
(consumer goods), from
September, 2003 to March,
2004; Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003; Senior Vice
President, Secretary and
General Counsel, Sara Lee
Corporation (branded,
packaged, consumer-products
manufacturer) from January,
1995 to September, 1999).
Richard W. Lowry Trustee 1995 Private Investor since 120(3) None
(Age 68) August, 1987 (formerly
10701 Charleston Drive Chairman and Chief
Vero Beach, FL 32963 Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer)).
Charles R. Nelson Trustee 1981 Professor of Economics, 118 None
(Age 62) University of Washington,
Department of Economics since January, 1976; Ford
University of Washington and Louisa Van Voorhis
Seattle, WA 98195 Professor of Political
Economy, University of
Washington,
</Table>
A-7
<Table>
since September, 1993
(formerly Director,
Institute for Economic
Research, University of
Washington from September,
2001 to June, 2003) Adjunct
Professor of Statistics,
University of Washington,
since September, 1980;
Associate Editor, Journal
of Money Credit and
Banking, since September,
1993; consultant on
econometric and statistical
matters.
John J. Neuhauser Trustee 1985 Academic Vice President and 121(3),(4) Saucony, Inc.
(Age 61) Dean of Faculties since (athletic
84 College Road August, 1999, Boston footwear)
Chestnut Hill, MA 02467-3838 College (formerly Dean, Boston
College School of
Management from September,
1977 to September, 1999).
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 118 None
(Age 60) L.L.P. (law firm).
1120 N.W. Couch Street
Tenth Floor
Portland, OR 97209-4128
Thomas E. Stitzel Trustee 1998 Business Consultant since 118 None
(Age 68) 1999 (formerly Professor of
2208 Tawny Woods Place Finance from 1975 to 1999,
Boise, ID 83706 College of Business, Boise
State University);
Chartered Financial Analyst.
Thomas C. Theobald Trustee 1996 Partner and Senior Advisor, 118 Anixter
(Age 67) (5) and Chicago Growth Partners International
303 W. Madison Suite Chairman (private equity investing) (network support
2500 Chicago, IL 60606 of the since September, 2004 equipment
Board (formerly Managing distributor);
Director, William Blair Ventas, Inc.
Capital Partners (private (real estate
equity investing) from investment
September, 1994 to trust);
September, 2004). Jones Lang
LaSalle
(real estate
management
services)
and MONY Group
(life
insurance)
</Table>
A-8
<Table>
Anne-Lee Verville Trustee 1998 Retired since 1997 119(4) Chairman of the
(Age 59) (formerly General Manager, Board of
359 Stickney Hill Road Global Education Industry, Directors, Enesco
Hopkinton, NH 03229 IBM Corporation (computer Group,
and technology) from 1994 Inc.(designer,
to 1997). importer and
distributor of
giftware and
collectibles)
Richard L. Woolworth Trustee 1991 Retired since December 2003 118 Northwest
(Age 63) (formerly Chairman and Natural Gas Co.
100 S.W. Market Street Chief Executive Officer, (natural gas
#1500 The Regence Group (regional service provider)
Portland, OR 97207 health insurer); Chairman
and Chief Executive
Officer, BlueCross
BlueShield of Oregon;
Certified Public
Accountant, Arthur
Young & Company)
</Table>
INTERESTED TRUSTEE
<Table>
<Caption>
Year
First Number of
Elected Portfolios
or in
Appointed Fund
to Complex Other
Position Office Principal Occupation(s) Overseen Directorships
Name, Address and Age with Funds (1) During Past Five Years By Director Held by Director
- --------------------------- ------------ ---------- ------------------------------ ------------ ------------------
William E. Mayer(2) Trustee 1994 Managing Partner, Park 120(3) Lee Enterprises
(Age 64) Avenue Equity Partners (print media),
399 Park Avenue (private equity) since WR Hambrecht +
Suite 3204 February, 1999 (formerly Co. (financial
New York, NY 10022 Founding Partner, service
Development Capital LLC from provider); First
November 1996 to February, Health
1999). (healthcare);
Reader's Digest
(publishing);
OPENFIELD
Solutions
(retail industry
technology
provider)
</Table>
(1) In October 2003, the trustees of the Liberty Funds and Stein Roe Funds
(both as defined in Part 1 of this SAI) were elected to the boards of the
Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard
L. Woolworth, who had been directors/trustees of the Columbia Funds were
appointed to serve as trustees of the Liberty Funds and Stein Roe Funds.
A-9
The date shown is the earliest date on which a trustee/director was elected or
appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the
All-Star Funds (as defined in Part 1 of this SAI).
(4) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
(5) Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
OFFICERS
<Table>
<Caption>
Year First
Elected or
Position with Appointed Principal Occupation(s)
Name, Address and Age Funds to Office During Past Five Years
- ------------------------------- ----------------- ------------ ------------------------------------------
Christopher L. Wilson President 2004 President of the Columbia Funds, Liberty
(Age 47) Funds and Stein Roe Funds since October,
One Financial Center 2004 (formerly President and Chief
Boston, MA 02111 Executive Officer, CDC IXIS Asset
Management Services, Inc. from
September, 1998 to August, 2004).
J. Kevin Connaughton Treasurer Since 2000 Treasurer of the Columbia Funds since
(Age 39) October, 2003 and of the Liberty Funds,
One Financial Center Stein Roe Funds and All-Star Funds since
Boston, MA 02111 December, 2000; Vice President of the
Advisor since April, 2003 (formerly
President of the Columbia Funds, Liberty
Funds and Stein Roe Funds from February,
2004 to October, 2004; Chief Accounting
Officer and Controller of the Liberty Funds
and of the All-Star Funds from February,
1998 to October, 2000); Treasurer of the
Galaxy Funds since September, 2002;
Treasurer, Columbia Management
Multi-Strategy Hedge Fund, LLC since
December, 2002 (formerly Vice President of
Colonial Management Associates, Inc. from
February, 1998 to October, 2000).
</Table>
A-10
<Table>
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief
(Age 54) President and Compliance Officer of the Columbia
40 West 57th Street Chief Funds, Liberty Funds and Stein Roe Funds
New York, NY 10019 Compliance since August, 2004; Chief Compliance
Officer Officer of the All-Star Funds since
2004; Counsel, Carter, Ledyard & Milburn
LLP from November, 1999 to December,
2000; Vice President and Counsel,
Equitable Life Assurance Society of the
United States from April, 1998 to
November, 1999).
Michael G. Clarke Chief 2004 Chief Accounting Officer of the Columbia
(Age 34) Accounting Funds, Liberty Funds, Stein Roe Funds
One Financial Center Officer and All-Star Funds since October, 2004
Boston, MA 02111 (formerly Controller of the Columbia
Funds, Liberty Funds, Stein Roe Funds and
All-Star Funds from May, 2004 to October,
2004; Assistant Treasurer from June, 2002
to May, 2004; Vice President, Product
Strategy & Development of the Liberty Funds
and Stein Roe Funds from February, 2001 to
June, 2002; Assistant Treasurer of the
Liberty Funds, Stein Roe Funds and the
All-Star Funds from August, 1999 to
February, 2001; Audit Manager, Deloitte &
Touche LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman Controller 2004 Controller of the Columbia Funds,
(Age 34) Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004
Boston, MA 02111 (formerly Vice President of CDC IXIS
Asset Management Services, Inc. and
Deputy Treasurer of the CDC Nvest Funds
and Loomis Sayles Funds from February, 2003
to September, 2004; Assistant Vice
President of CDC IXIS Asset Management
Services, Inc. and Assistant Treasurer of
the CDC Nvest Funds from August, 2000 to
February, 2003; Tax Manager of PFPC, Inc.
from November, 1996 to August, 2000).
David A. Rozenson Secretary 2003 Secretary of the Columbia Funds, Liberty
(Age 50) Funds, Stein Roe Funds
One Financial Center and All-Star Funds since December, 2003;
Boston, MA 02111 Senior Counsel, Bank of America
Corporation (formerly FleetBoston Financial
Corporation) since January, 1996; Associate
General Counsel, Columbia Management Group
since November, 2002.
</Table>
G-35/296T-1004 October 15, 2004
COLUMBIA FUNDS TRUST I
Columbia Tax-Managed Growth Fund
Columbia Tax-Managed Growth Fund II*
Columbia Tax-Managed Value Fund
Columbia Tax-Managed Aggressive Growth Fund
COLUMBIA FUNDS TRUST II
Columbia Newport Greater China Fund
COLUMBIA FUNDS TRUST III
Columbia Mid Cap Value Fund
Columbia Liberty Fund
Columbia Federal Securities Fund
COLUMBIA FUNDS TRUST V
Columbia California Tax-Exempt Fund*
Columbia Connecticut Tax-Exempt Fund*
Columbia Massachusetts Tax-Exempt Fund*
Columbia New York Tax-Exempt Fund*
Columbia Intermediate Tax-Exempt Bond Fund*
Columbia Massachusetts Intermediate Municipal Bond Fund*
Columbia Connecticut Intermediate Municipal Bond Fund*
Columbia New Jersey Intermediate Municipal Bond Fund*
Columbia New York Intermediate Municipal Bond Fund*
Columbia Rhode Island Intermediate Municipal Bond Fund*
Columbia Florida Intermediate Municipal Bond Fund*
Columbia Pennsylvania Intermediate Municipal Bond Fund*
COLUMBIA FUNDS TRUST VI
Columbia Growth & Income Fund
Columbia Small Cap Value Fund
Columbia Newport Asia Pacific Fund
COLUMBIA FUNDS TRUST VII
Columbia Newport Tiger Fund
Columbia Europe Fund*
COLUMBIA FUNDS TRUST VIII
Columbia High Yield Municipal Fund*
Columbia Managed Municipals Fund*
COLUMBIA FUNDS TRUST IX
Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
COLUMBIA FUNDS TRUST XI
Columbia Young Investor Fund
Columbia Growth Stock Fund
Columbia Global Thematic Equity Fund*
Columbia European Thematic Equity Fund*
Columbia Asset Allocation Fund*
A-11
Columbia Dividend Income Fund*
Columbia Large Cap Core Fund*
Columbia International Equity Fund*
Columbia Large Cap Growth Fund*
Columbia Disciplined Value Fund*
Columbia Small Cap Fund*
Columbia Small Company Equity Fund*
The funds listed above are all referred to collectively as the "Funds" and the
Trusts listed above are all referred to collectively as the "Trusts".
SUPPLEMENT TO THE STATEMENTS OF ADDITIONAL INFORMATION
(REPLACING SUPPLEMENT DATED MARCH 31, 2004
Each Fund's Statement of Additional Information is amended as follows:
1. Effective March 1, 2004, PricewaterhouseCoopers LLP, located at 125
High Street, Boston, Massachusetts 02110-1707, replaced Ernst & Young
LLP as independent accountants for all of the Funds.
PricewaterhouseCoopers LLP provides audit and tax return review
services, and assistance and consultation in connection with the review
of various Securities and Exchange Commission filings. (Relevant to
funds with asterisk.)
2. Effective June 18, 2003, Salvatore Macera retired as a Trustee from
the Board of Trustees/Managers.
3. At the June, 2003 Board of Trustees meeting the Trustees approved
the following changes to the compensation for the Trustees:
The Trustees serve as trustees of all open-end funds managed by
Columbia Management Advisors, Inc. for which each Trustee will receive an annual
retainer of $45,000 and attendance fees of $9,500 for each regular and special
joint board meeting and $1,000 for each special telephonic joint board meeting.
The Chairman of the Board receives an annual retainer of $40,000. All committee
chairs, except the Audit Committee chair, receive an annual retainer of $5,000
and Committee chairs receive $1,500 for each special committee meeting attended
on a day other than a regular joint board meeting day. The Audit Committee chair
receives an annual retainer of $10,000 and receives $2,000 for each Audit
Committee meeting. Committee members receive $1,500 for each special committee
meeting attended on a day other than a regular joint board meeting day.
Two-thirds of the Trustee fees are allocated among the Funds based on each
Fund's relative net assets and one-third of the fees is divided equally among
the Funds.
4. Each of the committees listed under the section TRUSTEES AND
TRUSTEES' FEES have had a change in the committee members. The
following changes were effective October 8, 2003:
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of
the Audit Committee of the Board of Trustees of the Funds. Prior to October 8,
2003, Ms. Verville and Messrs. Hacker, Nelson and Neuhauser were members of the
Audit Committee of the Board of Trustees of the Funds.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the
Governance Committee of the Board of Trustees of the Funds. Prior to October 8,
2003, Ms. Verville and Messrs. Hacker, Lowry, Mayer and Theobald were members of
the Governance Committee of the Board of Trustees of the Funds.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the
Advisory Fees and Expenses Committee of the Board of Trustees of the Funds.
Prior to October 8, 2003, Ms. Kelly and Messrs. Mayer, Neuhauser, Stitzel and
Theobald were members of the Advisory Fees and Expenses Committee of the Board
of Trustees of the Funds.
5. The paragraph Trading Oversight Committee under the section TRUSTEES
AND TRUSTEES' FEES is replaced with the following:
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each Trustee of the Funds also began serving on an Investment
Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an
ongoing basis, a select group of funds in the Fund Complex and gives particular
consideration to such matters as the Funds' adherence to their investment
mandates, historical performance, changes in investment processes and personnel,
and proposed changes to investment objectives. Investment personnel who manage
the Funds attend IOC meetings from time to time to assist each IOC in its review
of the Funds. Each IOC meets four times a year. The following are members of the
respective IOCs and the general categories of funds in the Fund Complex which
they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible
for reviewing funds in the following asset
categories: Large Growth Diversified, Large Growth
Concentrated, Small Growth, Outside Managed (i.e.,
sub-advised), Municipal and Bank Loan.
IOC #2: Mr. Hacker and Ms. Verville are responsible for
reviewing funds in the following asset categories:
Large Blend, Small Blend, Foreign Stock, Fixed Income
- Multi Sector, Fixed Income - Core and Young
Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are
responsible for reviewing funds in the following
asset categories: Large Value, Mid Cap Value, Small
Value, Asset Allocation, High Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible
for reviewing funds in the following asset
categories: Large/Multi-Cap Blend, Mid Cap Growth,
Small Growth, Asset Allocation, Specialty Equity and
Taxable Fixed Income.
6. On October 7, 2003 the Board of Trustees/Managers of the Trusts
elected Patrick J. Simpson and Richard L. Woolworth as new trustees of
the Trusts.
A-12
7. The following table sets forth the compensation paid to Messrs.
Simpson and Woolworth in their capacities as Trustees of the Columbia
Board:
<Table>
<Caption>
Trustee Total Compensation from the Columbia Funds Complex
Paid to the Trustees for the Calendar Year Ended
December 31, 2003
Patrick J. Simpson $64,234
Richard L. Woolworth 64,234
</Table>
8. As of December 31, 2003, Messrs. Simpson and Woolworth did not own
any shares of the Funds. Under the heading SHARE OWNERSHIP under the
section TRUSTEES AND TRUSTEES' FEES the column "Aggregate Dollar Range
of Equity Securities Owned in All Funds Overseen by Trustee in Columbia
Funds Complex" is revised as follows:
The following table shows the dollar range of equity securities beneficially
owned by each Trustee as of December 31, 2003 (i) in each Fund and (ii) in the
funds in the Fund Complex:
DISINTERESTED TRUSTEES
<Table>
<Caption>
Name of Trustee Aggregate Dollar Range of Equity Securities Owned
in All Funds Overseen by Trustee in Fund Complex
Patrick J. Simpson $50,001-$100,000
Richard L. Woolworth Over $100,000
</Table>
9. The disclosure following the caption "Trustees and Officers" located
in the section "Management of the Funds" in Part 2 of the Statement of
Information is restated in its entirety:
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names,
addresses and ages of the Trustees and officers of the Fund Complex, the year
each was first elected or appointed to office, their principal business
occupations during at least the last five years, the number of portfolios
overseen by each Trustee and other directorships they hold are shown below.
DISINTERESTED TRUSTEES
<Table>
<Caption>
Number of
Portfolios
in
Year First Fund
Elected or Complex Other
Appointed Overseen Directorships
Position to Office Principal Occupation(s) During By Held by
Name, Address and Age with Funds (1) Past Five Years Trustee Trustee
- ------------------------- ------------ ------------ ----------------------------------- ---------- --------------
Douglas A. Hacker Trustee 1996 Executive Vice President - 118 Orbitz, Inc.
(Age 48) Strategy of United Airlines (on-line
P.O. Box 66100 (airline) from December, 2002 travel
Chicago, IL 60666 (formerly President company)
of UAL Loyalty Services
(airline) from September,
2001 to December, 2002;
Executive Vice President
and Chief Financial Officer
of United Airlines from
March, 1999 to September,
2001; Senior Vice
President-Finance from
March, 1993 to July, 1999).
Janet Langford Kelly Trustee 1996 Private Investor since March, 118 None
(Age 46) 2004 (formerly Chief
9534 W. Gull Lake Drive Administrative Officer and Senior
Richland, MI 49083-8530 Vice President, Kmart Holding
Corporation (consumer
goods), from September,
2003 to March, 2004;
Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003; Senior Vice
President, Secretary and
General Counsel, Sara Lee
Corporation (branded,
packaged, consumer-products
manufacturer) from January,
1995 to September, 1999).
Richard W. Lowry Trustee 1995 Private Investor since August, 120(3) None
(Age 68) 1987 (formerly Chairman and Chief
10701 Charleston Drive Executive Officer, U.S. Plywood
Vero Beach, FL 32963 Corporation
(building products manufacturer)).
Charles R. Nelson Trustee 1981 Professor of Economics, 118 None
(Age 62) University of Washington, since
Department of Economics January, 1976; Ford and Louisa
University of Washington Van Voorhis Professor of
Seattle, WA 98195 Political Economy,
University of Washington, since
September, 1993 (formerly
Director, Institute for Economic
Research, University of
Washington from
September, 2001 to June, 2003)
Adjunct Professor of Statistics,
University of Washington, since
September, 1980; Associate
Editor, Journal of Money Credit
and Banking, since September,
1993; consultant on econometric
and statistical matters.
John J. Neuhauser Trustee 1985 Academic Vice President and Dean 121(3), Saucony, Inc.
(Age 61) of Faculties since August, 1999, (4) (athletic
84 College Road Boston College (formerly Dean, footwear)
Chestnut Hill, MA 02467-3838 Boston College School of
Management from September,
1977 to September, 1999).
</Table>
A-13
<Table>
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie L.L.P. (law 118 None
(Age 60) firm).
1120 N.W. Couch Street
Tenth Floor
Portland, OR 97209-4128
Thomas E. Stitzel Trustee 1998 Business Consultant since 1999 118 None
(Age 68) (formerly Professor of Finance
2208 Tawny Woods Place from 1975 to 1999, College of
Boise, ID 83706 Business, Boise State
University); Chartered Financial
Analyst.
Thomas C. Theobald Trustee 1996 Partner and Senior Advisor, 118 Anixter
(Age 67)(5) and Chicago Growth Partners (private International
303 W. Madison Suite Chairman equity investing) since (network
2500 Chicago, IL 60606 of the September, 2004 (formerly support
Board Managing Director, William Blair equipment
Capital Partners (private equity distributor);
investing) from September, 1994 Ventas, Inc.
to September, 2004). (real estate
investment
trust);
Jones Lang
LaSalle
(real estate
management
services)
and MONY
Group (life
insurance)
Anne-Lee Verville Trustee 1998 Retired since 1997 (formerly 119(4) Chairman of
(Age 59) General Manager, Global Education the Board of
359 Stickney Hill Road Industry, IBM Corporation Directors,
Hopkinton, NH 03229 (computer and technology) from Enesco
1994 to 1997). Group,
Inc.(designer,
importer and
distributor
of
giftware and
collectibles)
Richard L. Woolworth Trustee 1991 Retired since December 2003 118 Northwest
(Age 63) (formerly Chairman and Chief Natural Gas
100 S.W. Market Street Executive Officer, The Regence Co. (natural
#1500 Group (regional health insurer); gas service
Portland, OR 97207 Chairman provider)
and Chief Executive Officer,
BlueCross BlueShield of Oregon;
Certified Public Accountant,
Arthur Young & Company)
</Table>
INTERESTED TRUSTEE
<Table>
<Caption>
Year
First Number of
Elected Portfolios
or in Other
Appointed Fund Director-
to Complex ships
Position Office Principal Occupation(s) During Overseen By Held by
Name, Address and Age with Funds (1) Past Five Years Director Director
- -------------------------- ----------- ---------- ------------------------------------ ------------- -----------
William E. Mayer(2) Trustee 1994 Managing Partner, Park Avenue 120(3) Lee
(Age 64) Equity Partners (private equity) Enterprises
399 Park Avenue since February, 1999 (formerly (print
Suite 3204 Founding Partner, Development media),
New York, NY 10022 Capital LLC from November 1996 to WR
February, 1999). Hambrecht
+ Co.
(financial
service
provider);
First
Health
(healthcare);
Reader's
Digest
(publishing);
OPENFIELD
Solutions
(retail
industry
technology
provider)
</Table>
1. In October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both
as defined in Part 1 of this SAI) were elected to the boards of the Columbia
Funds; simultaneous with that election, Patrick J. Simpson and Richard L.
Woolworth, who had been directors/trustees of the Columbia Funds were appointed
to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is
the earliest date on which a trustee/director was elected or appointed to the
board of a Fund in the Fund Complex.
2. Mr. Mayer is an "interested person" (as defined in the Investment Company Act
of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
A-14
3. Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the
All-Star Funds (as defined in Part 1 of this SAI).
4. Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
5. Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
OFFICERS
<Table>
<Caption>
Year First
Elected or
Position with Appointed Principal Occupation(s)
Name, Address and Age Funds to Office During Past Five Years
- ------------------------------- ----------------- ------------ ------------------------------------------
Christopher L. Wilson President 2004 President of the Columbia Funds, Liberty
(Age 47) Funds and Stein Roe Funds since October,
One Financial Center 2004 (formerly President and Chief
Boston, MA 02111 Executive Officer, CDC IXIS Asset
Management Services, Inc. from
September, 1998 to August, 2004).
J. Kevin Connaughton Treasurer Since 2000 Treasurer of the Columbia Funds since
(Age 39) October, 2003 and of the Liberty Funds,
One Financial Center Stein Roe Funds and All-Star Funds since
Boston, MA 02111 December, 2000; Vice President of the
Advisor since April, 2003 (formerly
President of the Columbia Funds, Liberty
Funds and Stein Roe Funds from February,
2004 to October, 2004; Chief Accounting
Officer and Controller of the Liberty Funds
and of the All-Star Funds from February,
1998 to October, 2000); Treasurer of the
Galaxy Funds since September, 2002;
Treasurer, Columbia Management
Multi-Strategy Hedge Fund, LLC since
December, 2002 (formerly Vice President of
Colonial Management Associates, Inc. from
February, 1998 to October, 2000).
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief
(Age 54) President and Compliance Officer of the Columbia
40 West 57th Street Chief Funds, Liberty Funds and Stein Roe Funds
New York, NY 10019 Compliance since August, 2004; Chief Compliance
Officer Officer of the All-Star Funds since
2004; Counsel, Carter, Ledyard & Milburn
LLP from November, 1999 to December,
2000; Vice President and Counsel,
Equitable Life Assurance Society of the
United States from April, 1998 to
November, 1999).
Michael G. Clarke Chief 2004 Chief Accounting Officer of the Columbia
(Age 34) Accounting Funds, Liberty Funds, Stein Roe Funds
One Financial Center Officer and All-Star Funds since October, 2004
Boston, MA 02111 (formerly Controller of the Columbia
Funds, Liberty Funds, Stein Roe Funds and
All-Star Funds from May, 2004 to October,
2004; Assistant Treasurer from June, 2002
to May, 2004; Vice President, Product
Strategy & Development of the Liberty Funds
and Stein Roe Funds from February, 2001 to
June, 2002; Assistant Treasurer of the
Liberty Funds, Stein Roe Funds and the
All-Star Funds from August, 1999 to
February, 2001; Audit Manager, Deloitte &
Touche LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman Controller 2004 Controller of the Columbia Funds,
(Age 34 ) Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004
Boston, MA 02111 (formerly Vice President of CDC IXIS
Asset Management Services, Inc. and Deputy
Treasurer of the CDC Nvest Funds and Loomis
Sayles Funds from February, 2003 to
September, 2004; Assistant Vice President
of CDC IXIS Asset Management Services, Inc.
and Assistant Treasurer of the CDC Nvest
Funds from August, 2000 to February, 2003;
Tax Manager of PFPC, Inc. from November,
1996 to August, 2000).
David A. Rozenson Secretary 2003 Secretary of the Columbia Funds, Liberty
(Age 50) Funds, Stein Roe Funds and All-Star Funds
One Financial Center since December, 2003; Senior Counsel, Bank
Boston, MA 02111 of America Corporation (formerly FleetBoston
Financial Corporation) since January, 1996;
Associate General Counsel, Columbia Management
Group since November, 2002.
</Table>
October 15, 2004
A-15
COLUMBIA FUNDS TRUST I
Columbia High Yield Opportunity Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Tax-Managed Growth Fund II
Columbia Tax-Managed Value Fund
Columbia Tax-Managed Aggressive Growth Fund
COLUMBIA FUNDS TRUST II
Columbia Newport Greater China Fund
Columbia Money Market Fund
COLUMBIA FUNDS TRUST III
Columbia Mid Cap Value Fund
Columbia Liberty Fund
Columbia Global Equity Fund
Columbia Contrarian Income Fund
Columbia Intermediate Government Income Fund
Columbia Quality Plus Bond Fund
Columbia Corporate Bond Fund
Columbia Federal Securities Fund
COLUMBIA FUNDS TRUST IV
Columbia Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Municipal Money Market Fund
COLUMBIA FUNDS TRUST V
Columbia California Tax-Exempt Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Large Company Index Fund
Columbia U.S. Treasury Index Fund
Columbia Small Company Index Fund
Columbia Intermediate Tax-Exempt Bond Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia Florida Intermediate Municipal Bond Fund
Columbia Pennsylvania Intermediate Municipal Bond Fund
A-16
COLUMBIA FUNDS TRUST VI
Columbia Growth & Income Fund
Columbia Small Cap Value Fund
Columbia Newport Asia Pacific Fund
COLUMBIA FUNDS TRUST VII
Columbia Newport Tiger Fund
Columbia Europe Fund
COLUMBIA FUNDS TRUST VIII
Columbia Income Fund
Columbia Intermediate Bond Fund
COLUMBIA FUNDS TRUST IX
Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
COLUMBIA FUNDS TRUST XI
Columbia Young Investor Fund
Columbia Growth Stock Fund
Columbia Global Thematic Equity Fund
Columbia European Thematic Equity Fund
Columbia Asset Allocation Fund
Columbia Dividend Income Fund
Columbia Large Cap Core Fund
Columbia International Equity Fund
Columbia Large Cap Growth Fund
Columbia Disciplined Value Fund
Columbia Small Cap Fund
Columbia Small Company Equity Fund
COLUMBIA FLOATING RATE FUND
COLUMBIA INSTITUTIONAL FLOATING RATE INCOME FUND
COLUMBIA FLOATING RATE ADVANTAGE FUND
A-17
The Funds listed above are referred to collectively as the "Funds" and the
Trusts listed above are referred to collectively as "Trusts."
SUPPLEMENT TO THE STATEMENTS OF ADDITIONAL INFORMATION
Effective July 1, 2004, the paragraph entitled "Exchanges for Clients
of Affiliates of Investment Advisor" in the section "PROGRAMS FOR REDUCING OR
ELIMINATING SALES CHARGES" of Part II of the Statements of Additional
Information is deleted.
G-35/244S-0604 July 1, 2004
A-18
COLUMBIA ASSET ALLOCATION FUND
COLUMBIA LARGE CAP GROWTH FUND
COLUMBIA DISCIPLINED VALUE FUND
COLUMBIA LARGE CAP CORE FUND
COLUMBIA INTERNATIONAL EQUITY FUND
COLUMBIA SMALL CAP FUND
COLUMBIA SMALL COMPANY EQUITY FUND
COLUMBIA DIVIDEND INCOME FUND
SERIES OF COLUMBIA FUNDS TRUST XI
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2004
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectuses of Columbia
Asset Allocation Fund, Columbia Large Cap Growth Fund, Columbia Disciplined
Value Fund, Columbia Large Cap Core Fund, Columbia International Equity Fund,
Columbia Small Cap Fund, Columbia Small Company Equity Fund and Columbia
Dividend Income Fund (each a Fund and collectively, the Funds). This SAI is not
a prospectus and is authorized for distribution only when accompanied or
preceded by a Prospectus of a Fund dated February 1, 2004, as applicable. This
SAI should be read together with a Prospectus of the Funds and the most recent
Annual Report dated September 30, 2003. Investors may obtain a free copy of a
Prospectus and the Annual Report from Columbia Funds Distributor, Inc. (CFD),
One Financial Center, Boston, MA 02111-2621, or by calling 1-800-426-3750. The
Financial Statements and Report of Independent Auditors appearing in each Fund's
September 30, 2003 Annual Report are incorporated in this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2
includes information about the funds distributed by CFD generally and additional
information about certain securities and investment techniques described in the
Funds' Prospectuses.
TABLE OF CONTENTS
PART 1 PAGE
Definitions........................................................ A-20
Organization and History........................................... A-20
Investment Goal and Policies....................................... A-21
Fundamental and Non-Fundamental Investment Policies................ A-22
Portfolio Turnover................................................. A-28
Fund Charges and Expenses.......................................... A-28
Custodian of the Funds............................................. A-67
Independent Auditors of the Funds.................................. A-67
PART 2
Miscellaneous Investment Practices................................. A-68
Taxes.............................................................. A-90
Management of the Funds............................................ A-94
Determination of Net Asset Value................................... A-105
How to Buy Shares.................................................. A-106
Special Purchase Programs/Investor Services........................ A-107
Programs for Reducing or Eliminating Sales Charges................. A-110
How to Sell Shares................................................. A-113
Distributions...................................................... A-117
How to Exchange Shares............................................. A-117
Suspension of Redemptions.......................................... A-117
Shareholder Liability.............................................. A-117
Shareholder Meetings............................................... A-118
Appendix I......................................................... A-119
A-19
PART 1
COLUMBIA ASSET ALLOCATION FUND
COLUMBIA LARGE CAP GROWTH FUND
COLUMBIA DISCIPLINED VALUE FUND
COLUMBIA LARGE CAP CORE FUND
COLUMBIA INTERNATIONAL EQUITY FUND
COLUMBIA SMALL CAP FUND
COLUMBIA SMALL COMPANY EQUITY FUND
COLUMBIA DIVIDEND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2004
DEFINITIONS
"Asset Allocation Fund" or "Fund" Columbia Asset Allocation Fund
"Growth Fund" or "Fund" Columbia Large Cap Growth Fund
"Value Fund" or "Fund" Columbia Disciplined Value Fund
"Large Cap Fund" or "Fund" Columbia Large Cap Core Fund
"International Fund" or "Fund" Columbia International Equity Fund
"Small Cap Fund" or "Fund" Columbia Small Cap Fund
"Small Company Fund" or "Fund" Columbia Small Company Equity Fund
"Dividend Fund" or "Fund" Columbia Dividend Income Fund
"Predecessor Fund" or "Predecessor Funds" See below under "Organization and History"
"Trust" Columbia Funds Trust XI
"Advisor" Columbia Management Advisors, Inc., the Funds' investment advisor
"CFD" Columbia Funds Distributor, Inc., the Funds' distributor
"CFS" Columbia Funds Services, Inc., the Funds' shareholder services and transfer agent
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1987. Each Fund is an
open-end, management investment company that represents the entire interest in a
separate series of the Trust and is a diversified series of the Trust. Each Fund
is the successor to a separate series of The Galaxy Fund, a Massachusetts
business trust organized on March 31, 1986. On November 18, 2002, November 25,
2002 and December 9, 2002, the series of The Galaxy Fund to which the Funds
succeeded (the "Predecessor Funds") were reorganized as separate series of the
Trust. Class A shares of the Funds were issued in exchange for Prime A Shares of
the Predecessor Funds, Class B shares of the Funds were issued in exchange for
Prime B Shares of the Predecessor Funds, Class T shares of the Funds were issued
in exchange for Retail A Shares of the Predecessor Funds, Class G shares of the
Funds were issued in exchange for Retail B Shares of the Predecessor Funds and
Class Z shares of the Funds were issued in exchange for Trust Shares of the
Predecessor Funds. (Prime A and B shares, Retail A and B shares and Trust Shares
together are referred to herein as to the "Predecessor Classes") Information
provided with respect to each Fund for periods prior to such Fund's inception
relates to the Fund's Predecessor Fund. Further, information provided with
respect to each class of each Fund relates to the Predecessor classes of such
class.
The Asset Allocation Fund commenced operations on December 30, 1991; the Growth
Fund commenced operations on December 14, 1990; the Value Fund commenced
operations on September 1, 1988; the International Fund commenced operations
December 30, 1991; the Small Company Fund commenced operations on December 30,
1991; and the Dividend Fund commenced operations on March 4, 1998.
The Large Cap Fund and Small Cap Fund commenced operations on December 14, 1992,
as separate portfolios (the "Predecessor Large Cap Fund" and "Predecessor Small
Cap Fund," respectively, and collectively, the "Predecessor Shawmut Funds") of
The Shawmut Funds. On December 4, 1995, the Predecessor Shawmut Funds were
reorganized as new portfolios of The Galaxy Fund. Prior to the reorganization,
the Predecessor Shawmut Funds offered and sold shares of beneficial interest
that were similar to The Galaxy Fund's Trust Shares and Retail A Shares.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Each whole share (or fractional
share) outstanding on the record date established in accordance with the Trust's
By-Laws shall be entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or fractional share)
in United States dollars determined at the close of business on the record date
(for example, a share having a net asset value of $10.50 would be entitled to
10.5 votes). Shares of the Fund and any other series of the Trust that may be in
existence from time to time generally vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See Part 2 of this SAI for more information.
A-20
On February 1, 1996, the name of the Trust was changed to separate "SteinRoe"
into two words. The name of the Trust was changed on October 18, 1999, from
"Stein Roe Investment Trust" to "Liberty Stein-Roe Investment Trust." On October
13, 2003, the name of the Trust was changed from "Liberty-Stein Roe Investment
Trust" to its current name.
On October 13, 2003, each of the Funds changed their names as follows:
FORMER NAME: CURRENT NAME:
LIBERTY ASSET ALLOCATION FUND COLUMBIA ASSET ALLOCATION FUND
LIBERTY EQUITY GROWTH FUND COLUMBIA LARGE CAP GROWTH FUND
LIBERTY EQUITY VALUE FUND COLUMBIA DISCIPLINED VALUE FUND
LIBERTY LARGE CAP CORE FUND COLUMBIA LARGE CAP CORE FUND
LIBERTY INTERNATIONAL EQUITY FUND COLUMBIA INTERNATIONAL EQUITY FUND
LIBERTY SMALL CAP FUND COLUMBIA SMALL CAP FUND
LIBERTY SMALL COMPANY EQUITY FUND COLUMBIA SMALL COMPANY EQUITY FUND
LIBERTY STRATEGIC EQUITY FUND COLUMBIA DIVIDEND INCOME FUND*
*On October 13, 2003, the Liberty Strategic Equity Fund changed its name to
Columbia Strategic Equity Fund. On October 27, 2003, the Fund changed to its
current name.
INVESTMENT GOAL AND POLICIES
Each Prospectus describes the investment goal and investment strategies and
risks of each Fund to which it pertains. Part 1 of this SAI includes additional
information concerning, among other things, the fundamental investment policies
of the Funds. Part 2 contains, among other things, additional information about
the following securities and investment techniques that may be utilized by the
Funds, unless otherwise noted, subject to any restrictions described in Part 1
of this SAI:
Custody Receipts and Trust Certificates (the Asset Allocation Fund only)
Short-Term Trading
Small Companies (the Small Cap and Small Company Funds only)
Common Stock, Preferred Stock and Warrants
Foreign Securities
Other Investment Companies
Money Market Instruments
Securities Loans
Forward Commitments
"When-Issued" Securities (the Large Cap Core, Dividend, International
and Small Cap Funds only)
"Delayed Delivery" Securities (the Large Cap Core, Dividend and Small
Cap Funds only)
Mortgage Dollar Rolls (the Asset Allocation Fund only)
REITs
Mortgage-Backed Securities (the Asset Allocation Fund only)
Non-Agency Mortgage-Backed Securities (the Asset Allocation Fund only)
Asset-Backed Securities (the Asset Allocation Fund only)
Repurchase Agreements
Reverse Repurchase Agreements
Options on Securities
Futures Contracts and Related Options
Swap Agreements (Swaps, Caps, Collars and Floors)
Foreign Currency Transactions
Rule 144A Securities
Variable and Floating Rate Obligations
Convertible Securities
Yankee Obligations
American, European, Continental and Global Depositary Receipts
(except that only the Large Cap Core, International, Small Cap and
Dividend Funds may invest in GDRs)
Except as indicated below under "Fundamental and Non-Fundamental Investment
Policies," the Funds' investment policies are not fundamental, and the Trustees
may change the policies without shareholder approval.
A-21
FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
In addition to each Fund's investment goal as stated in its Prospectuses, the
following investment limitations are matters of fundamental policy and may not
be changed with respect to a Fund without the affirmative vote of the holders of
a majority of its outstanding shares. A "vote of the holders of a majority of
the outstanding shares" of a particular Fund means the affirmative vote of the
holders of the lesser of (a) more than 50% of the outstanding shares of such
Fund, or (b) 67% or more of the shares of such Fund present at a meeting if more
than 50% of the outstanding shares of such Fund are represented at the meeting
in person or by proxy.
Each of the Asset Allocation Fund, Large Cap Fund, Dividend Fund, Value Fund,
Growth Fund, International Fund, Small Cap Fund and Small Company Fund may not:
1. Borrow money, issue senior securities or mortgage, pledge or hypothecate
its assets except to the extent permitted by the 1940 Act.
2. Make any investment inconsistent with the Fund's classification as a
diversified series of an open-end investment company under the 1940 Act.
3. Concentrate its investments in the securities of one or more issuers
conducting their principal business activities in the same industry (other
than securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities).
4. Make loans except to the extent permitted by the 1940 Act.
5. Underwrite securities of other issuers, except insofar as the Fund
technically may be deemed to be an underwriter under the Securities Act of
1933 in connection with the purchase and sale of its portfolio securities.
6. Purchase or sell real estate, except that the Fund may purchase securities
of issuers which deal or invest in real estate and may purchase securities
which are secured by real estate or interests in real estate.
7. Purchase or sell commodities or commodity contracts except that the Fund
may, to the extent consistent with its investment objective and policies,
purchase and sell financial futures contracts and related options and
foreign currency forward contracts, futures contracts and related options.
With respect to Investment Limitation No. 1 above, the 1940 Act currently
permits a Fund to borrow from any bank, provided that immediately after any such
borrowing, there is an asset coverage of at least 300% for all borrowings of the
Fund. In addition, a Fund may engage in certain securities trading practices,
such as reverse repurchase agreements, that are deemed to be borrowings under
the 1940 Act, provided that the Fund maintains in a segregated custodial account
liquid assets equal to the repurchase price (including accrued interest).
Mortgage dollar rolls and U.S. Treasury rolls entered into by the Asset
Allocation Fund that are not accounted for as financings shall not constitute
borrowings.
With respect to Investment Limitation No. 2 above, the 1940 Act currently
prohibits a diversified Fund from purchasing the securities of any one issuer if
immediately after such purchase more than 5% of the value of its total assets
would be invested in the securities of such issuer or the Fund would own more
than 10% of the outstanding voting securities of such issuer, except that (a) up
to 25% of the value of the Fund's total assets may be invested without regard to
these limitations and (b) the Fund may invest in U.S. Government obligations
without regard to these limitations.
With respect to Investment Limitation No. 4 above, the 1940 Act currently
permits a Fund to lend its portfolio securities against collateral having a
value equal at all times to at least 100% of the value of the securities loaned.
However, no portfolio securities loan shall be made on behalf of a Fund if, as a
result, the aggregate value of all securities loaned by the Fund would exceed
33-1/3% of the value of its total assets (including the value of the collateral
for the loans) at the time of the loan. In addition, a Fund may engage in
certain securities trading practices, such as repurchase agreements, that are
deemed to be loans under the 1940 Act.
NON-FUNDAMENTAL INVESTMENT POLICIES
The following investment limitation with respect to the Funds may be changed by
the Board of Trustees without shareholder approval:
8. A Fund may not sell securities short, maintain a short position, or
purchase securities on margin, except for such short-term credits as are
necessary for the clearance of transactions.
A-22
The following investment limitations with respect to the Asset Allocation Fund,
Dividend Fund, Value Fund, Growth Fund, International Fund and Small Company
Fund may be changed by the Board of Trustees without shareholder approval:
9. A Fund may not write or sell put options, call options, straddles, spreads
or any combination thereof except that (i) each of the Value Fund, Growth
Fund, International Fund and Small Company Fund may, to the extent
consistent with its investment objective and policies, write covered call
options and purchase and sell other options, and (ii) the Asset Allocation
Fund and the Dividend Fund may buy and sell options, including without
limit buying or writing puts and calls, based on any type of security,
index or currency, including options on foreign exchanges and options not
traded on exchanges to the extent permitted by its investment objective
and policies.
10. A Fund may not purchase securities of companies for the purpose of
exercising control.
11. A Fund may not purchase securities of other investment companies except as
permitted by the 1940 Act, except that the Dividend Fund may, from time to
time, on a temporary basis, invest exclusively in one other investment
company similar to the Fund.
The following investment limitation with respect to the Asset Allocation Fund,
Dividend Fund, Value Fund, Growth Fund, International Fund and Small Company
Fund may be changed by the Board of Trustees without shareholder approval:
12. A Fund may not invest more than 15% of its net assets in illiquid
securities.
The following investment limitations with respect to the Large Cap Fund and
Small Cap Fund may be changed by the Board of Trustees without shareholder
approval:
13. The Funds may not invest more than 15% of their respective net assets in
securities subject to restrictions on resale under the Securities Act of
1933 (except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain securities which meet the criteria for
liquidity as established by the Board of Trustees).
14. Each Fund will limit its investments in other investment companies to not
more than 3% of the total outstanding voting stock of any investment
company; will invest no more than 5% of its total assets in any one
investment company; and will invest no more than 10% of its total assets
in investment companies in general. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation,
reorganization or acquisition of assets.
15. The Funds will purchase the securities of other investment companies only
in open market transactions involving only customary broker's commissions.
It should be noted that investment companies incur certain expenses such
as management fees, and therefore any investment by a Fund in shares of
another investment company would be subject to such duplicate expenses.
16. Neither Fund may purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Advisor, owning individually
more than 1/2 of 1% of the issuer's securities, together own more than 5%
of the issuer's securities.
17. Neither Fund may purchase or sell interests in oil, gas, or mineral
exploration or development programs or leases; except that the Funds may
purchase the securities of issuers which invest in or sponsor such
programs.
18. Neither Fund may purchase put options on securities, unless the securities
are held in the Fund's portfolio and not more than 5% of the value of the
Fund's total assets would be invested in premiums on open put option
positions.
19. Neither Fund may write call options on securities, unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment. Neither Fund may write call options in
excess of 5% of the value of its total assets.
20. Neither Fund will invest more than 15% of the value of its respective net
assets in illiquid securities, including repurchase agreements providing
for settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, and certain securities not
determined by the Board of Trustees to be liquid.
21. Neither Fund may invest in companies for the purpose of exercising
management or control.
22. Neither Fund may invest more than 5% of its net assets in warrants. No
more than 2% of this 5% may be warrants which are not listed on the New
York Stock Exchange.
A-23
With respect to Investment Limitation No. 11 above, the 1940 Act currently
prohibits a Fund, subject to certain exceptions, from acquiring the securities
of other investment companies if, as a result of such acquisition, (a) the Fund
owns more than 3% of the total outstanding voting stock of the investment
company; (b) securities issued by any one investment company represent more than
5% of the total assets of the Fund; or (c) securities (other than treasury
stock) issued by all investment companies represent more than 10% of the total
assets of the Fund.
Each Fund may purchase restricted securities, which are any securities in which
the Fund may otherwise invest pursuant to its investment objective and policies
but which are subject to restrictions on resale under the federal securities
laws. Certain restricted securities may be considered liquid pursuant to
guidelines established by the Board of Trustees. To the extent restricted
securities are deemed illiquid, each Fund will limit its purchase, together with
other securities considered to be illiquid, to 15% of its net assets.
Each of the Growth Fund and Small Company Fund may purchase put options and call
options on securities and securities indices. Neither of these Funds may
purchase options unless immediately after any such transaction the aggregate
amount of premiums paid for put or call options does not exceed 5% of its total
assets.
Each of the Value Fund, Growth Fund, International Fund and Small Company Fund
may engage in writing covered call options and may enter into closing purchase
transaction with respect to such options. Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation. The
aggregate value of the securities subject to such options written by these Funds
may not exceed 25% of the value of such Fund's net assets.
The International Fund may, for the purpose of hedging its portfolio, subject to
applicable securities regulations, purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges.
Each of the Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap
Fund may buy and sell options and futures contracts to manage their exposure to
changing interest rates, security prices and currency exchange rates. These
Funds may invest in options and futures based on any type of security, index, or
currency, including options and futures based on foreign exchanges and options
not traded on exchanges. These Funds will not hedge more than 20% of their
respective total assets (10% of net assets with respect to the Asset Allocation
Fund) by selling futures, buying puts, and writing calls under normal
conditions. These Funds will not buy futures or write puts whose underlying
value exceeds 20% of their respective total assets (10% of net assets with
respect to the Asset Allocation Fund), and will not buy calls with a value
exceeding 5% of their respective total assets. These Funds may utilize stock
index futures contracts, options, swap agreements, indexed securities, and
options on futures contracts for the purposes of managing cash flows into and
out of their respective portfolios and potentially reducing transaction costs,
subject to the limitation that the value of these futures contracts, swap
agreements, indexed securities, and options will not exceed 20% of the Funds'
respective total assets (10% of net assets with respect to the Asset Allocation
Fund). These Funds will not purchase put options to the extent that more than 5%
of the value of their respective total assets would be invested in premiums on
open put option positions. In addition, these Funds do not intend to invest more
than 5% of the market value of their respective total assets in each of the
following: futures contracts, swap agreements, and indexed securities. When one
of these Funds enters into a swap agreement, liquid assets of the Fund equal to
the value of the swap agreement will be segregated by that Fund. These Funds may
not use stock index futures contracts and options for speculative purposes.
As a means of reducing fluctuations in the net asset value of shares of the
Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap Fund, the
Funds may attempt to hedge all or a portion of their respective portfolios
through the purchase of listed put options on stocks, stock indices and stock
index futures contracts. These options will be used as a form of forward pricing
to protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates.
The Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap Fund may
only: (1) buy listed put options on stock indices and stock index futures
contracts; (2) buy listed put options on securities held in their respective
portfolios; and (3) sell listed call options either on securities held in their
respective portfolios or on securities which they have the right to obtain
without payment of further consideration (or have segregated cash in the amount
of any such additional consideration). Each of these Funds will maintain its
positions in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed or expired. Each of these Funds
may also enter into stock index futures contracts. A stock index futures
contract is a bilateral agreement which obligates the seller to deliver (and the
purchaser to take delivery of) an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of trading of the contract and the price at which the agreement is
originally made. There is no physical delivery of the stocks constituting the
index, and no price is paid upon entering into a futures contract.
None of the Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap
Fund will enter into futures contracts if, immediately thereafter, the sum of
its initial margin deposits on open contracts exceeds 5% of the market value of
its total assets. Further, these Funds will enter into stock index futures
contracts only for bona fide hedging purposes or such other purposes permitted
under Part 4 of the regulations promulgated by the Commodity Futures Trading
Commission. Also, these Funds may not enter into stock index futures contracts
and options to the extent that the value
A-24
of such contracts would exceed 20% of the Fund's total net assets and may not
purchase put options to the extent that more than 5% of the value of (10% of net
assets with respect to the Asset Allocation Fund) the Fund's total assets would
be invested in premiums on open put option positions.
As one way of managing their exposure to different types of investments, the
Asset Allocation Fund, Large Cap Fund, Dividend Fund and Small Cap Fund may
enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars, and floors.
Each Fund may buy and sell securities denominated in currencies other than the
U.S. dollar, and may receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Funds from time to time may enter into foreign
currency exchange transactions to convert the U.S. dollar to foreign currencies,
to convert foreign currencies to the U.S. dollar and to convert foreign
currencies to other foreign currencies.
Each of the Asset Allocation Fund, Value Fund, Growth Fund, International Fund,
Small Cap Fund and Small Company Fund may invest in securities issued by other
investment companies which invest in high quality, short-term debt securities
and which determine their net asset value per share based on the amortized cost
or penny-rounding method. The International Fund may also purchase shares of
investment companies investing primarily in foreign securities, including
so-called "country funds." Country funds have portfolios consisting primarily of
securities of issuers located in one foreign country. The Funds may invest in
other investment companies primarily for the purpose of investing their
short-term cash which has not yet been invested in other portfolio instruments.
However, from time to time, on a temporary basis, each of the Large Cap Core
Fund, Dividend Fund and Small Cap Fund may invest exclusively in one other
investment company similar to the respective Fund.
All debt obligations, including convertible bonds, purchased by the Asset
Allocation Fund, Dividend Fund, Value Fund, Growth Fund and Small Company Equity
Fund are rated investment grade by Moody's (Aaa, Aa, A and Baa) or S&P (AAA, AA,
A and BBB), or, if not rated, are determined to be of comparable quality by the
Advisor. Debt securities rated Baa by Moody's or BBB by S&P are generally
considered to be investment grade securities although they have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher rated debt obligations.
The International Fund may only purchase debt securities rated A or higher by
Moody's or S&P, or if unrated, determined by the Advisor to be of comparable
quality. Issuers of commercial paper, bank obligations or repurchase agreements
in which the International Fund invests must have, at the time of investment,
outstanding debt rated A or higher by Moody's or S&P, or, if they are not rated,
the instrument purchased must be determined to be of comparable quality.
The Large Cap Fund and Small Cap Fund may purchase convertible bonds rated Ba or
higher by Moody's or BB or higher by S&P or Fitch at the time of investment.
Short-term money market instruments purchased by the Large Cap Fund and Small
Cap Fund must be rated in one of the top two rating categories by a nationally
recognized statistical rating agency, such as Moody's, S&P or Fitch.
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or the Advisor may determine that it
is appropriate for a Fund to continue to hold the obligation if retention is in
accordance with the interests of the particular Fund and applicable regulations
of the Securities and Exchange Commission ("SEC"). However, each Fund will sell
promptly any security that is not rated investment grade by either S&P or
Moody's if such securities exceed 5% of the Fund's net assets.
Loans of portfolio securities by the Funds will generally be short-term (except
in the case of the Large Cap Fund and Small Cap Fund, which may loan their
securities on a long-term or short-term basis or both), will be made only to
borrowers deemed by the Advisor to be of good standing and only when, in the
Advisor's judgment, the income to be earned from the loan justifies the
attendant risks. The Funds currently intend to limit the lending of their
portfolio securities so that, at any given time, securities loaned by a Fund
represent not more than one-third of the value of its total assets.
Each Fund will invest no more than 10% of its net assets in REITs.
Except as stated otherwise, if a percentage limitation is satisfied at the time
of investment, a later increase in such percentage resulting from a change in
the value of a Fund's portfolio securities generally will not constitute a
violation of the limitation. If the value of a Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity. With respect to borrowings, if a Fund's asset
coverage at any time falls below that required by the 1940 Act, the Fund will
reduce the amount of its borrowings in the manner required by the 1940 Act to
the extent necessary to satisfy the asset coverage requirement.
A-25
Each Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in the
Prospectuses and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act.
ASSET ALLOCATION FUND
The Asset Allocation Fund may invest up to 25% of its net assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") (EDRs are also known
as Continental Depositary Receipts ("CDRs")). Examples of supranational banks
include the International Bank for Reconstruction and Development ("World
Bank"), the Asian Development Bank and the InterAmerican Development Bank.
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that those
commitments will be undertaken or met in the future. See "Foreign Securities"
and "American, European, Continental and Global Depositary Receipts" in Part 2
of this SAI. The Fund may also invest in dollar-denominated high quality debt
obligations of U.S. corporations issued outside the United States. The Fund may
also buy and sell options and futures contracts, utilize stock index futures
contracts, options, swap agreements, indexed securities and options or futures
contracts, purchase asset-backed and mortgage-backed securities and enter into
foreign currency exchange contracts.
GROWTH FUND
Under normal circumstances, the Growth Fund invests at least 80% of its net
assets (plus any borrowings for investment purposes) in a broadly diversified
portfolio of equity securities, primarily common stocks and securities that can
be converted into common stocks. Convertible securities purchased by the Growth
Fund may include both debt securities and preferred stock. By investing in
convertible securities, the Fund will seek the opportunity, through the
conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible. See "Convertible Securities" in
Part 2 of this SAI. The Fund may also invest in common stock warrants.
The Fund may invest up to 20% of its total assets in foreign securities, either
directly or indirectly through the purchase of ADRs, EDRs and CDRs. In addition,
the Fund may invest in securities issued by foreign branches of U.S. banks and
foreign banks. See "Foreign Securities" and "American, European, Continental and
Global Depositary Receipts" in Part 2 of this SAI. The Fund may also purchase
put options and call options and write covered call options. See "Options on
Securities" in Part 2 of this SAI.
VALUE FUND
Under normal circumstances, the Value Fund invests at least 80% of its net
assets (plus any borrowings for investment purposes) in common stock, preferred
stock (including convertible preferred stock) and debt securities convertible
into common stock, mainly those that the Advisor believes to be undervalued.
Debt securities convertible into common stock are purchased primarily during
periods of relative market instability and are acquired principally for income
with the potential for appreciation being a secondary consideration. See
"Convertible Securities" in Part 2 of this SAI.
The Fund may also invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs, EDRs and CDRs. In addition, the Fund
may invest in securities issued by foreign branches of U.S. banks and foreign
banks. See "Foreign Securities" and
"American, European, Continental and Global Depositary Receipts" in Part 2 of
this SAI. The Fund may also write covered call options. See "Options on
Securities" in Part 2 of this SAI.
LARGE CAP FUND
Under normal market conditions, the Large Cap Fund will invest at least 80% of
its total assets in common stocks, preferred stocks, common stock warrants and
securities convertible into common stock. The Fund may purchase convertible
securities, including convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. See "Convertible Securities" in
Part 2 of this SAI. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Options on Securities" and
"Futures Contracts and Related Options" in Part 2 of this SAI.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs, CDRs and Global Depositary
Receipts ("GDRs"). Securities of a foreign issuer may present greater risks in
the form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund will
not invest in the securities of foreign issuers if any such risk appears to the
Advisor to be substantial. See "Foreign Securities" and "American, European,
Continental and Global Depositary Receipts" in Part 2 of this SAI.
A-26
INTERNATIONAL FUND
The Fund may invest in securities of issuers located in a variety of different
foreign regions and countries, including, but not limited to, Australia,
Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand
and the United Kingdom.
The Fund invests in common stock and may invest in other securities with equity
characteristics, consisting of trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities,
consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock. See "Convertible
Securities" in Part 2 of this SAI. The Fund invests in securities listed on
foreign or domestic securities exchanges and securities traded in foreign or
domestic over-the-counter markets, and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the Fund only
through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described below.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indexes listed on foreign and domestic stock exchanges. In addition, the
Fund may invest up to 100% of its total assets in securities of foreign issuers
in the form of ADRs, EDRs, CDRs or GDRs as described under "American, European,
Continental and Global Depositary Receipts" in Part 2 of this SAI. Furthermore,
the Fund may purchase and sell securities on a when-issued basis.
SMALL CAP FUND
Under normal circumstances, the Small Cap Fund invests at least 80% of its net
assets (plus any borrowings for investment purposes) in stocks of companies that
have market capitalizations similar in size to those companies in the Russell
2000 Index.. In addition to common stocks, the Small Cap Fund may purchase
convertible securities, including convertible preferred stock, convertible bonds
or debentures, units consisting of "usable" bonds and warrants or a combination
of the features of several of these securities. See "Convertible Securities" in
Part 2 of this SAI. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Options on Securities" and
"Futures Contracts and Related Options" in Part 2 of this SAI.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on U.S. securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs, CDRs and GDRs. Securities of
a foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to the Advisor to be
substantial. See "Foreign Securities" and "American, European, Continental and
Global Depositary Receipts" in Part 2 of this SAI.
SMALL COMPANY FUND
In addition to common stocks, the Small Company Fund may invest in preferred
stock, securities convertible into common stock, rights and warrants. Under
normal circumstances, at least 80% of the Fund's net assets (plus any borrowings
for investment purposes) will be invested in stocks of companies that have
market capitalizations similar in size to those companies in the Russell 2000
Growth Index. The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs, EDRs and CDRs. See
"Foreign Securities" and "American, European, Continental and Global Depositary
Receipts" in Part 2 of this SAI.
The Fund may purchase put options and call options and write covered call
options as a hedge against changes resulting from market conditions and in the
value of the securities held in the Fund or which it intends to purchase and
where the transactions are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. See "Options on Securities" in
Part 2 of this SAI.
DIVIDEND FUND
Under normal circumstances, the Dividend Fund invests at least 80% of its net
assets (plus any borrowings for investment purposes) in a diversified portfolio
of income-producing (dividend-paying) equity securities, which will consist
primarily of common stocks but may also include preferred stocks and convertible
securities. The Fund may invest up to 20% of its net asset in debt securities,
including lower-quality debt securities. . The Fund may invest up to 20% of its
total assets in foreign securities, either directly or indirectly through ADRs,
EDRs, CDRs and GDRs. See "Foreign Securities" and "American, European,
Continental and Global Depositary Receipts" in Part 2 of this SAI. The Fund may
also buy and sell options and futures contracts and utilize stock index futures
contracts, options, swap agreements, indexed securities and options on futures
contracts. See "Options on Securities" and "Futures Contracts and Related
Options" in Part 2 of this SAI.
A-27
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectuses under "Financial Highlights."
Each Fund may sell a portfolio investment soon after its acquisition if the
Advisor believes that such a disposition is consistent with the Fund's
investment goal. Portfolio investments may be sold for a variety of reasons,
such as a more favorable investment opportunity or other circumstances bearing
on the desirability of continuing to hold such investments. A portfolio turnover
rate of 100% or more is considered high, although the rate of portfolio turnover
will not be a limiting factor in making portfolio decisions. High portfolio
turnover may cause the Funds to realize capital gains which, if realized and
distributed by the Funds, may be taxable to shareholders as ordinary income.
High portfolio turnover may result in correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds.
For the Value Fund, during the fiscal year ending September 30, 2003, the
turnover decreased from 99% in the prior year to 50%. Part of the decrease was
because of a change in the fiscal year end, resulting in a shortened measurement
period. The remainder of the decline was due to a combination of 1) the
portfolio being well positioned during the end of 2002 and the first part of
2003 and requiring little change, and 2) some enhancements to the investment
process that incorporate an increased focus on risk which has the effect of at
times of lowering turnover. We expect that prospectively turnover will generally
range between 80% and 100%.
For the Growth Fund, during the fiscal year ending September 30, 2003, the
Growth Fund experienced a higher rate of portfolio turnover than during the
previous fiscal year. This was due largely to the repositioning of the Growth
Fund during the fiscal year ending September 30, 2003. The manager sold stocks
of companies with lower projected growth rates and lower price/earnings ratios.
Those securities were replaced with stocks of higher growth companies that the
manager expects will benefit over the long-term from the improving economic
environment.
FUND CHARGES AND EXPENSES
Prior to November 1, 2003, the Advisor was entitled to receive advisory fees,
computed daily and paid monthly, at the annual rate of 0.75% of the average
daily net assets of each Fund other than the International Fund. Effective
November 1, 2003, the Board of Trustees approved a new management fee structure
for the Funds, excluding the International Fund and Small Company Fund, as
follows: 0.75% of the first $500 million of average daily net assets, plus 0.70%
of the next $500 million of average daily net assets, plus 0.65% of the next
$500 million of average daily net assets, plus 0.60% of the next $500 million of
average daily net assets, plus 0.55% of average daily net assets in excess of $2
billion. Effective November 1, 2003, the new management fee structure for the
Small Company Fund is as follows: 0.75% of the first $500 million of average
daily net assets, plus 0.70% of the next $500 million of average daily net
assets, plus 0.65% of average daily net assets in excess of $1 billion. With
respect to the International Fund, the Advisor is entitled to receive advisory
fees, computed daily and paid monthly, at the annual rate of 1.15% of the first
$50 million of the Fund's average daily net assets, plus 0.95% of the next $50
million of such assets, plus 0.85% of net assets in excess of $100 million.
Prior to November 1, 2003, the Funds, other than the International Fund, had
been advised by the Advisor that, effective August 1, 2001, it intended to waive
advisory fees payable by the Funds so that advisory fees payable by the Funds
were as follows: 0.75% of the first $500 million of average daily net assets,
plus 0.70% of the next $500 million of average daily net assets, plus 0.65% of
the next $500 million of average daily net assets, plus 0.60% of the next $500
million of average daily net assets, plus 0.55% of average daily net assets in
excess of $2 billion. Effective November 1, 2003, the Advisor no longer intends
to waive its advisory fees payable to it by the Funds, excluding the
International Fund. For the International Fund, the Advisor has agreed to waive
fees in the amount of 0.25% annually of the average daily net assets for one
year from the date of acquisition of the Galaxy International Equity Fund.
Oechsle International Advisors, LLC ("Oechsle"), a Delaware limited liability
company with principal offices at One International Place, Boston, Massachusetts
02110, served as the sub-advisor to the International Fund until August 10,
2002. For the services provided and the expenses assumed pursuant to the
sub-advisory agreement between the Advisor and Oechsle, the Advisor paid a fee
to Oechsle, computed daily and paid quarterly, at the annual rate of 0.40% of
the first $50 million of the International Fund's average daily net assets, plus
0.35% of average daily net assets in excess of $50 million. The member manager
of Oechsle is Oechsle Group, LLC. FleetBoston Financial Corporation owns
approximately a 35% non-voting interest in Oechsle.
Under each Fund's administration agreement, the Fund pays the Advisor a monthly
fee at the annual rate of 0.0678% of the average daily net assets of the Fund.
Prior to November 26, 2002, the administration agreement was computed daily and
paid monthly at the annual rate of 0.09% of the first $2.5 billion of the
combined average daily net assets of the Funds and the other funds offered by
Galaxy, 0.085% of the next $2.5 billion of combined average daily net assets,
0.075% of the next $7 billion of combined average daily net assets, 0.065% of
the next $3 billion of combined average daily net assets, 0.06% of the next $3
billion of combined average daily net assets, 0.0525% of the next $9 billion of
combined average daily net assets and 0.05% of combined average daily net assets
in excess of $30 billion.
The Advisor is responsible for providing accounting and bookkeeping services to
the Fund pursuant to a pricing and bookkeeping agreement. Under a separate
agreement (outsourcing agreement), the Advisor has delegated those functions to
State Street Bank and Trust Company (State Street). The Advisor pays fees to
State Street under the outsourcing agreement.
A-28
Under its pricing and bookkeeping agreement with the Funds, the Advisor receives
from the Funds an annual fee based on the average daily net assets of each Fund
as follows: $25,000 under $50 million; $35,000 of $50 million but less than $200
million; $50,000 of $200 million but less than $500 million; $85,000 of $500
million but less than $1 billion and $125,000 in excess of $1 billion. The
annual fees for a Fund with more than 25% in non-domestic assets will be 150% of
the annual fees described above. In addition to the above-referenced fees, each
Fund pays an additional $10,000 per annum. Notwithstanding the above, for each
of the Funds, the Advisor waives fees payable to it under the agreement by $500
per month.
Under the shareholders' servicing and transfer agency fee arrangement between
CFS and the Funds, each Fund pays the following fees:
An annual open account fee of $28 per open account plus a Fund's
allocated share of reimbursement for the out-of-pocket expenses of CFS.
Prior to November 1, 2003, the Fund paid a shareholders' servicing and transfer
agency fee to CFS as follows:
- A new account set up charge of $5.00 per account; plus
- An account maintenance fee for each open non-networked account of
$14.00 per annum and for each networked account in the amount of
$100,000 accounts or less of $11.00 per annum and each networked
account in the amount of over $100,000 accounts of $8.00 per annum,
payable on a monthly basis, in an amount equal to 1/12 the per annum
charge; plus
- An account fee for each closed account in the amount of $100,000 or
less of $14.00 per annum and each closed account in the amount of 1
over $100,000 of $11.00 per annum, payable on a monthly basis, in an
amount equal to 1/12 the per annum charge; plus
- The Fund's allocated share of CFS' out-of-pocket expenses reasonably
incurred by CFS in performing its duties and responsibilities pursuant
to this arrangement.
There is a minimum annual fee per Fund of $5,000.
PFPC Inc. ("PFPC") (formerly known as First Data Investor Services Group, Inc.),
located at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, served as
the administrator (until July 2002) and transfer and dividend disbursing agent
(until July 2002) for the Predecessor Funds. PFPC also provided pricing and
bookkeeping services to the Predecessor Funds (until July 2002) and continued to
provide certain of these pricing and bookkeeping services until November 2002.
PFPC is an indirect majority-owned subsidiary of PNC Bank Corp. During the last
three fiscal years, no administration fees were waived by PFPC.
A-29
RECENT FEES PAID TO THE ADVISOR, PFPC AND OTHER SERVICE PROVIDERS (DOLLARS IN
THOUSANDS)
The following tables present recent fees paid to the Advisor, PFPC
and other service providers by the relevant Predecessor Funds.
ASSET ALLOCATION FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- -------------- ------------- ------------
Advisory fee $3,366 $4,135 $5,223 $5,784
Administration fee 301 362 460 546
Bookkeeping fee 138 115 126 123
Shareholder service and transfer agent fee 1,235 1,111 1,142 1,235
12b-1 fees:
Service fee (A Shares)(b) 1 0 0 0
Service fee (B Shares)(c) 2 1 1 1
Service fee (C Shares) (d) (e) (e) (e)
Service fee (G Shares)(f) 180 277 301 277
Service fee (T Shares)(g) 507 723 42 12
Distribution fee (A Shares)(b) 0 (d) (d) 1
Distribution fee (B Shares)(c) 7 3 3 4
Distribution fee (C Shares) 1 (e) (e) (e)
Distribution fee (G Shares)(f) 394 613 662 650
Fees and expenses waived or
reimbursed by the Advisor (36) (33) (18) (17)
Fees waived by CFD (Class G) 0 (23) (7) 0
Fees waived by CFS 0 (20) (26) 0
(a) The Asset Allocation Fund changed its fiscal year end from October 31
to September 30 in 2003.
(b) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime A shares
were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime B shares
were redesignated Class B shares.
(d) Rounds to less than one.
(e) Class C shares were initially offered on November 18, 2002.
(f) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail B shares
were redesignated Class G shares.
(g) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail A shares
were redesignated Class T shares.
GROWTH FUND
Eleven months Years ended October 31,
ended September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ------------ -----------
Advisory fee $6,438 $9,319 $11,772 $13,911
Administration fee 575 816 1,047 1,317
Bookkeeping fee 87 132 140 138
Shareholder service and transfer agent fee 1,942 872 1,214 1,446
12b-1 fees:
Service fee (A Shares)(b) 1 0 0 0
Service fee (B Shares)(c) 1 684 930 1
Service fee (C Shares) 502 (d) (d) (d)
Service fee (G Shares)(e) 166 252 319 285
Service fee (T Shares)(f) 622 0 0 0
Distribution fee (A Shares)(b) 0 1 2 (g)
Distribution fee (B Shares)(c) 4 2 3 3
Distribution fee (C Shares) 2 (d) (d) (d)
Distribution fee (G Shares)(e) 359 558 726 697
Fees and expenses waived or reimbursed by the Advisor (200) (541) (160) (18)
Fees waived by CFD (Class G) 0 (26) (10) 0
Fees waived by CFS 0 (90) (47) 0
A-30
(a) The Equity Growth Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Galaxy Equity Growth Fund, Prime A shares
were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Prime B shares
were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Equity Growth Fund, Retail B shares
were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Equity Growth Fund, Retail A shares
were redesignated Class T shares.
(g) Rounds to less than one.
VALUE FUND
Eleven months Years ended October 31,
ended September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ------------ ------------
Advisory fee $2,267 $2,892 $2,974 $3,813
Administration fee 202 253 260 364
Bookkeeping fee 53 64 64 81
Shareholder service and transfer agent fee 675 481 586 688
12b-1 fees:
Service fee (A Shares) 1 (b) (b) (b)
Service fee (B Shares) (g) (c) (c) (c)
Service fee (C Shares) (g) (d) (d) (d)
Service fee (G Shares) (e) 41 71 80 81
Service fee (T Shares)(f) 329 0 0 0
Distribution fee (B Shares) 1 (c) (c) (c)
Distribution fee (C Shares) (g) (d) (d) (d)
Distribution fee (G Shares)(e) 89 160 188 205
Fees and expenses waived or reimbursed by the Advisor 0 (6) (7) (12)
Fees waived by CFD (Class G) 0 0 (4) 0
Fees waived by CFS (59) 0 (8) 0
(a) The Value Fund changed its fiscal year end from October 31 to September
30 in 2003.
(b) Class A shares were initially offered on November 25, 2002.
(c) Class B shares were initially offered on November 25, 2002.
(d) Class C shares were initially offered on November 25, 2002.
(e) On November 25, 2002, the Galaxy Equity Value Fund, Retail B shares
were redesignated Class G shares.
(f) On November 25, 2002, the Galaxy Equity Value Fund, Retail A shares
were redesignated Class T shares.
(g) Rounds to less than one.
LARGE CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ------------- -------------
Advisory fee 3,311 $5,470 $7,004 $5,900
Advisory fee waiver - 115 41 0
Administration fee 297 479 619 552
Bookkeeping fee
Shareholder service and transfer agent fee 13 667 634 434
12b-1 fees:
Distribution fee (Class A) N/A (g) (g) (g)
Distribution fee (Class B) 4 1 1 1
Distribution fee (Class G) 208 290 369 409
Distribution fee (Class C) 1 N/A N/A N/A
Service fee (Class B) 1 (g) (g) (g)
Service fee (Class G) ** 95 130 168 91
Service fee (Class C) ** (g) N/A N/A N/A
Service fee (Class T) ** 484 N/A N/A N/A
Fees waived by CFS 0 0 (29) 0
A-31
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(b) On November 18, 2002, the Galaxy Large Cap Core Fund, Prime A shares
were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy Large Cap Core Fund, Prime B shares
were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Large Cap Core Fund, Retail B shares
were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Large Cap Core Fund, Retail A shares
were redesignated Class T shares.
(g) Rounds to less than one.
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
---- ----------- ------------- -----------
Advisory fee $3,241 $4,760 $4,985 $5,508
Advisory fee waiver 900 1,341 1,994 2,212
Expense reimbursement by the Advisor N/A 0 0 0
Sub-advisory fee N/A 1,551 2,816 $3,121
Administration fee 241 3523 524 624
Bookkeeping fee
Shareholder service fee * (g) 152 175 282
12b-1 fees:
Distribution fee (Prime A Shares) N/A (g) (g) (g)
Distribution fee (Class B/Prime B Shares) (g) 2 3 4
Distribution fee (Class G/Retail B Shares) 28 42 47 40
Distribution fee (Class C Shares) (g) N/A N/A N/A
Service fee (Class B/Prime B Shares) (g) (g) (g) 1
Service fee (Class C) (g)
Service fee (Class T) 108
Service fee (Class G/Retail B Shares) ** 13 19 16 5
Fees waived by CFD (Class G) 0 (16) (5) 0
Fees waived by CFS (50) (70) (39) 0
(a) The International Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Galaxy International Equity Fund, Prime A
shares were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy International Equity Fund, Prime B
shares were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy International Equity Fund, Retail B
shares were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy International Equity Fund, Retail A
shares were redesignated Class T shares.
(g) Rounds to less than one.
A-32
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ -------------- -----------
Advisory fee $5,236 $4,741 $3,725 $2,844
Administration fee 468 415 328 269
Bookkeeping fee 87 105 88 71
Shareholder service and transfer agent fee 731 316 276 151
12b-1 fees:
Service fee (A shares)(b) 38 0 0 0
Service fee (B shares)(c) 8 (g) (g) (g)
Service fee (C shares) 6 (d) (d) (d)
Service fee (G shares)(e) 26 24 11 7
Service fee (T shares)(f) 319
Distribution fee (A Shares)(b) 0 (g) (g) (g)
Distribution fee (B Shares)(c) 23 2 2 1
Distribution fee (C shares) 19 (d) (d) (d)
Distribution fee (G Shares)(e) 57 54 25 16
Fees and expenses waived or reimbursed by the Advisor (121) (66) (13) (100)
Fees waived by CFD (Class G) 0 0 0 (4)
Fees waived by CFS 0 0 0 (93)
(a) The Small Cap Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime A shares
were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime B shares
were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail B shares
were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail A shares
were redesignated Class T shares.
(g) Rounds to less than one.
SMALL COMPANY FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------- ------------- ------------
Advisory fee $2,185 $2,956 $3,665 $4,110
Administration fee 195 257 323 389
Bookkeeping fee 54 70 88,332 98
Shareholder service and transfer agent fee 789 201 259 316
12b-1 fees:
Service fee (A shares)(b) (c) (d) (d) (d)
Service fee (B shares)(f) (c) (e) (e) (e)
Service fee (C shares)(g) (c) 0 0 0
Service fee (G shares)(h) 22 41 51 50
Service fee (T shares)(i) 156 0 0 0
Distribution fee (A shares)(b) 0 (d) (d) (d)
Distribution fee (B shares)(f) (c) (e) (e) (e)
Distribution fee (C shares)(g) (c) 0 0 0
Distribution fee (G shares)(h) 48 91 113 120
Fees and expenses waived or reimbursed by the Advisor 0 (58) (7) (4)
Fees waived by CFD (G shares) 0 (3) 0 (2)
Fees waived by CFS (26) (22) 0 0
A-33
(a) The Small Company Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime A
shares were redesignated Class A shares.
(c) Rounds to less than one.
(d) Prime A shares were not offered during the period.
(e) Prime B shares were not offered during the period.
(f) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime B
shares were redesignated Class B shares.
(g) Class C shares were initially offered on November 18, 2002.
(h) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail B
shares were redesignated Class G shares.
(i) On November 18, 2002, the Galaxy Small Company Equity Fund l Retail
A shares were redesignated Class T shares.
DIVIDEND FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- -------------- ------------- ------------
Advisory fee $1,227 $381 $643 $97
Advisory fee waiver (4) (102) (234) (181)
Bookkeeping Fee 41 40 0 0
Administration fee 109 33 77 64
Shareholder service and transfer agent fee N/A 24 20 8
12b-1 fees:
Distribution fee (Class A Shares) 0 (d) (d) (d)
Distribution fee (Class B Shares) 2 (d) (d) (d)
Distribution fee (Class C Shares) (e) (d) (d) (d)
Distribution fee (Class G Shares)(c) 61 16 12 9
Service fee (Class B Shares) (e) (d) (d) (d)
Service fee (Class C Shares) (e) (d) (d) (d)
Service fee (Class T Shares)(b) 246 N/A N/A N/A
Service fee (Class G Shares)(c) 28 7 5 2
Fees waived by CFD (G Shares) 0 (e) (e) 0
Fees waived by CFS (e) (4) (6) 0
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(b) On November 25, 2002, the Fund's Retail A shares were redesignated
Class T shares.
(c) On November 25, 2002, the Fund's Retail B shares were redesignated
Class G shares.
(d) Classes A, B and C shares were initially offered on November 25, 2002.
(e) Rounds to less than one.
Fleet Bank, an affiliate of FleetBoston Financial Corporation, was paid a fee
for Sub-Account Services performed with respect to Trust Shares of the
Predecessor Funds held by defined contribution plans. Pursuant to an agreement
between Fleet Bank and PFPC, Fleet Bank was paid $21.00 per year for each
defined contribution plan participant account. For the fiscal year ended October
31, 2002, Fleet Bank received $2,555,258 for Sub-Account Services. PFPC bore
this expense directly, and shareholders of Trust Shares of the Predecessor Funds
bore this expense indirectly through fees paid to PFPC for transfer agency
services.
BROKERAGE COMMISSIONS (DOLLARS IN THOUSANDS)
For the eleven months ended September 30, 2003 and the fiscal years ended
October 31, 2002, 2001 and 2000, the Funds paid brokerage commissions as shown
in the table below. During the eleven months ended September 30, 2003 and the
fiscal years ended October 31, 2002, 2001 and 2000, certain Funds effected a
portion of their portfolio transactions through Quick & Reilly Institutional
Trading ("Quick & Reilly"), a division of Fleet Securities, Inc., which is an
affiliate of the Advisor, and Robertson Stephens Inc. ("Robertson Stephens"),
also an affiliate of the Advisor. The table below discloses (1) the aggregate
amount of commissions paid to Quick & Reilly and Robertson Stephens by the Funds
during the eleven months ended September 30, 2003 and the fiscal years ended
October 31, 2002, 2001 and 2000, (2) the percentage of each Fund's aggregate
brokerage commissions for the eleven months ended September 30, 2003 and the
fiscal years ended October 31, 2002, 2001 and 2000, that was paid to Quick &
Reilly and Robertson Stephens, and (3) the percentage of each Fund's aggregate
dollar amount of transactions that involved payment of commissions that was
effected through Quick & Reilly and Robertson Stephens during the eleven months
ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and
2000. In addition, the table below discloses the soft dollar commissions paid by
the Funds during the eleven months ended September 30, 2003 and the fiscal year
ended October 31, 2002, 2001 and 2000.
A-34
ASSET ALLOCATION FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ----------- ------------ ------------
Total commissions $1,013 $438 $149 $262
Soft dollar commissions 18 100 6 0
Aggregate commissions to Quick & Reilly 0 0 69 173
and Robertson Stephens
% of aggregate commissions to Quick & 0.00% 0.00% 46.55% 0.00%
Reilly and Robertson Stephens
% of aggregate commission transactions 0.00% 0.00% 54.72% 0.00%
effected through Quick & Reilly and
Robertson Stephens
(a) The Asset Allocation Fund changed its fiscal year end from October 31
to September 30 in 2003.
GROWTH FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ----------- ------------
Total commissions $902 $1,925 $1,817 $1,911
Soft dollar commissions 73 123 182
Aggregate commissions to Quick & Reilly 0 0 37 98
and Robertson Stephens
% of aggregate commissions to Quick & 0.00% 0.00% 2.02% 0.00%
Reilly and Robertson Stephens
% of aggregate commission transactions 0.00% 0.00% 2.15% 0.00%
effected through Quick & Reilly
and Robertson Stephens
(a) The Growth Fund changed its fiscal year end from October 31 to
September 30 in 2003.
VALUE FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ------------ -----------
Total commissions $264 $1,515 $1,432 $976
Soft dollar commissions 20 405 195
Aggregate commissions to Quick & Reilly 0 0 700 653
and Robertson Stephens
% of aggregate commissions to Quick & 0.00% 0.00% 48.90% 0.00%
Reilly and Robertson Stephens
% of aggregate commission transactions 0.00% 0.00% 62.41% 0.00%
effected through Quick & Reilly
and Robertson Stephens
Aggregate commissions to Fleet 19 N/A N/A N/A
Securities, Inc.
% of aggregate commissions to Fleet 7.26% N/A N/A N/A
Securities, Inc.
% of aggregate commission transactions 13.67% N/A N/A N/A
effected through Fleet Securities, Inc.
(a) The Value Fund changed its fiscal year end from October 31 to September
30 in 2003.
A-35
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------------- ------------ ----------- -----------
Total commissions $948 $609 $749 $795
Soft dollar commissions 105 25 96
Aggregate commissions to Quick & Reilly and
Robertson Stephens 0 0 102 370
% of aggregate commissions to Quick & Reilly and
Robertson Stephens 0% 0.00% 13.66% 0.00%
% of aggregate commission transactions effected 0.00% 22.14% 0.00%
through Quick & Reilly and Robertson Stephens 0%
Aggregate commissions to Fleet Securities $281 N/a N/a N/a
% of aggregate commissions to Fleet Securities 6.38% N/a N/a N/a
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
INTERNATIONAL FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
-------------- ------------- ---------- ------------
Total commissions $1,579 $0 $1,516 $1,644
Soft dollar commissions 267 0 17
Aggregate commissions to Quick & Reilly N/A N/A N/A N/A
and Robertson Stephens
% of aggregate commissions to Quick & N/A N/A N/A N/A
Reilly and Robertson Stephens
% of aggregate commission transactions N/A N/A N/A N/A
effected through Quick & Reilly and
Robertson Stephens
(a) The Fund changed its fiscal year end from October 31 to September 30
in 2003.
SMALL CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ------------ ---------- -----------
Total commissions $1,246,500 $1,209,263 $ 740,498 $458,281
Soft dollar commissions 0 0 38,842
Aggregate commissions to Quick & Reilly and
Robertson Stephens 0 0 18,250 0
% of aggregate commissions to Quick & Reilly
and Robertson Stephens 0.00% 0.00% 2.46% 0.00%
% of aggregate commission transactions
effected through Quick & Reilly and Robertson
Stephens 0.00% 0.00% 2.06% 0.00%
(a) The Small Cap Fund changed its fiscal year end from October 31 to
September 30 in 2003.
A-36
SMALL COMPANY FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------- ----------- ---------- ----------
Total commissions $2,550 $1,839 $956 $950
Soft dollar commissions 5 12 71
Aggregate commissions to Quick & Reilly
and Robertson Stephens 0 0 0 10
% of aggregate commissions to Quick &
Reilly and Robertson Stephens 0.00% 0.00% 0.00% 0.00%
% of aggregate commission transactions
effected through Quick & Reilly and
Robertson Stephens 0.00% 0.00% 0.00% 0.00%
(a) The Small Company Fund changed its fiscal year end from October 31 to
September 30 in 2003.
DIVIDEND FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(a) 2002 2001 2000
------------- ----------- ----------- ----------
Total commissions $76,363 $224 $362 $248
Soft dollar commissions 910 2 24 15
Aggregate commissions to Quick & Reilly 0 0 7 0
and Robertson Stephens
% of aggregate commissions to Quick & 0% 0.00% 0.51% 0%
Reilly and Robertson Stephens
% of aggregate commission transactions 0% 0.00% 1.94% 0%
effected through Quick & Reilly and
Robertson Stephens
Aggregate commissions to Fleet Securities 21 N/A N/A N/A
% of aggregate commissions to Fleet 0.29% N/A N/A N/A
Securities
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
The Trust is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during their most recent fiscal year. At
September 30, 2003, the Funds held securities of their regular brokers or
dealers as set forth below:
Name Broker/Dealer Value
---- ------------- -----
ASSET ALLOCATION FUND CitiGroup, Inc. $11,026
Goldman Sachs Group 2,759
JP Morgan Chase & Co. 2,345
Credit Suisse Group 831
State Street Corp. 653
Nomura Securities Co. LTD 275
Investors Financial Services Corp. 223
Janus Capital Group, Inc. 159
Jefferies Group, Inc. 138
Lehman Brothers Holdings, Inc. 131
Bear Stearns 127
A-37
Name Broker/Dealer Value
---- ------------- -----
VALUE FUND CitiGroup, Inc. $ 14,104
PNC Financial Services Group 6,419
Wachovia Corp. 5,178
Merrill Lynch & Co., Inc. 4,622
LaBrance & Co., Inc. 1,459
DIVIDEND FUND CitiGroup, Inc. $ 9,102
JP Morgan Chase & Co. 4,120
State Street Corp. 1,800
INTERNATIONAL FUND Credit Suisse Corp. $ 9,025
Nomura Securities Co. LTD 3,005
LARGE CAP FUND CitiGroup, Inc. $ 13,475
JP Morgan Chase & Co. 8,041
GROWTH FUND CitiGroup, Inc. $ 31,857
Goldman Sachs Group, Inc. 10,488
SMALL COMPANY FUND Investors Financial Services Corp. $ 4,475
Jefferies Group, Inc. 3,091
TRUSTEES AND TRUSTEES' FEES
Columbia Funds Complex consists of the following funds (the "Funds"):
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the
series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the
series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the
series of Columbia Funds Trust VII, the series of Liberty Variable Investment
Trust and 9 closed-end or interval management investment company portfolios.
(For purposes of this Trustees and Trustees' Fees section only, the "Liberty
Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Trust IX,
the series of Columbia Funds Trust XI, the series of SteinRoe Variable
Investment Trust and 3 closed-end management investment company portfolios. (For
purposes of this Trustees and Trustees' Fees section only, the "Stein Roe
Funds").
Two closed-end management investment company portfolios named Liberty All-Star
Equity Fund and Liberty All-Star Growth Fund, Inc. (For purposes of this
Trustees and Trustees' Fees section only, the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Common Stock Fund, Inc., Columbia Daily
Income Company, Columbia Fixed Income Securities Fund, Inc., Columbia Growth
Fund, Inc., Columbia High Yield Fund, Inc., Columbia International Stock Fund,
Inc., Columbia National Municipal Bond Fund, Inc., Columbia Oregon Municipal
Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia Short Term
Bond Fund, Inc., Columbia Small Cap Growth Fund, Inc., Columbia Mid Cap Growth
Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund,
Inc. and the series of CMG Fund Trust. (For purposes of this Trustees and
Trustees' Fees section only, the "Columbia Funds").
The series of The Galaxy Funds. (For purposes of this Trustees and Trustees'
Fees section only, the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust. (For
purposes of this Trustees and Trustees' fees section only, the "Acorn Funds" and
"WAT Funds," respectively).
A-38
The Advisor or its affiliates pay the compensation of all the officers of the
Funds in the Columbia Funds Complex, including Trustees who are affiliated with
the Advisor. For the fiscal year ended October 31, 2002, the Trustees did not
receive compensation from the Funds because the Funds had not yet commenced
investment operations. For the fiscal year ended September 30, 2003, and the
calendar year ended December 31, 2003, the Trustees received the following
compensation for serving as Trustees:
Aggregate
Compensation from Aggregate Aggregate Aggregate
Pension or the Asset Compensation Compensation from Compensation from
Retirement Allocation Fund from the Growth the Value Fund the Large Cap
Benefits for the Fiscal Fund for the for the Fiscal Fund for the
Trustee(a) Accrued as part Year Ended Fiscal Year Year Ended Fiscal Year Ended
of Fund September 30, Ended September 30, September 30, September 30,
Expenses(b) 2003(c) 2003(c) 2003(c) 2003(c)
----------- ------- ------- ------- -------
Douglas A. Hacker N/A $ 720 $ 984 $1,141 $ 815
Janet Langford Kelly N/A 584 772 1,022 676
Richard W. Lowry N/A 553 708 1,036 653
Salvatore Macera (d) N/A 414 536 683 488
William E. Mayer N/A 786 826 1,090 720
Charles R. Nelson N/A 730 995 1,146 829
John J. Neuhauser N/A 786 1,088 1,189 882
Joseph R. Palombo (e) N/A N/A N/A N/A N/A
Patrick J. Simpson N/A N/A N/A N/A N/A
Thomas E. Stitzel N/A 584 772 1,022 676
Thomas C. Theobald (f) N/A 624 826 1,090 720
Anne-Lee Verville (g) N/A 822 1,124 1,274 930
Richard L. Woolworth N/A N/A N/A N/A N/A
Aggregate Aggregate Aggregate
Aggregate Compensation Compensation from the Compensation from the Compensation from the
from the International Fund Small Cap Fund for the Small Company Fund for Dividend Fund for the
for the Fiscal Year Ended Fiscal Year Ended the Fiscal Year Ended Fiscal Year Ended
Trustee(a) September 30, 2003(c) September 30, 2003(c) September 30, 2003(c) September 30, 2003(c)
--------------------- --------------------- --------------------- ---------------------
Douglas A. Hacker $ 819 $1,007 $ 959 $ 594
Janet Langford Kelly 699 699 850 514
Richard W. Lowry 687 687 855 510
Salvatore Macera (d) 481 481 569 349
William E. Mayer 746 746 907 549
Charles R. Nelson 827 827 964 599
John J. Neuhauser 874 874 1,006 630
Joseph R. Palombo (e) N/A N/A N/A N/A
Patrick J. Simpson N/A N/A N/A N/A
Thomas E. Stitzel 699 699 850 514
Thomas C. Theobald (f) 746 746 907 549
Anne-Lee Verville (g) 925 925 1,074 669
Richard L. Woolworth N/A N/A N/A N/A
A-39
Total Compensation from the Columbia
Funds Complex Paid to the Trustees for
the Calendar Year Ended
Trustee(a) December 31, 2003(a)
--------------------
Douglas A. Hacker $115,500
Janet Langford Kelly 101,500
Richard W. Lowry 128,150
Salvatore Macera (d) 56,500
William E. Mayer 133,150
Charles R. Nelson 155,073
John J. Neuhauser 143,568
Joseph R. Palombo (e) N/A
Patrick J. Simpson 62,234
Thomas E. Stitzel 103,500
Thomas C. Theobald (f) 110,250
Anne-Lee Verville (g) 128,250
Richard L. Woolworth 64,234
(a) As of December 31, 2003, the Columbia Funds Complex consisted of 132
open-end and 15 closed-end management investment company portfolios.
Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth,
then directors/trustees of the Columbia Funds, were appointed to the board
of trustees of the Liberty Funds and Stein Roe Funds. Also effective
October 8, 2003, the trustees of the Liberty Funds and the Stein Roe Funds
were elected as directors/trustees of the Columbia Funds. A single
combined board of trustees/directors now oversees all of the Liberty
Funds, Stein Roe Funds and Columbia Funds. The All-Star Funds, the
Columbia Management Multi-Strategy Hedge Fund, LLC, the Galaxy Funds, the
Acorn Funds and the WAT Funds each have separate boards of
trustees/directors.
(b) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(c) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(d) Mr. Macera retired as a Trustee from the Board of Trustees effective June
18, 2003.
(e) Mr. Palombo does not receive compensation because he is an employee of the
Advisor.
(f) During the fiscal year ended September 30, 2003, and the calendar year
ended December 31, 2003, Mr. Theobald deferred $210 of his compensation
from the Asset Allocation Fund, $194 of his compensation from the Growth
Fund, $630 of his compensation from the Value Fund, $290 of his
compensation from the Large Cap Fund, $347 of his compensation from the
International Fund, $347 of his compensation from the Small Cap Fund, $499
of his compensation from the Small Company Fund and $274 of his
compensation from the Dividend Fund, and $53,250 of his total compensation
from the Columbia Funds Complex pursuant to the deferred compensation
plan. At December 31, 2003, the value of Mr. Theobald's account under that
plan was $55,587.
(g) During the fiscal year ended September 30, 2003, and the calendar year
ended December 31, 2003, Ms. Verville deferred $221 of her compensation
from the Asset Allocation Fund, $203 of her compensation from the Growth
Fund, $662 of her compensation from the Value Fund, $305 of her
compensation from the Large Cap Fund, $364 of her compensation from the
International Fund, $364 of her compensation from the Small Cap Fund, $524
of her compensation from the Small Company Fund and $287 of her
compensation from the Dividend Fund, and $53,250 of her total compensation
from the Columbia Funds Complex pursuant to the deferred compensation
plan. At December 31, 2003, the value of Ms. Verville's account under that
plan was $516,001.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and
supervision of the Fund's affairs and for protecting the interests of the
shareholders. The Trustees meet periodically throughout the year to oversee the
Fund's activities, review contractual arrangements with service providers for
the Fund and review the Fund's performance. The Trustees have created several
committees to perform specific functions for the Fund. Mr. Theobald was elected
Chairman of the Board of Trustees of the Liberty Funds, Stein Roe Funds and
Columbia Funds effective December, 2003.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit
Committee of the Board of Trustees of the Funds. Prior to October 2003, Ms.
Verville and Messrs. Hacker, Nelson and Neuhauser were members of the Audit
Committee of the Board of Trustees of the Fund. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection and
performance of the independent accountants, and reviewing matters relative to
accounting and auditing practices and procedures, accounting records, and the
internal accounting controls, of the Funds and certain service providers. For
the period November 1, 2002 through September 30, 2003, the Audit Committee
convened ten times.
A-40
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance
Committee of the Board of Trustees of the Funds. Prior to October 8, 2003, Ms.
Verville and Messrs. Hacker, Lowry, Mayer and Theobald were members of the
Governance Committee of the Board of Trustees of the Fund. The Governance
Committee's functions include recommending to the Trustees nominees for
independent Trustee positions and for appointments to various committees,
performing periodic evaluations of the effectiveness of the Board, reviewing and
recommending to the Board policies and practices to be followed in carrying out
the Trustees' duties and responsibilities and reviewing and making
recommendations to the Board regarding the compensation of the Trustees who are
not affiliated with the Funds' investment advisors. The Governance Committee
will consider candidates for Trustee recommended by shareholders. Written
recommendations with supporting information should be directed to the Committee,
in care of the Funds. For the period November 1, 2002 through September 30,
2003, the Governance Committee convened five times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory
Fees & Expenses Committee of the Board of Trustees of the Funds. Prior to
October 8, 2003, Ms. Kelly and Messrs. Mayer, Neuhauser, Stitzel and Theobald
were members of the Advisory Fees and Expenses Committee of the Board of
Trustees of the Fund. The Advisory Fees & Expenses Committee's functions include
reviewing and making recommendations to the Board as to contracts requiring
approval of a majority of the disinterested Trustees and as to any other
contracts that may be referred to the Committee by the Board. For the period
November 1, 2002 through September 30, 2003, the Advisory Fees & Expenses
Committee convened five times.
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each Trustee of the Funds also began serving on an Investment
Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an
ongoing basis, a select group of funds in the Columbia Funds Complex and gives
particular consideration to such matters as the Funds' adherence to their
investment mandates, historical performance, changes in investment processes and
personnel, and proposed changes to investment objectives. Investment personnel
who manage the Funds attend IOC meetings from time to time to assist each IOC in
its review of the Funds. Each IOC meets four times a year. The following are
members of the respective IOCs and the general categories of Funds which they
review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing
Funds in the following asset categories: Large Growth Diversified,
Large Growth Concentrated, Small Growth, Outside Managed (i.e.,
sub-advised), Municipal and Bank Loan.
IOC#2: Messrs. Hacker and Palombo and Ms. Verville are responsible for
reviewing Funds in the following asset categories: Large Blend,
Small Blend, Foreign Stock, Fixed Income -- Multi Sector and Fixed
Income - Core.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for
reviewing Funds in the following asset categories: Large Value,
Mid Cap Value, Small Value, Asset Allocation, High Yield and Money
Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for
reviewing Funds in the following asset categories: Large Blend,
Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity,
Taxable Fixed Income and Money Market.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee as of December 31, 2003 (i) in each Fund and (ii) in the
Funds in the Columbia Funds Complex.
A-41
Dollar Range of Equity Dollar Range of Equity Dollar Range of Equity Dollar Range of Equity
Securities Owned in the Securities Owned in Securities Owned in Securities Owned in
Name of Trustee Asset Allocation Fund the Growth Fund the Value Fund the Large Cap Fund
--------------- --------------------- --------------- -------------- ------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 $0 $0 $0
Janet Langford Kelly $0 $0 $0 $0
Richard W. Lowry $0 $0 $0 $0
Charles R. Nelson $50,001-$100,000 $0 $0 $0
John J. Neuhauser $0 $0 $0 $0
Patrick J. Simpson $0 $0 $0 $0
Thomas E. Stitzel $0 $0 $0 $0
Thomas C. Theobald $0 $0 $0 $0
Anne-Lee Verville (a) $0 $0 $0 $0
Richard L. Woolworth $0 $0 $0 $0
INTERESTED TRUSTEES
William E. Mayer $0 $0 $0 $0
Joseph R. Palombo $0 $0 $0 $0
Dollar Range of Equity Dollar Range of Equity Dollar Range of Equity Dollar Range of Equity
Securities Owned in the Securities Owned in Securities Owned in Securities Owned in
Name of Trustee International Fund the Small Cap Fund the Small Company Fund the Dividend Fund
--------------- ------------------ ------------------ ------------------ -------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 $0 $0 $0
Janet Langford Kelly $0 $0 $0 $0
Richard W. Lowry $0 $0 $0 $0
Charles R. Nelson $0 $0 $0 $0
John J. Neuhauser $0 $0 $0 $0
Patrick J. Simpson $0 $0 $0 $0
Thomas E. Stitzel $0 $0 $0 $0
Thomas C. Theobald $0 $0 $0 $0
Anne-Lee Verville (a) $0 $0 $0 $0
Richard L. Woolworth $0 $0 $0 $0
INTERESTED TRUSTEES
William E. Mayer $0 $0 $0 $0
Joseph R. Palombo $0 $0 $0 $0
A-42
Aggregate Dollar Range of Equity Securities
Owned in All Funds Overseen by Trustee in
Name of Trustee Columbia Funds Complex
- --------------- ----------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Over $100,000
Janet Langford Kelly Over $100,000
Richard W. Lowry Over $100,000
Charles R. Nelson Over $100,000
John J. Neuhauser Over $100,000
Patrick J. Simpson $50,001-$100,000
Thomas E. Stitzel $50,001-$100,000
Thomas C. Theobald Over $100,000
Anne-Lee Verville (a) Over $100,000
Richard L. Woolworth Over $100,000
INTERESTED TRUSTEES
William E. Mayer $50,001-$100,000
Joseph R. Palombo $1-$10,000
(a) Ms. Verville has elected to defer her compensation as a Trustee under the
deferred compensation plan for independent Trustees of the Columbia Funds
Complex. The value of her deferred compensation is determined as if the amounts
had been invested, as of the date of deferral, in shares of one or more funds in
the complex as specified by her. At December 31, 2003, the value of her deferred
compensation account exceeded $100,000.
OWNERSHIP OF THE FUNDS
As of record on December 31, 2003, the Trustees and officers of the Trust as a
group owned less than 1% of the outstanding shares of the Funds.
As of record on December 31, 2003, the following shareholders of record owned 5%
or more of the shares of the classes of the Funds noted below:
ASSET ALLOCATION FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
US Clearing Corp 8,102.9510 7.08
FBO 245-05958-10
26 Broadway
New York, NY 10004-1703
US Clearing Corp 6,134.1640 5.36
FBO 131-92787-17
26 Broadway
New York, NY 10004-1703
Clarence D. Williams 7,634.9650 6.67
443-5 St. Anns Avenue
Apt. 11A
Bronx, NY 10455
Columbia Trust Company Rollover IRA 5,993.4380 5.24
George B. OOsterwijk
306 W. El Norte Pkwy. #N410
Escondido, CA 92026-1960
A-43
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Citigroup Global Markets Inc. 2,346.4060 12.83
00112C59463
333 West 34th Street -- 3rd Floor
New York, NY 10001-2402
US Clearing Corp 1,091.5090 5.97
FBO 236-99556-18
26 Broadway
New York, NY 10004-1703
Raymond James & Assoc., Inc. 1,927.0460 10.54
FBO Edmonds Thomas
Bin #47331326
880 Carillon Parkway
St. Petersburg, FL 33716-1100
American Enterprise Investment Svcs 1,402.8630 7.67
FBO 555731661
P.O. Box 9446
Minneapolis, MN 55440-9446
LPL Financial Services 2,164.0630 11.84
A/C 4594-0116
9785 Towne Center Drive
San Diego, CA 92121-1968
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 870,667.1960 5.78
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co 1,305,834.2960 8.67
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
A-44
GROWTH FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Columbia Trust Company IRA 13,984.8130 9.38
Max Borten
1301 Commonwealth Avenue
West Newton, MA 02465-2912
NFSC FEBO # 251-050660 8,136.8150 5.46
Elwood W. Beebe TTEE
Russell S. Tauscher TTEE
The Philipp Manuf Co Retir Pl EM
19 Ward Avenue
Easthampton, MA 01027-2214
NFSC FEBO # 251-050652 27,173.6630 18.23
Elwood W. Beebe TTEE
Russell S. Tauscher TTEE 401K Pl
The Philipp Manufacturing Co
19 Ward Avenue
Easthampton, MA 01027-2214
Pershing LLC 7,824.7260 5.25
PO Box 2052
Jersey City, NJ 07303-2052
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Dean Witter for the Benefit of 5,210.2770 14.59
Disc Roger A. Shiffman TTEE
PO Box 250 Church Street Station
New York, NY 10008-0250
US Clearing Corp 8,947.5840 25.06
FBO 195-04466-23
26 Broadway
New York, NY 10004-1703
US Clearing Corp 2,298.8510 6.44
FBO 245-96575-12
26 Broadway
New York, NY 10004-1703
US Clearing Corp 5,656.5780 15.84
FBO 247-02888-18
26 Broadway
New York, NY 10004-1703
A-45
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Amvescap National Trust Co as Agent 8,731,123.0310 24.05
For Fleet National Bank FBO
FleetBoston Financial Savings Plus
PO Box 105779
Atlanta, GA 30348-5779
Gales & Co 5,027,993.2770 13.85
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
Gales & Co 9,405,643.6380 25.91
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
Gales & Co 7,824,652.6560 21.55
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
VALUE FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Columbia Management Advisors Inc. 10,075.5990 8.57
Nominee for Various Columbia Funds
Attn Jane Howard FBO J. Seed
245 Summer Street FL 3
Boston, MA 02110-1129
Pershing LLC 38,543.9320 32.78
PO Box 2052
Jersey City, NJ 07303-2052
A-46
CLASS B SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Jack B. Yeager TTEE 3,880.8880 5.45
Icon Inc.
Defined Benefit Plan
2429 Sunny Meadow Lane
Vienna, VA 22181-3024
Pershing LLC 3,705.7800 5.20
PO Box 2052
Jersey City, NY 07303-2052
UBS Financial Services Inc. 5,037.0000 7.07
Phillipe Berthet
3 Motley Lane
Charleston, SC 29401-2016
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
American Enterprise Investment Svcs 1,240.4450 8.46
FBO 169099881
PO Box 9446
Minneapolis, MN 55440-9446
American Enterprise Investment Svcs 1,239.0900 8.45
FBO 169098141
PO Box 9446
Minneapolis, MN 55440-9446
Bear Stearns Securities Corp. 1,706.4850 11.64
FBO 459-14706-14
1 Metrotech Center North
Brooklyn, NY 11201-3870
First Clearing Corp 1,319.5820 9.00
A/C 4254-6999
Siera N. Dennis CUST
Lee C. Dennis Laws of GA
2099 Comer Road
Comer, GA 30629-6109
LPL Financial Services 1,193.6910 8.14
A/C 6948-4160
9785 Towne Centre Drive
San Diego, CA 92121-1968
Merrill Lynch Pierce Fenner & Smith 6,818.6400 46.53
For the Sole Benefit of
Its Customers
Attn Fund Administration
4800 Deer Lake Drive E Fl 3
Jacksonville, FL 32246-6484
A-47
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 6,582,119.6300 31.99
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co 6,733,851.9660 32.73
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
Gales & Co 3,414,625.1690 16.60
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main Street
Rochester, NY 14638-0001
LARGE CAP FUND
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 2,099,449.5880 12.75
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 4,695,973.5880 28.51
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 6,703,395.9290 40.70
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
A-48
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
US CLEARING CORP 3,959.1440 11.64
FBO 134-10437-17
26 Broadway
New York NY 10004-1703
Larry G Stegall 2,254.6520 6.63
1006 Southwest Dr
Davidson NC 28036-9496
Fun Y Chan 2,361.6450 6.95
Tommy Yuen JT WROS
PO BOX 1911
Arlington Hts IL 60006-1911
American Enterprise Investment Svcs 3,507.1940 10.31
FBO 191549541
PO BOX 9446
Minneapolis MN 55440-9446
INTERNATIONAL FUND
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 10,385,215.3470 31.53
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 4,305,959.8280 13.07
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 17,149,274.7380 52.07
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
A-49
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
NFSC FEBO # W81-084980 536.6730 5.62
NFS/FMTC IRA
FBO J Timothy Stebbins
1640 Black Fox Canyon Rd
Henderson NV 89052-6938
A G Edwards & Sons Inc FBO 2,172.0240 22.75
Elizabeth Wolf Paules
TTEE U/A DTD 9/24/97
A/C 0800-064562
1 N Jefferson Ave Saint
Louis MO 63103-2287
LPL Financial Services 526.3160 5.51
A/C 6612-0038
9785 Towne Centre Dr
San Diego CA 92121-1968
Zong Li Chen 4,962.1670 51.97
27 St Andrew Court
Old Westbury NY 11568
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Pershing LLC 2,179.5370 6.28
PO Box 2052
Jersey City NJ 07303-2052
American Enterprise Investment Svcs 2,084.9830 6.01
FBO 573612971
PO Box 9446
Minneapolis MN 55440-9446
CLASS B SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
US Clearing Corp 3,338.5150 8.57
FBO 111-14513-14
26 Broadway
New York NY 10004-1703
Attn Cliff McCoy 5,328.5970 13.67
Wachovia Securities LLC FBO
Housing Auth of the County
Of Kings Employer RETR PL
4-1-81
Hanford CA 93232
A-50
SMALL CAP FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Charles Schwab & Co. Inc. 2,288,723.3970 31.39
CLASS T SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Charles Schwab & Co 1,610,904.2250 17.54
Cust of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Fleet Investment Services Mutual Funds Unit 13,342,355.2250 23.34
159 E. Main Street
Rochester, NY ###-##-####
Fleet Investment Services Mutual Funds Unit 17,387,345.8080 30.42
159 E. Main Street
Rochester, NY ###-##-####
Fleet Investment Services Mutual Funds Unit 13,075,882.2420 22.88
159 E. Main Street
Rochester, NY ###-##-####
SMALL COMPANY FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
U.S. Clearing Corp 5,625.8790 12.14
FBO 113-92691-10
26 Broadway
New York, NY 10004-1703
A-51
CLASS B SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
NFSC FEBO Terry Whitney IRA 1,969.7610 5.95
25 Sherwood Drive
Brockport, NY 14420-1439
NFSC FEBO Mark O. Nevarez & Janice Nevarez 1,664.4470 5.03
25 Sherwood Drive
Brockport, NY 14420-1439
NFSC FEBO Gunter P. Borrosch & Anna Mae 2,730.1010 8.24
Borrosch
25 Sherwood Drive
Brockport, NY 14420-1439
Man Ping Jin 4,225.8010 12.76
14 Balmoral Cres.
White Plains, NY 10607-2202
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
US Clearing Corp. 1,447.1780 15.68
26 Broadway
New York, NY 10004-1703
US Clearing Corp. 705.2190 7.64
26 Broadway
New York, NY 10004-1703
US Clearing Corp. 2,153.6250 23.33
26 Broadway
New York, NY 10004-1703
US Clearing Corp. 526.3160 5.70
26 Broadway
New York, NY 10004-1703
George Berger 1,212.6940 13.14
17 Wren Drive
Hauppauge, NY 11788-1106
LPL Financial Services 514.7560 5.58
9785 Towne Centre Drive
San Diego, CA 92121-1968
A-52
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
Gales & Co 5,570,952.1890 29.24
Fleet Investment Services
Mutual Fund Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co 2,236,873.0300 11.74
Fleet Investment Services
Mutual Fund Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co 1,517,161.4050 7.96
Fleet Investment Services
Mutual Fund Unit-NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
AMVESCAP National Trust Company AGE 7,926,599.3190 41.61
For Fleet National Bank FBO
FleetBoston Financial Savings Plus
PO Box 105779
Atlanta, GA 30348-5779
DIVIDEND FUND
CLASS A SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
NFSC FEBO # APJ-183695 15,240.6150 9.15
Steven J Baum
220 Northpointe Pkwy Ste G
Amherst NY 14228-1894
Pershing LLC 20,734.2700 12.45
P.O. Box 2052
Jersey City NJ 07303-2052
Fiserv Securities Inc 10,105.8670 6.07
FAO 13870712
Attn: Mutual Funds
One Commerce Square
2005 Market Street Suite 1200
Philadelphia PA 19103-7084
LPL Financial Services 9,011.2990 5.41
A/C 7488-8811
9785 Towne Centre Dr
San Diego CA 92121-1968
A-53
CLASS B SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
American Enterprise Investment Svcs 14,366.9210 5.96
FBO 199476701
PO Box 9446
Minneapolis MN 55440-9446
American Enterprise Investment Svcs 13,808.1420 5.73
FBO 169023141
PO Box 9446
Minneapolis MN 55440-9446
CLASS C SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
NFSC FEBO #N23-580864 5,409.0010 9.96
Larry D. Schroeder
2064 Hopp Rd N
Odessa, WA 99159-9806
UBS Financial Services Inc. FBO 5,036.000 9.27
UBS-FINSVC CUST FBO Cheryl Elston Bell
PO Box 3321
Weehawken, NJ 07086-8154
US Clearing Corp 6,426.7080 11.83
FBO 976-14432-18
26 Broadway
New York, NY 10004-1703
Raymond James & Assoc. Inc. 4,935.8340 9.09
FBO Slippey G
BIN# 80636422
880 Carillon Pkwy
St Petersburg, FL 33716-1100
UBS Financial Services Inc. FBO 5,036.000 9.27
Elizabeth E Newhouse TTEE
U/W Barbara H Ellis
Elizabeth E Newhouse Trust
5339 Auburn Rdg
San Antonio TX 78249-3389
LPL Financial Services 3,182.7500 5.86
A/C 4017-7906
9785 Towne Centre Dr
San Diego CA 92121-1968
A-54
CLASS Z SHARES
Shareholder (name and address) Share Balance Percent of Class Total (%)
------------------------------ ------------- --------------------------
USB FBO PF# 89 3,082,308.4440 7.04
Willamette University
97303871
PO Box 1787
Milwaukee WI 53201-1787
USB FBO PF#335 5,807,985.4110 13.26
Tri-Met Pension Trust
97310313
PO Box 1787
Milwaukee WI 53201-1787
Board of TTEES Of the Intermountain 2,680,252.5030 6.12
Retail Store PF# 0186
FBO Intermountain Retail Store Emp
Pension Plan Attn: Richard Hepner
201 Queen Anne Ave N Ste 100
Seattle WA 98109-4824
Meyer Memorial Trust PF#674 3,808,958.4220 8.69
C/O Wayne Pierson
425 NW 10TH Ave Ste 400
Portland OR 97209-3128
Gales & Co 4,272,950.8570 55.71
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
Gales & Co 1,697,257.3040 22.13
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
USB FBO 3,388,718.9030 7.73
Oregon Retail Employees
Pension Trust
P.O. Box 1787
Milwaukee WI 53201-1787
Gales & Co 910,479.2900 11.87
Fleet Investment Services
Mutual Funds Unit-NY/RO/TO4A
159 E Main St
Rochester NY 14638-0001
A-55
SALES CHARGES (DOLLARS IN THOUSANDS)
PFPC Distributors served as distributor for the Predecessor Funds until July 22,
2002. PFPC Distributors, an indirect wholly owned subsidiary of PNC Financial
Services Group, is a registered broker-dealer with principal offices located at
400 Bellevue Parkway, Wilmington, Delaware 19809. Prior to January 2, 2001,
Provident Distributors, Inc. ("PDI") served as distributor for the Predecessor
Funds. Prior to December 1, 1999, First Data Distributors, Inc. ("FD
Distributors"), a wholly-owned subsidiary of PFPC, served as distributor for the
Predecessor Funds. During the eleven months ended September 30, 2003 and the
last three fiscal years, CFD, PFPC Distributors, PDI and/or FD Distributors
received sales charges as follows:
CLASS A SHARES(a)
ASSET ALLOCATION FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $53 $0 $0 $2
Initial sales charges retained by CFD 1 0 0 0
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by CFD 0 0 0 0
CLASS B SHARES(c)
ASSET ALLOCATION FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors $2 $2 $1 $1
CLASS C SHARES(d)
ASSET ALLOCATION FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(e)
ASSET ALLOCATION FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors $239 $333 $399 $369
CLASS T SHARES(f)
ASSET ALLOCATION FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $2 $123 $440 $539
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors 24 0 0 0
A-56
(a) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime A shares
were redesignated Class A shares.
(b) The Asset Allocation Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime B shares
were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail B shares
were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail A shares
were redesignated Class T shares.
CLASS A SHARES(a)
GROWTH FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $143 $0 $0 $985
Initial sales charges retained by CFD 2 0 0 0
Aggregate contingent deferred sales charges (CDSC) on Fund
redemptions retained by CFD 0 0 0 0
CLASS B SHARES(c)
GROWTH FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Fund redemptions retained by CFD,
PFPC Distributors, PDI and/or FD Distributors $ (a) $ (a) $ (a) $ 5
(a) Rounds to less than one.
CLASS C SHARES(d)
GROWTH FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(e)
GROWTH FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Fund redemptions retained by CFD,
PFPC Distributors, PDI and/or FD Distributors 166 $205 $344 $274
CLASS T SHARES(f)
GROWTH FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Predecessor Fund share $5 $302 $584 1,023
sales
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors 23 0 0 0
A-57
(a) On November 18, 2002, the Galaxy Equity Growth Fund, Prime A shares were
redesignated Class A shares.
(b) The Growth Fund changed its fiscal year end from October 31 to September
30 in 2003.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Prime B shares were
redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Equity Growth Fund, Retail B shares were
redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Equity Growth Fund, Retail A shares were
redesignated Class T shares.
CLASS A SHARES(b)
VALUE FUND
Eleven months ended September 30,
---------------------------------
2003(a)
-------
Aggregate initial sales charges on Fund share sales $39
Initial sales charges retained by CFD (b)
Aggregate contingent deferred sales charges (CDSC) on Fund redemptions
retained by CFD 0
(a) Class A Shares were not offered by the Value Fund during the last three
fiscal years.
(b) Rounds to less than one.
CLASS B SHARES(c)
VALUE FUND
Eleven months ended September 30, 2003(a)
-----------------------------------------
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors $0
(a) Class B Shares were not offered by the Value Fund during the last three
fiscal years.
CLASS C SHARES(d)
VALUE FUND
Eleven months ended September 30, 2003(a)
-----------------------------------------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(e)
VALUE FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Predecessor Fund redemptions received by
PFPC Distributors, PDI and/or FD Distributors $31,158 $37,493 $64,007 $117,397
CLASS T SHARES(f)
VALUE FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $1,343 $78 $131 $109
Aggregate CDSC on Fund redemptions retained by CFD, PFPC Distributors, PDI
and/or FD Distributors 0 0 0 0
A-58
CLASS A SHARES
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Initial sales charges retained by CFD $3,735 $7 $463 $0
Aggregate contingent deferred sales charges (CDSC) on Fund redemptions
retained by CFD 0 0 0 0
CLASS B SHARES
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
------- --------- ---------- -------
Aggregate CDSC on Predecessor Fund redemptions received by CFD $901 $794 $80 $280
CLASS C SHARES(b)
LARGE CAP FUND
Eleven months ended September 30, 2003
--------------------------------------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(c)
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Predecessor Fund redemptions received by $91,350 $162,795 $132,046 $222,339
CLASS T SHARES(d)
LARGE CAP FUND
Eleven months
ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
------- ---------- ---------- -------
Aggregate initial sales charges on Fund share sales $1,654 $122,240 $184,258 $154,459
Aggregate CDSC on Fund redemptions retained by CFD, PFPC Distributors,
PDI and/or FD Distributors 0 0 0 0
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(b) On December 9, 2002, the Fund's, Prime A shares were redesignated Class A
shares.
(c) On December 9, 2002, the Fund's, Prime B shares were redesignated Class B
shares.
(d) Class C Shares were initially offered on December 9, 2002.
(e) On December 9, 2002, the Fund's, Retail B shares were redesignated Class G
shares.
(f) On December 9, 2002, the Fund's, Retail A shares were redesignated Class T
shares.
A-59
CLASS A SHARES
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
---- ---- ---- ----
Aggregate initial sales charges on Fund share sales $497 $0 $0 $138
CLASS B SHARES
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 2002 2001 2000
---- ---- ---- ----
Aggregate CDSC on Fund redemptions received by CFD, $276 $2,630 $84 $3,176
CLASS C SHARES
INTERNATIONAL FUND
Eleven months ended September 30,
---------------------------------
2003
----
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 (a) 2002 2001 2000
-------- ---- ---- ----
Aggregate CDSC on Fund redemptions received by CFD, $13,354 $122,240 $184,258 $154,459
CLASS T SHARES
INTERNATIONAL FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003 (a) 2002 2001 2000
-------- ---- ---- ----
Aggregate initial sales charges on Fund share sales $ 251 $72,794 $227,881 $163,039
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors $ 7,820 $19,699 $ 32,216 $ 15,689
(a) The Asset Allocation Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(b) On November 18, 2002, the Fund's, Prime A shares were redesignated Class A
shares.
(c) On November 18, 2002, the Fund's, Prime B shares were redesignated Class B
shares.
(d) Class C Shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Fund's Retail B shares were redesignated Class G
shares.
(f) On November 18, 2002, the Fund's, Retail A shares were redesignated Class
T shares.
CLASS A SHARES(a)
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---- ---- ----
Aggregate initial sales charges on Fund share sales $563 $5 (c) (c)
Initial sales charges retained by CFD 58 0 0 0
Aggregate contingent deferred sales charges (CDSC) on Fund
redemptions retained by CFD 7 0 0 0
A-60
CLASS B SHARES(d)
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ---- ---- ----
Aggregate CDSC on Predecessor Fund redemptions received by
PFPC Distributors, PDI and/or FD Distributors $5 (c) $2 $1
CLASS C SHARES(e)
SMALL CAP FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD (c)
CLASS G SHARES(f)
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- -------- -------- -------
Aggregate CDSC on Predecessor Fund redemptions received by
PFPC Distributors, PDI and/or FD Distributors $27 $17 $10 $95
CLASS T SHARES(g)
SMALL CAP FUND
Eleven months ended Years ended October 31,
September 30, -----------------------
2003(b) 2002 2001 2000
------- ----------- ----------- -------
Aggregate initial sales charges on Predecessor Fund share sales $10 $423 $127 $62
Aggregate CDSC on Fund redemptions retained by CFD, PFPC
Distributors, PDI and/or FD Distributors 2 0 0 0
(a) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime A shares were
redesignated Class A shares.
(b) The Small Cap Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(c) Rounds to less than one.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime B shares were
redesignated Class B shares.
(e) Class C Shares were initially offered on November 18, 2002.
(f) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail B shares
were redesignated Class G shares.
(g) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail A shares
were redesignated Class T shares.
CLASS A SHARES(a)
SMALL COMPANY FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate initial sales charges on Fund share sales $23,726
Initial sales charges retained by CFD (c)
Aggregate contingent deferred sales charges (CDSC) on Fund redemptions
retained by CFD 0
A-61
CLASS B SHARES(d)
SMALL COMPANY FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD (c)
Class B Shares were not offered by the Small Company Fund during the last three
fiscal years.
CLASS C SHARES(e)
SMALL COMPANY FUND
Eleven months ended September 30,
---------------------------------
2003(b)
-------
Aggregate CDSC on Fund redemptions retained by CFD $0
CLASS G SHARES(f)
SMALL COMPANY FUND
Eleven months
ended Fiscal period ended October 31,
September 30, -------------------------------
2003(b) 2002 2001 2000
------- ---------- ---------- -------
Aggregate CDSC on Predecessor Fund redemptions received by
PFPC Distributors, PDI and/or FD Distributors $13 $21 $34 $53
CLASS T SHARES(g)
SMALL COMPANY FUND
Eleven months
ended Fiscal period ended October 31,
September 30, -------------------------------
2003(a) 2002 2001 2000
------- --------- --------- --------
Aggregate initial sales charges on Fund share sales $(c) $47 $75 $106
Aggregate CDSC on Fund redemptions retained by CFD, PFPC Distributors,
PDI and/or FD Distributors 6 0 0 0
(a) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime A Shares
were redesignated Class A Shares.
(b) The Small Company Fund changed its fiscal year end from October 31 to
September 30 in 2003.
(c) Rounds to less than one.
(d) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime B shares
were redesignated Class B shares.
(e) Class C Shares were initially offered on November 18, 2002.
(f) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail B
shares were redesignated Class G shares.
(g) On November 18, 2002, the Galaxy Small Company Equity Fund l Retail A
shares were redesignated Class T shares.
CLASS A SHARES(b)
DIVIDEND FUND
Eleven months ended September 30,
---------------------------------
2003(a)
-------
Aggregate initial sales charges on Fund share sales
Initial sales charges retained by CFD $1
Aggregate contingent deferred sales charges (CDSC) on Fund redemptions $0
retained by CFD
A-62
CLASS B SHARES(b)
DIVIDEND FUND
Eleven months ended September 30,
---------------------------------
2003(a)
-------
Aggregate CDSC on Fund redemptions retained by CFD $101
CLASS C SHARES(b)
DIVIDEND FUND
Eleven months ended September 30,
---------------------------------
2003
----
Aggregate CDSC on Fund redemptions retained by CFD $1,563
CLASS G SHARES(c)
DIVIDEND FUND
Eleven Months
ended
September 30 Years ended October 31,
-----------------------
2003(a) 2002 2001 2002
------- ---- ---- ----
Aggregate CDSC on Fund redemptions received by PFPC Distributors, PDI $ 30,195 $45,798 $5,728 $7,119
and/or FD Distributors
CLASS T SHARES(d)
DIVIDEND FUND
Eleven Months
ended
September 30 Years ended October 31,
-----------------------
2003(a) 2002 2001 2002
------- ---- ---- ----
Aggregate initial sales charges on Predecessor Fund share sales $1,167 $59,920 $26,558 $10,187
Aggregate CDSC on Fund redemptions retained by CFD, PFPC Distributors,
PDI and/or FD Distributors 0 0 0 0
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(b) Classes A, B and C shares were initially offered on November 25, 2002.
(c) On November 25, 2002, the Fund's Retail B shares were redesignated class G
shares.
(d) On November 25, 2002, the Fund's Retail A shares were redesignated Class T
shares.
12B-1 PLAN, SHAREHOLDER SERVICING PLAN, CDSCS AND CONVERSION OF SHARES All of
the Funds offer Class A, Class B, Class C, Class G, Class T and Class Z shares.
The Funds may in the future offer other classes of shares. The Trustees have
approved a 12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act. Under the
Plan, the Funds pay CFD monthly a service fee at an annual rate of 0.25% of each
Fund's average daily net assets attributed to Class A, B and C shares. The Funds
also pay CFD monthly a distribution fee at an annual rate of 0.10% of each
Fund's average daily net assets attributed to Class A shares and 0.75% of each
Fund's average daily net assets attributed to Class B and Class C shares. For
the current fiscal year, CFD intends to limit aggregate 12b-1 fees for Class A
shares to 0.25%. The Funds also may pay CFD distribution and service fees up to
a maximum of 1.15% of such Fund's average daily net assets attributable to Class
G shares (comprised of up to 0.65% for distribution services,). For the current
fiscal year, the Fund's payments under the Plan for each of shareholder liaison
services and administrative support services will be limited to 0.95% (on an
annualized basis) of the average daily net asset value of Class G shares owned
of record or beneficially by customers of institutions. Such limitations may be
revoked at any time. CFD may use the entire amount of such fees to defray the
cost of commissions and service fees paid to financial service firms (FSFs) and
for certain other purposes. Since the distribution and service fees are payable
regardless of the amount of CFD's expenses, CFD may realize a profit from the
fees.
The Plan authorizes any other payments by the Funds to CFD and its affiliates
(including the Advisor) to the extent that such payments might be construed to
be indirect financing of the distribution of Fund shares. The Trustees believe
the Plan could be a significant factor in the growth and retention of the Funds'
assets resulting in more advantageous expense ratios and increased investment
flexibility which could benefit each class of Fund shareholders. The Plan will
continue in effect from year to year so long as continuance is specifically
approved at least annually by a vote of
A-63
the Trustees, including the Trustees who are not interested persons of the Trust
and have no direct or indirect financial interest in the operation of the Plan
or in any agreements related to the Plan (Independent Trustees), cast in person
at a meeting called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plan must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plan may be terminated at any time by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plan will only be effective if the selection and nomination of the
Trustees who are not interested persons of the Trust is effected by such
disinterested Trustees.
Class T shares of the Funds are subject to a shareholder servicing fee pursuant
to a Shareholder Servicing Plan. Under the Shareholder Servicing Plan, a Fund
may enter into agreements with institutions pursuant to which an institution
agrees to provide certain administrative and support services to its customers
who are the beneficial owners of Class T shares. Services provided by such
institutions to their customers include aggregating and processing purchase and
redemption requests and placing net purchase and redemption orders. In return
for providing these services, the Fund agrees to pay each institution a fee at
an annual rate of up to 0.50%, up to 0.25% for shareholder liaison services and
up to 0.25% for administrative support services of the average daily net assets
attributable to Class T shares owned beneficially by the institution's
customers. Current service arrangements are limited to payments of 0.30% for the
Funds.
Under the Shareholder Servicing Plan, the Trustees must review, at least
quarterly, a written report of the amounts paid under the servicing agreements
and the purposes for which those expenditures were made. The initial term of the
Shareholder Servicing Plan is one year and it will continue in effect from year
to year after its initial one-year term provided that its continuance is
specifically approved at least annually by a majority of the Trustees, including
a majority of the Independent Trustees who have no direct or indirect financial
interest in the operation of the Shareholder Servicing Plan or in any agreement
related to it. Any material amendment to the Shareholder Servicing Plan must be
approved in the same manner. The Shareholder Servicing Plan is terminable at any
time with respect to any Fund by a vote of a majority of the Independent
Trustees. While the Shareholder Servicing Plan is in effect, only the
Independent Trustees may select and nominate any future Independent Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within a certain number of years after purchase
depending on the program you purchased your shares under. Class C shares are
offered at net asset value and are subject to a 1.00% CDSC on redemptions within
one year after purchase. Class G shares are offered at net asset value and are
subject to a CDSC if redeemed within a certain number of years after purchase
depending on when you purchased your shares that were exchanged for Class G
shares. Class T shares are offered at net asset value plus varying sales charges
which may include a CDSC. Class Z shares are offered at net asset value and are
not subject to a CDSC. The CDSCs are described in the Prospectuses.
No CDSC will be imposed on shares derived from reinvestment of distributions or
amounts representing capital appreciation. In determining the applicability and
rate of any CDSC, it will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing reinvestment of
distributions and finally of other shares held by the shareholder for the
longest period of time.
A certain number of years, depending on the program you purchased your shares
under, after the end of the month in which a Class B share is purchased, such
share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares having an
equal value, which are not subject to the distribution fee.
A certain number of years, depending on when you purchased your shares that were
exchanged for Class G shares, after the end of the month in which you purchased
your shares that were exchanged for Class G shares, such Class G shares and a
pro rata portion of any shares issued on the reinvestment of distributions will
be automatically converted into Class T shares having an equal value, which are
not subject to the distribution fee. See Part 2 of this Statement of Additional
Information for the CDSCs and conversion schedules applicable to Class G shares
received in exchange for Retail B shares purchased or acquired prior to January
1, 2001.
A-64
SALES-RELATED EXPENSES (dollars in thousands) of CFD relating to the Funds for
the fiscal year ended September 30, 2003, were (a):
(a) The Funds changed their fiscal year end from October 31 to September 30 in
2003.
ASSET ALLOCATION FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(b) Shares(c) Shares(d) Shares(e)
--------- --------- --------- --------- ---------
Fees to FSFs $1 $62 $1 $183 $389
Cost of sales material relating to the Fund
(including printing and mailing expenses) (f) 2 (f) 5 2
Allocated travel, entertainment and other
promotional expenses (including
advertising) 1 5 (f) 15 7
(a) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime A shares
were redesignated Class A shares.
(b) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime B shares
were redesignated Class B shares.
(c) Class C shares were initially offered on November 18, 2002.
(d) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail B shares
were redesignated Class G shares.
(e) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail A shares
were redesignated Class T shares.
(f) Rounds to less than one.
GROWTH FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(b) Shares(c) Shares(d) Shares(e)
--------- --------- --------- --------- ---------
Fees to FSFs $9 $19 $2 $216 $465
Cost of sales material relating to the Fund
(including printing and mailing expenses) 2 1 (f) 11 26
Allocated travel, entertainment and other
promotional expenses (including
advertising) 8 2 1 34 81
(a) On November 18, 2002, the Galaxy Equity Growth Fund, Prime A shares were
redesignated Class A shares.
(b) On November 18, 2002, the Galaxy Equity Growth Fund, Prime B shares were
redesignated Class B shares.
(c) Class C shares were initially offered on November 18, 2002.
(d) On November 18, 2002, the Galaxy Equity Growth Fund, Retail B shares were
redesignated Class G shares.
(e) On November 18, 2002, the Galaxy Equity Growth Fund, Retail A shares were
redesignated Class T shares.
(f) Rounds to less than one.
VALUE FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(b) Shares(c) Shares(d) Shares(e)
--------- --------- --------- --------- ---------
Fees to FSFs $1 $6 (f) $44 $251
Cost of sales material relating to the Fund
(including printing and mailing expenses) (f) (f) (f) 2 2
Allocated travel, entertainment and other
promotional expenses (including
advertising) 1 1 (f) 5 7
(a) Class A shares were initially offered on November 25, 2002.
(b) Class B shares were initially offered on November 25, 2002.
(c) Class C shares were initially offered on November 25, 2002.
(d) On November 25, 2002, the Galaxy Value Fund, Retail B shares were
redesignated Class G shares.
(e) On November 25, 2002, the Galaxy Value Fund, Retail A shares were
redesignated Class T shares.
(f) Rounds to less than one.
A-65
LARGE CAP FUND
Class A Class B Class C Class G Class T
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
Fees to FSFs $15 $38 $4 $91 $232
Cost of sales material relating to the Fund
(including printing and mailing expenses) 2 1 (a) 3 3
Allocated travel, entertainment and other
promotional expenses (including advertising) 5 3 (a) 11 10
(a) Rounds to less than one.
INTERNATIONAL FUND
Class A Class B Class C Class G Class T
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
Fees to FSFs $1 $6 (a) $13 $100
Cost of sales material relating to the Fund
(including printing and mailing expenses) (a) (a) (a) 1 82
Allocated travel, entertainment and other
promotional expenses (including advertising) 1 1 (a) 4 254
(a) Rounds to less than one.
SMALL CAP FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(b) Shares(c) Shares(d) Shares(e)
--------- --------- --------- --------- ---------
Fees to FSFs $126 $379 $105 $35 $168
Cost of sales material relating to the Fund
(including printing and mailing expenses) 67 11 15 1 42
Allocated travel, entertainment and other
promotional expenses (including
advertising) 209 33 47 4 132
(a) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime A shares were
redesignated Class A shares.
(b) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime B shares were
redesignated Class B shares.
(c) Class C Shares were initially offered on November 18, 2002.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail B shares
were redesignated Class G shares.
(e) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail A shares
were redesignated Class T shares.
SMALL COMPANY FUND
Class A Class B Class C Class G Class T
Shares(a) Shares(a) Shares(a) Shares(b) Shares(c)
--------- --------- --------- --------- ---------
Fees to FSFs $(d) $3 $(d) $26 $106
Cost of sales material relating to the Fund
(including printing and mailing expenses) (d) (d) (d) 1 26
Allocated travel, entertainment and other
promotional expenses (including
advertising) 1 (d) (d) 4 81
(a) Classes A, B and C were initially offered on November 18, 2002.
(b) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail B
shares were redesignated Class G shares.
(c) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail A
shares were redesignated Class T shares.
(d) Rounds to less than one.
A-66
DIVIDEND FUND
Class A Class B Class C Class G Class T
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
Fees to FSFs $(a) $11 $1 $27 $175
Cost of sales material relating to the Fund
(including printing and mailing expenses) (a) (a) (a) 1 1
Allocated travel, entertainment and other
promotional expenses (including advertising) (a) 1 (a) 3 4
(a) Rounds to less than one.
CUSTODIAN OF THE FUNDS
State Street Bank & Trust Company, located at 2 Avenue De Lafayette, Boston, MA
02111-2900, is the Funds' custodian. The custodian is responsible for
safeguarding the Funds' cash and securities, receiving and delivering securities
and collecting the Funds' interest and dividends.
INDEPENDENT AUDITORS OF THE FUNDS
Ernst & Young LLP, located at 200 Clarendon Street, Boston, MA 02116, are the
independent auditors for the Funds and were the independent auditors for the
Predecessor Galaxy Funds for the eleven months ended September 30, 2003 and the
fiscal years ended on or after October 31, 1999. The financial statements
incorporated by reference in this SAI have been so incorporated, and the
financial highlights included in the Prospectuses have been so included, in
reliance upon the report of Ernst & Young LLP, for the eleven months in the
period ended September 30, 2003 and for the years ended October 31, 2002, 2001,
2000 and 1999, and on the report of the Galaxy Funds' former auditors for the
year ended October 31, 1998, given on the authority of said firms as experts in
auditing and accounting.
A-67
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the
Advisor. "Funds" include the series of Columbia Funds Trust I (formerly named
Liberty Funds Trust I), Columbia Funds Trust II (formerly named Liberty Funds
Trust II), Columbia Funds Trust III (formerly named Liberty Funds Trust III),
Columbia Funds Trust IV (formerly named Liberty Funds Trust IV), Columbia Funds
Trust V (formerly named Liberty Funds Trust V), Columbia Funds Trust VI
(formerly named Liberty Funds Trust VI), Columbia Funds Trust VII (formerly
named Liberty Funds Trust VII), Columbia Funds Trust VIII (formerly named
Liberty-Stein Roe Funds Income Trust), Columbia Funds Trust IX (formerly named
Liberty-Stein Roe Funds Municipal Trust) and Columbia Funds Trust XI (formerly
named Liberty-Stein Roe Funds Investment Trust) (each a Trust and together, the
Trusts). In certain cases, the discussion applies to some, but not all, of the
Funds, and you should refer to your Fund's Prospectus and to Part 1 of this
Statement of Additional Information (SAI) to determine whether the matter is
applicable to your Fund. You will also be referred to Part 1 for certain data
applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF
THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio
securities whenever it believes it is appropriate. The Advisor's decision will
not generally be influenced by how long the Fund may have owned the security.
From time to time, the Fund will buy securities intending to seek short-term
trading profits. A change in the securities held by the Fund is known as
"portfolio turnover" and generally involves some expense to the Fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the Fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than that of other
mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The Fund's portfolio turnover
rate is not a limiting factor when the Advisor considers a change in the Fund's
portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the
sale by the Fund of a security that it does not own with the hope of purchasing
the same security at a later date at a lower price. In order to deliver the
security to the buyer, the Fund borrows the security from a third party. The
Fund is then obligated to return the security to the third party, so the Fund
must purchase the security at the market price at a later point in time. If the
price of the security has increased during this time, then the Fund will incur a
loss equal to the increase in price of the security from the time that the short
sale was entered into plus any premiums and interest paid to the third party.
Therefore, short sales involve the risk that losses may be exaggerated,
potentially losing more money than the actual cost of the security. Also, there
is the risk that the third party to the short sale may fail to honor its
contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by
S&P, or comparable unrated debt securities. Relative to debt securities of
higher quality,
1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default for
lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become
less liquid or respond to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the bonds;
A-68
3. the Advisor's credit analysis of lower-rated debt securities may have a
greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate
changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on
a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities.
Preferred stocks share some of the characteristics of both debt and equity
investments and are generally preferred over common stocks with respect to
dividends and in liquidation. A warrant is an instrument issued by a corporation
which gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the Fund, will be held by the Fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. This "excess
distribution" will be allocated over the Fund's holding period for such
investment. The PFIC tax is the highest ordinary income rate in effect for any
period multiplied by the portion of the "excess distribution" allocated to such
period, and it could be increased by an interest charge on the deemed tax
deferral.
The Fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the Fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxes" below.
OTHER INVESTMENT COMPANIES
The Fund may invest in other investment companies. Such investments will involve
the payment of duplicative fees through the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies.
ZERO COUPON SECURITIES (ZEROS)
The Fund may invest in zero coupon securities, which are securities issued at a
significant discount from face value and do not pay interest at intervals during
the life of the security. Zero coupon securities include securities issued in
certificates representing undivided interests in the interest or principal of
mortgage-backed securities (interest only/principal only), which tend to be more
volatile than other types of securities. The Fund will accrue and distribute
income from stripped securities and certificates on a current basis and may have
to sell securities to generate cash for distributions.
A-69
STEP COUPON BONDS (STEPS)
The Fund may invest in debt securities which pay interest at a series of
different rates (including 0%) in accordance with a stated schedule for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities may be subject to more volatility risk than fixed rate
debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Advisor will consider on an ongoing basis the creditworthiness of the issuer of
the underlying municipal securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying municipal securities and for other
reasons.
PAY-IN-KIND (PIK) SECURITIES
The Fund may invest in securities which pay interest either in cash or
additional securities. These securities are generally high yield securities and,
in addition to the other risks associated with investing in high yield
securities, are subject to the risks that the interest payments which consist of
additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are
issued by supranational entities and are generally designed to promote economic
improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a
commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued
by a business to finance short-term needs (including promissory notes with
floating or variable interest rates, or including a frequent interval put
feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or
less to maturity at the time of purchase) issued by businesses to finance
long-term needs. PARTICIPATION INTERESTS include the underlying securities and
any related guaranty, letter of credit, or collateralization arrangement which
the Fund would be allowed to invest in directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued
against deposits in a commercial bank with a defined return and maturity. TIME
DEPOSITS are non-negotiable deposits maintained in banking institutions for
specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments,
their subdivisions, agencies and instrumentalities. Examples of the types of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (hereinafter, "U.S. Government obligations") that may be held
by the Funds include, without limitation, direct obligations of the U.S.
Treasury, and securities issued or guaranteed by the Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, Federal
National Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates,
maturities and time of issuance: Treasury Bills have initial maturities of one
year or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of more than ten years.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others,
A-70
such as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved relatively little risk of loss
of principal. However, due to fluctuations in interest rates, the market value
of such securities may vary during the period a shareholder owns shares of the
Fund.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits issued for a definite period of
time and earning a specified return by a U.S. bank which is a member of the
Federal Reserve System or is insured by the Federal Deposit Insurance
Corporation ("FDIC"), or by a savings and loan association or savings bank which
is insured by the FDIC. Bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Time deposits with a
maturity longer than seven days or that do not provide for payment within seven
days after notice will be subject to any limitations on illiquid securities
described in Part I of this SAI. For purposes of each Fund's investment policies
with respect to bank obligations, the assets of a bank or savings institution
will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of Funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are
component parts of U.S. Treasury Securities traded through the Federal Reserve
Book-Entry System. While there is no limitation on the percentage of a Fund's
assets that may be invested in STRIPS, the Advisor will monitor the level of
such holdings to avoid the risk of impairing shareholders' redemption rights.
The interest-only component of STRIPS is extremely sensitive to the rate of
principal payments on the underlying obligation. The market value of the
principal-only component generally is usually volatile in response to changes in
interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury
securities and buys back on a delayed settlement basis the same U.S. Treasury
securities. During the period prior to the delayed settlement date, the assets
from the sale of the U.S. Treasury securities are invested in certain cash
equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could
suffer an opportunity loss if the counterparty to the roll failed to perform its
obligations on the settlement date, and if market conditions changed adversely.
The Funds intend to enter into U.S. Treasury rolls only with U.S. Government
securities dealers recognized by the Federal Reserve Bank or with member banks
of the Federal Reserve System. The Funds will hold and maintain in a segregated
account until the settlement date cash or other liquid assets in an amount equal
to the forward
A-71
purchase price. For financial reporting and tax purposes, the Funds propose to
treat U.S. Treasury rolls as two separate transactions, one involving the
purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by
businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Commercial paper may include variable and floating rate instruments which are
unsecured instruments that permit the indebtedness thereunder to vary. Variable
rate instruments provide for periodic adjustments in the interest rate. Floating
rate instruments provide for automatic adjustment of the interest rate whenever
some other specified interest rate changes. Some variable and floating rate
obligations are direct lending arrangements between the purchaser and the issuer
and there may be no active secondary market. However, in the case of variable
and floating rate obligations with a demand feature, a Fund may demand payment
of principal and accrued interest at a time specified in the instrument or may
resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation were to default on its payment obligation,
a Fund might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the
extent of the default.
A-72
Commercial paper may include securities issued by corporations without
registration under the 1933 Act in reliance on the so-called "private placement"
exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is
restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) Paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) Paper, thus providing
liquidity. For purposes of each Fund's limitation on purchases of illiquid
instruments described below, Section 4(2) Paper will not be considered illiquid
if the Advisor has determined, in accordance with guidelines approved by the
Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Funds' Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations
issued by governmental entities to obtain Funds for various public purposes,
including the construction of a wide range of public facilities, the refunding
of outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity bonds
that are issued by or on behalf of public authorities to finance various
privately operated facilities are "Municipal Securities" if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be
held by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
Each Fund's portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer. There is no limitation on the amount of moral
obligation securities that may be held by the Funds.
A-73
There are, of course, variations in the quality of Municipal
Securities, both within a particular category and between categories, and the
yields on Municipal Securities depend upon a variety of factors, including
general market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of a
nationally recognized statistical rating organization ("NRSRO"), such as Moody's
and S&P, represent such NRSRO's opinion as to the quality of Municipal
Securities. It should be emphasized that these ratings are general and are not
absolute standards of quality. Municipal Securities with the same maturity,
interest rate and rating may have different yields. Municipal Securities of the
same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and
floating rate tax-exempt instruments, such as variable rate demand notes.
Variable rate demand notes are long-term Municipal Securities that have variable
or floating interest rates and provide a fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on an
applicable interest index or another published interest rate or interest rate
index. Most variable rate demand notes allow a Fund to demand the repurchase of
the security on not more than seven days prior notice. Other notes only permit a
Fund to tender the security at the time of each interest rate adjustment or at
other fixed intervals. Variable interest rates generally reduce changes in the
market value of Municipal Securities from their original purchase prices.
Accordingly, as interest rates decrease, the potential for capital appreciation
is less for variable rate Municipal Securities than for fixed income
obligations. The terms of these variable rate demand instruments require payment
of principal and accrued interest from the issuer of the Municipal Securities,
the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be
insured as to the timely payment of principal and interest. There is no
guarantee, however, that the insurer will meet its obligations in the event of a
default in payment by the issuer. In other cases, Municipal Securities may be
backed by letters of credit or guarantees issued by domestic or foreign banks or
other financial institutions which are not subject to federal deposit insurance.
Adverse developments affecting the banking industry generally or a particular
bank or financial institution that has provided its credit or guarantee with
respect to a Municipal Security held by a Fund, including a change in the credit
quality of any such bank or financial institution, could result in a loss to the
Fund and adversely affect the value of its shares. Letters of credit and
guarantees issued by foreign banks and financial institutions involve certain
risks in addition to those of similar instruments issued by domestic banks and
financial institutions.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this SAI and the Prospectuses. The non-governmental user of facilities
financed by private activity bonds is also considered to be an "issuer." An
issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income. The
Funds cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on Municipal Securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of Municipal
Securities for investment by the Funds and the liquidity and value of their
respective portfolios. In such an
A-74
event, each Fund would re-evaluate its investment objective and policies and
consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds nor
the Advisor will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
A-75
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on
which, although exempt from regular federal income tax, may constitute an item
of tax preference for purposes of the federal alternative minimum tax. Private
activity bonds are or have been issued to obtain funds to provide, among other
things, privately operated housing facilities, pollution control facilities,
convention or trade show facilities, mass transit, airport, port or parking
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Private activity bonds are also issued to
privately held or publicly owned corporations in the financing of commercial or
industrial facilities. State and local governments are authorized in most states
to issue private activity bonds for such purposes in order to encourage
corporations to locate within their communities. The principal and interest on
these obligations may be payable from the general revenues of the users of such
facilities.
Private activity bonds held by the Funds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general
obligation of the municipality for which the municipality's taxing power is
pledged, a municipal lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the
municipal lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
In addition, the tax treatment of such obligations in the event of
non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal
lease obligation, as with any other municipal security, are made based on all
relevant factors. These factors include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the Fund
an amount equal to any dividends or interest received on securities lent. The
Fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the Fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund may also call such loans in order
to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered
open-end investment companies. The Fund may borrow through the program when the
Advisor believes borrowing is appropriate and the costs are equal to or lower
than the costs of bank loans. When borrowing money, the Fund is subject to the
risk that the securities the Fund acquires with the borrowed money or would
otherwise have sold will decline in value. When lending money, the Fund is
subject to the risk that the borrower will be unwilling or unable to make timely
payments of interest or principal.
A-76
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and
"when-issued securities") if the Fund holds until the settlement date, in a
segregated account, cash or liquid securities in an amount sufficient to meet
the purchase price, or if the Fund enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the Fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the Fund of an
advantageous yield or price. Although the Fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the Fund may dispose
of a commitment prior to settlement if the Advisor deems it appropriate to do
so. The Fund may realize short-term profits or losses (generally taxed at
ordinary income tax rates in the hands of the shareholders) upon the sale of
forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The Fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the Fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. In addition, the
transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity
REITs invest directly in real property while mortgage REITs invest in mortgages
on real property. REITs may be subject to certain risks associated with the
direct ownership of real estate, including declines in the value of real estate,
risks related to general and local economic conditions, overbuilding and
increased competition, increases in property taxes and operating expenses, and
variations in rental income. Generally, increases in interest rates will
decrease the value of high yielding securities and increase the costs of
obtaining financing, which could decrease the value of a REIT's investments. In
addition, equity REITs may be affected by changes in the value of the underlying
property owned by the REITs, while mortgage REITs may be affected by the quality
of credit extended. Equity and mortgage REITs are dependent upon management
skill, are not diversified and are subject to the risks of financing projects.
REITs are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Funds intend to include the gross dividends from any investments
in REITs in their periodic distributions to its shareholders and, accordingly, a
portion of the Fund's distributions may also be designated as a return of
capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations"
(CMOs) and "real estate mortgage investment conduits" (REMICs), evidence
ownership in a pool of mortgage loans made by certain financial institutions
that may be insured or guaranteed by the U.S. government or its agencies. CMOs
are obligations issued by special-purpose trusts, secured by mortgages. REMICs
are entities that own mortgages and elect REMIC status under the Internal
Revenue Code. Both CMOs and REMICs issue one or more classes of securities of
which one (the Residual) is in the nature of equity. The Funds will not invest
in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs
may be prepaid if the underlying mortgages are prepaid. Prepayment rates for
mortgage-backed securities tend to increase as interest rates decline
(effectively shortening the security's life) and decrease as interest rates rise
(effectively lengthening the security's life). Because of the prepayment
feature, these securities may not increase in value as much as other debt
securities when interest rates fall. A Fund may be able to invest prepaid
principal only at lower yields. The prepayment of such securities purchased at a
premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are
not guaranteed by the U.S. government or an agency. Such securities are subject
to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed
Securities." In addition, although the underlying mortgages provide collateral
for the security, the Fund may experience losses, costs and delays in enforcing
its rights if the issuer defaults or enters bankruptcy, and the Fund may incur a
loss.
A-77
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by
various types of loans such as credit card, auto and home equity loans. These
securities involve prepayment risk, which is the possibility that the underlying
debt may be refinanced or prepaid prior to maturity during periods of declining
interest rates. During periods of rising interest rates, asset-backed securities
have a high risk of declining in price because the declining prepayment rates
effectively lengthen the expected maturity of the securities. A decline in
interest rates may lead to a faster rate of repayment on asset-backed securities
and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In
addition, the potential impact of prepayment on the price of an asset-backed
security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as
Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such
as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are
derivative products which, in the aggregate, evidence direct ownership in a pool
of securities. Typically, a sponsor will deposit a pool of securities with a
custodian in exchange for custody receipts evidencing those securities or with a
trust in exchange for trust certificates evidencing interests in the trust, the
principal asset of which is those securities. The sponsor will then generally
sell those custody receipts or trust certificates in negotiated transactions at
varying prices that are determined at the time of sale. Each custody receipt or
trust certificate evidences the individual securities in the pool and the holder
of a custody receipt or trust certificate generally will have all the rights and
privileges of owners of those securities. Each holder of a custody receipt or
trust certificate generally will be treated as directly purchasing its pro rata
share of the securities in the pool for an amount equal to the amount that such
holder paid for its custody receipt or trust certificate. If a custody receipt
or trust certificate is sold, a holder will be treated as having directly
"disposed of its pro rata share of the securities evidenced by the custody
receipt or trust certificate. Additionally, the holder of a custody receipt or
trust certificate may withdraw the securities represented by the custody receipt
or trust certificate subject to certain conditions. Custody receipts and trust
certificates are generally subject to the same risks as those securities
evidenced by the receipts or certificates which, in the case of the Fund, are
corporate debt securities. Additionally, custody receipts and trust certificates
may also be less liquid than the underlying securities if the sponsor fails to
maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the Fund acquires a security for a relatively short period
subject to the obligation of the seller to repurchase and the Fund to resell
such security at a fixed time and price (representing the Fund's cost plus
interest). It is the Fund's present intention to enter into repurchase
agreements only with commercial banks and registered broker-dealers and only
with respect to obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as loans made by the
Fund which are collateralized by the securities subject to repurchase. The
Advisor will monitor such transactions to determine that the value of the
underlying securities is at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller defaults,
the Fund could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, if the
seller should be involved in bankruptcy or insolvency proceedings, the Fund may
incur delay and costs in selling the underlying security or may suffer a loss of
principal and interest if the Fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the Fund
and, therefore, as a form of leverage. The Fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the Fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The Fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The Fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each Fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
A-78
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order
to permit borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowings may be preferable to liquidation of
portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Advisor,
such transactions are consistent with the Fund's investment goal and policies.
Call options written by the Fund give the purchaser the right to buy the
underlying securities from the Fund at a stated exercise price; put options give
the purchaser the right to sell the underlying securities to the Fund at a
stated price.
The Fund may write only covered options, which means that, so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the Fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The Fund may
write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The Fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the Fund writes a call option but does not own the underlying security, and
when it writes a put option, the Fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the Fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
Fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the Fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the Fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Fund might
have realized had it bought the underlying security at the time it purchased the
call option.
A-79
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment
Management of the Securities and Exchange Commission (SEC) has taken the
position that OTC options purchased by the Fund and assets held to cover OTC
options written by the Fund are illiquid securities. Although the Staff has
indicated that it is continuing to evaluate this issue, pending further
developments, the Fund intends to enter into OTC options transactions only with
primary dealers in U.S. government securities and, in the case of OTC options
written by the Fund, only pursuant to agreements that will assure that the Fund
will at all times have the right to repurchase the option written by it from the
dealer at a specified formula price. The Fund will treat the amount by which
such formula price exceeds the amount, if any, by which the option may be
"in-the-money" as an illiquid investment. It is the present policy of the Fund
not to enter into any OTC option transaction if, as a result, more than 15% (10%
in some cases, refer to your Fund's Prospectus) of the Fund's net assets would
be invested in (i) illiquid investments (determined under the foregoing formula)
relating to OTC options written by the Fund, (ii) OTC options purchased by the
Fund, (iii) securities which are not readily marketable, and (iv) repurchase
agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options
strategies depends on the ability of the Advisor to forecast interest rate and
market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the Fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the Fund
will lose part or all of its investment in the option. This contrasts with an
investment by the Fund in the underlying securities, since the Fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the Fund's ability to terminate
option positions at times when the Advisor deems it desirable to do so. Although
the Fund will take an option position only if the Advisor believes there is a
liquid secondary market for the option, there is no assurance that the Fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of option transactions, which may limit the Fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the Fund has
expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements,
cash or liquid securities, equal in value to the amount of the Fund's obligation
under the contract (less any applicable margin deposits and any assets that
constitute "cover" for such obligation), will be segregated with the Fund's
custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type
A-80
of instrument called for in the contract in a specified delivery month at a
stated price. The specific instruments delivered or taken at the settlement date
are not determined until on or near that date. The determination is made in
accordance with the rules of the exchanges on which the futures contract was
made. The Fund may enter into futures contracts which are traded on national or
foreign futures exchanges and are standardized as to maturity date and
underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received
by the Fund upon the purchase or sale of a futures contract, although the Fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. government securities. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the Fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the Fund. The Fund may
close its positions by taking opposite positions which will operate to terminate
the Fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both
the cash market and the futures market. In the cash market, bonds are purchased
and sold with payment for the full purchase price of the bond being made in
cash, generally within five business days after the trade. In the futures
market, only a contract is made to purchase or sell a bond in the future for a
set price on a certain date. Historically, the prices for bonds established in
the futures markets have tended to move generally in the aggregate in concert
with the cash market prices and have maintained fairly predictable
relationships. Accordingly, the Funds may use interest rate futures contracts as
a defense, or hedge, against anticipated interest rate changes. The Funds
presently could accomplish a similar result to that which they hope to achieve
through the use of futures contracts by selling bonds with long maturities and
investing in bonds with short maturities when interest rates are expected to
increase, or conversely, selling short-term bonds and investing in long-term
bonds when interest rates are expected to decline. However, because of the
liquidity that is often available in the futures market, the protection is more
likely to be achieved, perhaps at a lower cost and without changing the rate of
interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A-81
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures
contracts may act as a hedge against changes in market conditions. A municipal
bond index assigns values daily to the municipal bonds included in the index
based on the independent assessment of dealer-to-dealer municipal bond brokers.
A municipal bond index futures contract represents a firm commitment by which
two parties agree to take or make delivery of an amount equal to a specified
dollar amount multiplied by the difference between the municipal bond index
value on the last trading date of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond
Buyer Municipal Bond Index. This Index is composed of 40 term revenue and
general obligation bonds, and its composition is updated regularly as new bonds
meeting the criteria of the Index are issued and existing bonds mature. The
Index is intended to provide an accurate indicator of trends and changes in the
municipal bond market. Each bond in the Index is independently priced by six
dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged
and multiplied by a coefficient. The coefficient is used to maintain the
continuity of the Index when its composition changes. The Chicago Board of
Trade, on which futures contracts based on this Index are traded, as well as
other U.S. commodities exchanges, are regulated by the CFTC. Transactions on
such exchange are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
liquid securities equal in value to the commodity value (less any applicable
margin deposits) have been deposited in a segregated account. The Fund may
purchase and write call and put options on futures contracts it may buy or sell
and enter into closing transactions with respect to such options to terminate
existing positions. The Fund may use such options on futures contracts in lieu
of writing options directly on the underlying securities or purchasing and
selling the underlying futures contracts. Such options generally operate in the
same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the Fund is subject to the Advisor's ability to predict
correctly, movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market
A-82
on an exchange include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES
CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase
and sell futures contracts and related options on interest rate and U.S.
Treasury securities when, in the opinion of the Advisor, price movements in
these security futures and related options will correlate closely with price
movements in the tax-exempt securities which are the subject of the hedge.
Interest rate and U.S. Treasury securities futures contracts require the seller
to deliver, or the purchaser to take delivery of, the type of security called
for in the contract at a specified date and price. Options on interest rate and
U.S. Treasury security futures contracts give the purchaser the right in return
for the premium paid to assume a position in a futures contract at the specified
option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in interest rate and U.S. Treasury security
futures contracts and related options will not correlate closely with price
movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The Fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The Fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the Fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Advisor will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject
to the Advisor's ability to predict correctly movements in the direction of the
market. It is possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the Fund's portfolio may
decline. If this occurs, the Fund would lose money on the futures and also
experience a decline in the value of its portfolio securities. However, while
this could occur to a certain degree, the Advisor believes that over time the
value of the Fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the Fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the Fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result,
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and
A-83
also because of the imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast of general
market trends by the Advisor may still not result in a successful hedging
transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put
options on index futures, the Fund may purchase call and put options on the
underlying indices themselves. Such options could be used in a manner identical
to the use of options on index futures. Options involving securities indices
provide the holder with the right to make or receive a cash settlement upon
exercise of the option based on movements in the relevant index. Such options
must be listed on a national securities exchange and issued by the Options
Clearing Corporation. Such options may relate to particular securities or to
various stock indices, except that a Fund may not write covered options on an
index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of
hedging its portfolio, subject to applicable securities regulations, purchase
and write put and call options on foreign stock indices listed on foreign and
domestic stock exchanges. A stock index fluctuates with changes in the market
values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other
types of swap agreements such as caps, collars, and floors. In a typical
interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payments in different currencies, the
parties might agree to exchange notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if
A-84
the counterparty's creditworthiness deteriorates. The Funds may also suffer
losses if they are unable to terminate outstanding swap agreements or reduce
their exposure through offsetting transactions.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When
it engages in transaction hedging, the Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio
securities. The Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the Fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the Fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the Fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
Fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the Fund expects to purchase, when
the Fund holds cash or short-term investments). In connection with position
hedging, the Fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The Fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the Fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the Fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the Fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated.
A-85
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
Fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit (ECU).
The ECU is composed of amounts of a number of currencies, and is the official
medium of exchange of the European Economic Community's European Monetary
System. The Fund will only purchase or write currency options when the Advisor
believes that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex
political and economic factors applicable to the issuing country. In addition,
the exchange rates of currencies (and therefore the values of currency options)
may be significantly affected, fixed, or supported directly or indirectly by
government actions. Government intervention may increase risks involved in
purchasing or selling currency options, since exchange rates may not be free to
fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies
A-86
remain open, significant price and rate movements may take place in the
underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments
in foreign securities and to the Fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the Fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The Fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the Fund in connection with the arrangement. The Fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the Fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the Fund, although it could sell the underlying municipal
obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund portfolio will not exceed 10% of the value
of the Fund's total assets calculated immediately after each stand-by commitment
is acquired. The Fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Some variable
and floating rate obligations are direct lending arrangements between the
purchaser and the issuer and there may be no active secondary market. However,
in the case of variable and floating rate obligations with a demand feature, a
Fund may demand payment of principal and accrued interest at a time specified in
the instrument or may resell the instrument to a third party. In the event an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. Variable or floating rate instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but may have a more active secondary market. Substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
A-87
If a variable or floating rate instrument is not rated, the Fund's
Advisor must determine that such instrument is comparable to rated instruments
eligible for purchase by the Funds and will consider the earning power, cash
flows and other liquidity ratios of the issuers and guarantors of such
instruments and will continuously monitor their financial status in order to
meet payment on demand. In determining average weighted portfolio maturity of
each of these Funds, a variable or floating rate instrument issued or guaranteed
by the U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the obligation's next
interest rate adjustment. Variable and floating rate obligations with a demand
feature will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are
eligible for purchase and sale pursuant to Rule 144A under the Securities Act of
1933, as amended (1933 Act). That Rule permits certain qualified institutional
buyers, such as the Fund, to trade in privately placed securities that have not
been registered for sale under the 1933 Act. The Advisor, under the supervision
of the Board of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's investment restriction on
illiquid securities. A determination of whether a Rule 144A security is liquid
or not is a question of fact. In making this determination, the Advisor will
consider the trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the Advisor could
consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market, and (4) nature
of the security and of marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
The liquidity of Rule 144A securities will be monitored and, if as a result of
changed conditions, it is determined by the Advisor that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities would be reviewed
to determine what, if any, steps are required to assure that the Fund does not
exceed its investment limit on illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the Fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make
or receive payments in specified currencies. Currency swaps usually involve the
delivery of the entire principal value of one designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Advisor is incorrect in its forecast
of market value and currency exchange rates, the investment performance of a
Fund would be less favorable than it would have been if this investment
technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be
exchanged or converted into a predetermined number of shares of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants, which
are options to buy the common stock, they function as convertible bonds, except
that the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities and therefore have a claim to the
assets of the issuer prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar non-convertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. A Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in the Advisor's opinion, the investment
characteristics of the underlying common stock will assist the Fund in achieving
its investment objective. Otherwise, the Fund will hold or trade the convertible
securities. In selecting convertible securities for a Fund, the Advisor
evaluates the investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying equity
security for capital appreciation.
A-88
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued
by U.S. and Canadian insurance companies, a Fund makes cash contributions to a
deposit fund of the insurance company's general account. The insurance company
then credits to the fund payments at negotiated, floating or fixed interest
rates. A GIC is a general obligation of the issuing insurance company and not a
separate account. The purchase price paid for a GIC becomes part of the general
assets of the insurance company, and the contract is paid from the company's
general assets.
The Funds will only purchase GICs that are issued or guaranteed by
insurance companies that at the time of purchase are rated at least AA by S&P or
receive a similar high quality rating from a nationally recognized service which
provides ratings of insurance companies. GICs are considered illiquid securities
and will be subject to any limitations on such investments described in Part I
of this SAI, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available. No Fund will
invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain
quality and asset size requirements for banks are available to the Funds.
Pursuant to BICs, cash contributions are made to a deposit account at the bank
in exchange for payments at negotiated, floating or fixed interest rates. A BIC
is a general obligation of the issuing bank. BICs are considered illiquid
securities and will be subject to any limitations on such investments described
in Part I of this SAI, unless there is an active and substantial secondary
market for the particular instrument and market quotations are readily
available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by
the lending bank or agent for a syndicate of lending banks, and sold by the
lending bank or syndicate member. The Funds may only purchase interests in loan
participations issued by a bank in the United States with assets exceeding $1
billion and for which the underlying loan is issued by borrowers in whose
obligations the Funds may invest. Because the intermediary bank does not
guarantee a loan participation in any way, a loan participation is subject to
the credit risk generally associated with the underlying corporate borrower. In
addition, in the event the underlying corporate borrower defaults, a Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of the borrower. Under the terms of a loan participation, the
purchasing Fund may be regarded as a creditor of the intermediary bank so that
the Fund may also be subject to the risk that the issuing bank may become
insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be
designed to have various combinations of equity and fixed-income
characteristics. Equity-linked securities are a form of structured investment
and generally consist of a conversion privilege to a single company's common
stock plus a fixed annual distribution to the holder. Equity-linked securities
have some derivative characteristics because the conversion feature is linked to
the price of the company's common stock. Equity-linked securities are designed
to provide investors with higher quarterly income than the dividend paid per
share on the common stock. However, equity-linked securities have decreased
potential for capital appreciation because of limitations of the conversion
feature.
Equity-linked securities include issues such as "Structured Yield
Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange
Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"),
"Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities,
including those which may be developed in the future. The issuers of the above
listed examples of equity-linked securities generally purchase and hold a
portfolio of stripped U.S. Treasury securities maturing on a quarterly basis
through the conversion date, and a forward purchase contract with an existing
shareholder of the company relating to the common stock. Quarterly distributions
on equity-linked securities generally consist of the cash received from the U.S.
Treasury securities and equity-linked securities generally are not entitled to
any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of
investment companies. To the extent that equity-linked securities are issued by
investment companies, a Fund's investments in equity-linked securities are
subject to the same limitations as investments in more traditional forms of
investment companies.
A-89
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign
issuers that are either registered with the SEC or issued pursuant to Rule 144A
under the 1933 Act. These obligations consist of debt securities (including
preferred or preference stock of non-governmental issuers), certificates of
deposit, fixed time deposits and banker's acceptances issued by foreign banks,
and debt obligations of foreign governments or their subdivisions, agencies and
instrumentalities, international agencies and supranational entities. Some
securities issued by foreign governments or their subdivisions, agencies and
instrumentalities may not be backed by the full faith and credit of the foreign
government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered
form by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. European Depositary Receipts ("EDRs"),
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe typically by non-U.S. banks or trust companies and
foreign branches of U.S. banks that evidence ownership of foreign or U.S.
securities. Global Depositary Receipts ("GDRs") are receipts structured
similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a
national securities exchange or may be traded in the over-the-counter market.
EDRs and CDRs are designed for use in European exchange and over-the-counter
markets. GDRs are designed for trading in non-U.S. securities markets. ADRs,
EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an
active or substantial secondary market will be considered illiquid and therefore
will be subject to the Funds' respective limitations with respect to such
securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR,
there may be less information available to the Fund concerning the issuer of the
securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for
an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices
are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs
involve risks similar to those accompanying direct investments in foreign
securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage
transactional expenses. These cash balances are expected, under normal
conditions, not to exceed 2% of each Fund's net assets at any time (excluding
amounts used as margin and segregated assets with respect to futures
transactions and collateral for securities loans and repurchase agreements). The
Funds may invest these temporary cash balances in short-term debt obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities ("U.S. Government Securities"), high quality commercial paper
(rated A-1 or better by S&P or P-1 or better by Moody's), certificates of
deposit and time deposits of banking institutions having total assets in excess
of $1 billion, and repurchase agreements collateralized by U.S. Government
Securities. The Funds may also hold these investments in connection with U.S.
Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels
relate to U.S. federal taxes only. Consult your tax advisor for state, local and
foreign tax considerations and for information about special tax considerations
that may apply to shareholders that are not natural persons or not U.S. citizens
or resident aliens.
FEDERAL TAXES. The Fund (even if it is a fund in a Trust with multiple series)
is treated as a separate entity for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (Code). The Fund has elected (or in
the case of a new fund, intends to elect) to be, and intends to qualify to be
treated each year as, a "regulated investment company" under Subchapter M of the
Code by meeting all applicable requirements of Subchapter M, including
requirements as to the nature of the Fund's gross income, the amount of its
distributions (as a percentage of both its overall income and any tax-exempt
income), and the composition of its portfolio assets. To qualify as a "regulated
investment company," the Fund must (a) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies or
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (b) diversify its holdings so that, at the
close of each quarter of its taxable year, (i) at least 50% of the value of its
total assets consists of cash, cash items, U.S. government securities,
securities of other regulated investment companies and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the Fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any issuer (other than U.S. government securities or other
regulated investment companies); or of two or more issuers which the Fund
controls and which are engaged in the same, similar, or related trades or
businesses;and (c) distribute with respect to each year at least 90% of its
A-90
taxable net investment income, its tax-exempt interest income and the excess, if
any, of net short-term capital gains over net long-term capital losses for such
year. As a regulated investment company that is accorded special tax treatment,
the Fund will not be subject to any federal income taxes on its net investment
income and net realized capital gains that it distributes to shareholders in
accordance with the timing requirements imposed by the Code. The Fund's
foreign-source income, if any, may be subject to foreign withholding taxes. If
the Fund were to fail to qualify as a "regulated investment company" in any
year, it would incur a regular federal corporate income tax on all of its
taxable income, whether or not distributed, and Fund distributions would
generally be taxable as ordinary dividend income to the shareholders, except to
the extent they were treated as "qualified dividend income," as described below.
In addition, the Fund could be required to recognize unrealized gains, pay
substantial taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is accorded special tax
treatment.
If the Fund fails to distribute in a calendar year substantially all of its
ordinary income for such year and substantially all of its capital gain net
income for the one-year period ending October 31 (or later if the Fund is
permitted so to elect and so elects), plus any retained amount from the prior
year, the Fund will be subject to a 4% excise tax on the underdistributed
amounts. A dividend paid to shareholders by the Fund in January of a year
generally is deemed to have been paid by the Fund on December 31 of the
preceding year, if the dividend was declared and payable to shareholders of
record on a date in October, November or December of that preceding year. The
Fund intends generally to make distributions sufficient to avoid imposition of
the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from
regular federal income tax may subject corporate shareholders to or increase
their liability under the corporate alternative minimum tax (AMT). A portion of
such distributions may constitute a tax preference item for individual
shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
Fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT. The dividends received
deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a
shareholder in excess of the Fund's current and accumulated "earning and
profits" in any taxable year, the excess distribution will be treated as a
return of capital to the extent of your tax basis in your shares, and thereafter
as capital gain. A return of capital is not taxable, but it reduces your tax
basis in your shares, thus reducing any loss or increasing any gain on a
subsequent taxable disposition by you of your shares. Dividends and
distributions on a Fund's shares are generally subject to federal income tax as
described herein to the extent they do not exceed the Fund's realized income and
gains, even though such dividends and distributions may economically represent a
return of a particular shareholder's investment. Such distributions are likely
to occur in respect of shares purchased at a time when a Fund's net asset value
reflects gains that are either unrealized, or realized but not distributed. Such
realized gains may be required to be distributed even when a Fund's net asset
value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the Fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisors about the applicability of state and local
intangible property, income or other taxes to their Fund shares and
distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend
income and exempt-interest dividends, as discussed below) will generally be
taxable to shareholders as ordinary income to the extent derived from the Fund's
investment income and net short-term gains. Distributions of long-term capital
gains (that is, the excess of net gains from capital assets held for more than
one year over net losses from capital assets held for not more than one year)
will be taxable to shareholders as such, regardless of how long a shareholder
has held shares in the Fund. In general, any distributions of net capital gains
will be taxed to shareholders who are individuals at a maximum rate of 15% for
taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or
gains earned by the Fund before a shareholder's investment (and thus were
included in the price of the shareholder paid). Distributions are taxable
whether received in cash or in Fund shares.
A-91
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31,
2008, "qualified dividend income" received by an individual will be taxed at the
rates applicable to long-term capital gain. In order for some portion of the
dividends received by a Fund shareholder to be qualified dividend income, the
Fund must meet holding period and other requirements with respect to some
portion of the dividend paying stocks in its portfolio and the shareholder must
meet holding period and other requirements with respect to the Fund's shares. A
dividend will not be treated as qualified dividend income (at either the Fund or
shareholder level) (1) if the dividend is received with respect to any share of
stock held for fewer than 61 days during the 120-day period beginning on the
date which is 60 days before the date on which such share becomes ex-dividend
with respect to such dividend (or, in the case of certain preferred stock, 91
days during the 180-day period beginning 90 days before such date), (2) to the
extent that the recipient is under an obligation (whether pursuant to a short
sale or otherwise) to make related payments with respect to positions in
substantially similar or related property, (3) if the recipient elects to have
the dividend income treated as investment income for purposes of the limitation
on deductibility of investment interest, or (4) if the dividend is received from
a foreign corporation that is (a) not eligible for the benefits of a
comprehensive income tax treaty with the United States (with the exception of
dividends paid on stock of such a foreign corporation readily tradable on an
established securities market in the United States) or (b) treated as a foreign
personal holding company, foreign investment company, or passive foreign
investment company.
In general, distributions of investment income properly designated by the Fund
as derived from qualified dividend income may be treated as qualified dividend
income by a shareholder taxed as an individual provided the shareholder meets
the holding period and other requirements described above with respect to his or
her shares. Only qualified dividend income received by a Fund after December 31,
2002 is eligible for pass-through treatment. If the aggregate qualified
dividends received by a fund during any taxable year are 95% or more of its
gross income, then 100% of the Fund's dividends (other than properly designated
capital gain dividends) will be eligible to be treated as qualified dividend
income. For this purpose, the only gain included in the term "gross income" is
the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is
treated as a tax preference item for the AMT at the maximum rate of 28% for
individuals and 20% for corporations. If the Fund invests in private activity
bonds, shareholders may be subject to the AMT on that part of the distributions
derived from interest income on such bonds. Interest on all tax-exempt bonds is
included in corporate adjusted current earnings when computing the AMT
applicable to corporations. Seventy-five percent of the excess of adjusted
current earnings over the amount of income otherwise subject to the AMT is
included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are generally taxable to shareholders
as ordinary income. Any distributions of long-term capital gains will in general
be taxable to shareholders as long-term capital gains (generally subject to a
maximum 15% tax rate for shareholders who are individuals) regardless of the
length of time Fund shares are held.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and
some or all of this discount may be included in the Fund's ordinary income which
will be taxable when distributed. Any market discount recognized on a tax-exempt
bond purchased after April 30, 1993, with a term at time of issue of more than
one year is taxable as ordinary income. A market discount bond is a bond
acquired in the secondary market at a price below its "stated redemption price"
(in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the Fund.
A-92
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest
dividends, if any, attributable to interest received on certain private activity
obligations and certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users of the facilities financed by such
obligations or bonds or who are "related persons" of such substantial users, as
further defined in the Code. Income derived from the Fund's investments other
than tax-exempt instruments may give rise to taxable income. The Fund's shares
must be held for more than six months in order to avoid the disallowance of a
capital loss on the sale of Fund shares to the extent of tax-exempt dividends
paid during that period. Part or all of the interest on indebtedness, if any,
incurred or continued by a shareholder to purchase or carry shares of the Fund
paying exempt-interest dividends is not deductible. The portion of interest that
is not deductible is equal to the total interest paid or accrued on the
indebtedness, multiplied by the percentage of the Fund's total distributions
(not including distributions from net long-term capital gains) paid to the
shareholder that are exempt-interest dividends. Under rules used by the Internal
Revenue Service to determine when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares generally will be treated as long-term capital gain if the shares have
been held for more than one year. Otherwise the gain on the sale, exchange or
redemption of Fund shares will be treated as short-term capital gain. In
general, any loss realized upon a taxable disposition of shares will be treated
as long-term loss if the shares have been held more than one year, and otherwise
as short-term loss. However, any loss realized upon a taxable disposition of
shares held for six months or less will be treated as long-term, rather than
short-term, capital loss to the extent of any long-term capital gain
distributions received by the shareholder with respect to those shares. All or a
portion of any loss realized upon a taxable disposition of shares will be
disallowed if other shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased shares will be
adjusted to reflect the disallowed loss.
Under recently promulgated Treasury regulations, if on a disposition of Fund
shares a shareholder recognizes a loss of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder in any single
taxable year (or a greater loss over a combination of years), the shareholder
must file with the Internal Revenue Service a disclosure statement on Form 8886.
Direct shareholders of portfolio securities are in many cases excepted from this
reporting requirement, but under current guidance, shareholders of a regulated
investment company are not excepted. Future guidance may extend the current
exception from this reporting requirement to shareholders of most or all
regulated investment companies. The fact that a loss is reportable under these
regulations does not affect the legal determination of whether the taxpayer's
treatment of the loss is proper.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to
backup withholding for taxpayers who fail to furnish a correct tax
identification number, who have under-reported dividend or interest income, or
who fail to certify to the Fund that the shareholder is not subject to the
withholding is provided to the Fund. This number and certification may be
provided by either a Form W-9 or the accompanying application. In certain
instances, CFS may be notified by the Internal Revenue Service that a
shareholder is subject to backup withholding. The backup withholding rate is 28%
for amounts paid through 2010. The backup withholding rate will be 31% for
amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including
hedging transactions in options, futures contracts and straddles, or other
similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale and short sale rules),
the effect of which may be to accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
long-term capital gains into short-term capital gains or convert short-term
capital losses into long-term capital losses. These rules could therefore affect
the amount, timing and character of distributions to shareholders. The Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued
at a discount and certain other obligations will (and investments in securities
purchased at a discount may) require the Fund to accrue and distribute income
not yet received. In such cases, the Fund may be required to sell assets
(possibly at a time when it is not advantageous to do so) to generate the cash
necessary to distribute as dividends to its shareholders all of its income and
gains and therefore to eliminate any tax liability at the Fund level.
A-93
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The
Fund's transactions in foreign currencies, foreign currency-denominated debt
securities, certain foreign currency options, futures contracts and forward
contracts (and similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the value of the
foreign currency concerned.
If more than 50% of the Fund's total assets at the end of its fiscal year are
invested in stock or securities of foreign corporate issuers, the Fund may make
an election permitting its shareholders to take a deduction or credit for
federal income tax purposes for their pro rata portion of certain qualified
foreign taxes paid by the Fund to foreign countries in respect of foreign
securities the Fund has held for at least the minimum period specified in the
Code. The Advisor will consider the value of the benefit to a typical
shareholder, the cost to the Fund of compliance with the election, and
incidental costs to shareholders in deciding whether to make the election. A
shareholder's ability to claim such a foreign tax credit or deduction in respect
of foreign taxes will be subject to certain limitations imposed by the Code,
including a holding period requirement , as a result of which a shareholder may
not get a full credit or deduction for the amount of foreign taxes so paid by
the Fund. Shareholders who do not itemize on their federal income tax returns
may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in certain "passive foreign investment companies" could
subject the Fund to a U.S. federal income tax (including interest charges) on
distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to Fund shareholders. However, the Fund may be able to elect to
treat a passive foreign investment company as a "qualified electing fund," in
which case the Fund will be required to include its share of the company's
income and net capital gain annually, regardless of whether it receives any
distribution from the company. Alternatively, the Fund may make an election to
mark the gains (and, to a limited extent, losses) in such holdings "to the
market" as though it had sold and repurchased its holdings in those passive
foreign investment companies on the last day of the Fund's taxable year. Such
gains and losses are treated as ordinary income and loss. The qualified electing
fund and mark-to-market elections may have the effect of accelerating the
recognition of income (without the receipt of cash) and increase the amount
required to be distributed for the Fund to avoid taxation. Making either of
these elections therefore may require a Fund to liquidate other investments
(including when it is not advantageous to do so) in order to meet its
distribution requirement, which also may accelerate the recognition of gain and
affect a Fund's total return.
MANAGEMENT OF THE FUNDS
The Advisor provides administrative and management services to the Funds. On
April 1, 2003, Fleet Investment Advisors Inc., Stein Roe & Farnham Incorporated,
Colonial Management Associates, Inc. and Newport Pacific Management, Inc.
(NPMI), merged into Columbia Management Advisors, Inc. Each of the four merging
companies was a registered investment advisor and advised various Funds in the
Columbia Funds Complex. The Advisor, located at 100 Federal Street, Boston,
Massachusetts 02110, is a direct wholly owned subsidiary of Columbia Management
Group, Inc. (Columbia), which is an indirect wholly owned subsidiary of
FleetBoston Financial Corporation, a U.S. financial holding company. The Advisor
is the surviving company in these mergers and is now the investment advisor of
the Funds. The Advisor has been an investment advisor since 1969.
In addition, immediately prior to the mergers described above and also on April
1, 2003, Newport Fund Management, Inc. (NFMI), a subsidiary of NPMI and a
registered investment advisor that advised several Funds in the Columbia Funds
Complex, merged into NPMI. As a result of NPMI's merger into the Advisor, the
Advisor is now the Advisor to the Funds previously advised by NFMI.
A-94
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names,
addresses and ages of the Trustees and officers of the Funds in the Columbia
Funds Complex, the year each was first elected or appointed to office, their
principal business occupations during at least the last five years, the number
of portfolios overseen by each Trustee and other directorships they hold are
shown below. Each officer listed below serves as an officer of each Fund in the
Columbia Funds Complex.
Number of
Portfolios in
Year First Columbia Funds
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) by Trustee Other Directorships Held
------- ---------- ------- During Past Five Years ---------- ------------------------
----------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 48) Trustee 1996 Executive Vice President -- 119 Orbitz, Inc. (on-line
P.O. Box 66100 Strategy of United Airlines travel company)
Chicago, IL 60666 (airline) since December, 2002
(formerly President of UAL
Loyalty Services (airline)
from September, 2001 to
December, 2002; Executive Vice
President and Chief Financial
Officer of United Airlines
from March, 1993 to September,
2001).
Janet Langford Kelly (Age 45) Trustee 1996 Chief Administrative Officer 119 None
3100 West Beaver Road and Senior Vice President,
Troy, MI 48084-3163 Kmart Holding Corporation
(consumer goods) since
September, 2003 (formerly
Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary, Kellogg
Company (food manufacturer),
from September, 1999 to
August, 2003; Senior Vice
President, Secretary and
General Counsel, Sara Lee
Corporation (branded,
packaged, consumer-products
manufacturer) from January,
1995 to September, 1999).
Richard W. Lowry (Age 67) Trustee 1995 Private Investor since August, 121(3) None
10701 Charleston Drive 1987 (formerly Chairman and
Vero Beach, FL 32963 Chief Executive Officer, U.S.
Plywood Corporation (building
products manufacturer)).
A-95
Number of
Portfolios in
Year First Columbia Funds
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) by Trustee Other Directorships Held
------- ---------- ------- During Past Five Years ---------- ------------------------
----------------------
DISINTERESTED TRUSTEES
Charles R. Nelson (Age 61) Trustee 1981 Professor of Economics, 119 None
Department of Economics University of Washington,
University of Washington since January, 1976; Ford and
Seattle, WA 98195 Louisa Van Voorhis Professor
of Political Economy,
University of Washington,
since September, 1993;
Director, Institute for
Economic Research, University
of Washington, since
September, 2001; Adjunct
Professor of Statistics,
University of Washington,
since September, 1980;
Associate Editor, Journal of
Money Credit and Banking,
since September, 1993;
consultant on econometric and
statistical matters.
John J. Neuhauser (Age 60) Trustee 1985 Academic Vice President and 122(3),(4) Saucony, Inc. (athletic
84 College Road Dean of Faculties since footwear); SkillSoft
Chestnut Hill, MA 02467-3838 August, 1999, Boston College Corp. (E-Learning)
(formerly Dean, Boston College
School of Management from
September, 1977 to September,
1999).
Patrick J. Simpson (Age 58) Trustee 2000 Partner, Perkins Coie L.L.P. 119 None
1211 S.W. 5th Avenue (law firm).
Suite 1500
Portland, OR 97204
Thomas E. Stitzel (Age 67) Trustee 1998 Business Consultant since 1999 119 None
2208 Tawny Woods Place (formerly Professor of Finance
Boise, ID 83706 from 1975 to 1999, College of
Business, Boise State
University); Chartered
Financial Analyst.
A-96
Number of
Portfolios in
Year First Columbia Funds
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) by Trustee Other Directorships Held
------- ---------- ------- During Past Five Years ---------- ------------------------
----------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (Age 66) Trustee and 1996 Managing Director, William 119 Anixter International
27 West Monroe Street, Chairman of Blair Capital Partners (network support
Suite 3500 the Board (private equity investing) equipment distributor),
Chicago, IL 60606 since September, 1994. Jones Lang LaSalle (real
estate management
services) and MONY Group
(life insurance)
Anne-Lee Verville (Age 58) Trustee 1998 Author and speaker on 120(4) Chairman of the Board of
359 Stickney Hill Road educational systems needs Directors, Enesco Group,
Hopkinton, NH 03229 (formerly General Manager, Inc. (designer, importer
Global Education Industry, IBM and distributor of
Corporation (computer and giftware and
technology) from 1994 to collectibles)
1997).
Richard L. Woolworth (Age 62) Trustee 1991 Retired since December 2003 119 NW Natural (natural gas
100 S.W. Market Street (formerly Chairman and Chief service provider)
#1500 Executive Officer, The Regence
Portland, OR 97207 Group (regional health
insurer); Chairman and Chief
Executive Officer, BlueCross
BlueShield of Oregon;
Certified Public Accountant,
Arthur Young & Company)
A-97
Number of
Portfolios in
Year First Columbia Funds
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) by Trustee Other Directorships Held
------- ---------- ------- During Past Five Years ---------- ------------------------
----------------------
DISINTERESTED TRUSTEES
William E. Mayer(2) (Age 63) Trustee 1994 Managing Partner, Park Avenue 121(3) Lee Enterprises (print
399 Park Avenue Equity Partners (private media), WR Hambrecht +
Suite 3204 equity) since February, 1999 Co. (financial service
New York, NY 10022 (formerly Founding Partner, provider) and First
Development Capital LLC from Health (healthcare)
November 1996 to February,
1999).
Joseph R. Palombo(2) (Age 50) Trustee and 2000 Executive Vice President and 120(5) None
One Financial Center President Chief Operating Officer of
Boston, MA 02111 Columbia Management Group,
Inc. (Columbia Management)
since December, 2001 and
Director, Executive Vice
President and Chief Operating
Officer of the Advisor since
April, 2003 (formerly Chief
Operations Officer of Mutual
Funds, Liberty Financial
Companies, Inc. from August,
2000 to November, 2001;
Executive Vice President of
Stein Roe & Farnham
Incorporated (Stein Roe) from
April, 1999 to April, 2003;
Director of Colonial
Management Associates, Inc.
(Colonial) from April, 1999 to
April, 2003; Director of Stein
Roe from September, 2000 to
April, 2003) President of
Columbia Funds and Galaxy
Funds since February, 2003
(formerly Vice President from
September 2002 to February
2003); Manager of Columbia
Floating Rate Limited
Liability Company since
October, 2000; (formerly Vice
President of the Columbia
Funds from April, 1999 to
August, 2000; Chief Operating
Officer and Chief Compliance
Officer, Putnam Mutual Funds
from December, 1993 to March,
1999).
A-98
(1)In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for the
oversight of both fund groups (collectively, the "Liberty Board"). In October
2003, the trustees on the Liberty Board were elected to the boards of the
Columbia Funds (the "Columbia Board") and of the CMG Funds (the "CMG Funds
Board"); simultaneous with that election, Patrick J. Simpson and Richard L.
Woolworth, who had been directors on the Columbia Board and trustees on the CMG
Funds Board, were appointed to serve as trustees of the Liberty Board. The date
shown is the earliest date on which a trustee/director was elected or appointed
to the board of a Fund in the Columbia Funds Complex.
(2)Mr. Mayer is an "interested person" (as defined in the Investment Company Act
of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. Mr.
Palombo is an interested person as an employee of the Advisor.
(3)Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the
All-Star Funds, currently consisting of 2 funds, which are advised by an
affiliate of the Advisor.
(4)Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
(5)Mr. Palombo also serves as an interested director of Columbia Management
Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
Year First
Elected or
Name, Address Position Appointed to Principal Occupation(s)
and Age with Funds Office
------- ---------- ------ During Past Five Years
----------------------
Officers
Vicki L. Benjamin (Age 42) Chief 2001 Controller of the Columbia Funds and of the Liberty
One Financial Center Accounting All-Star Funds since May, 2002; Chief Accounting
Boston, MA 02111 Officer and Officer of the Columbia Funds and Liberty All-Star
Funds since June, 2001; Controller and Chief
Accounting Officer of the Galaxy Funds since
September, 2002 (formerly Controller Vice President,
Corporate Audit, State Street Bank and Trust Company
from May, 1998 to April, 2001; Audit Manager from
July, 1994 to June, 1997; Senior Audit Manager from
July, 1997 to May, 1998, Coopers & Lybrand, LLP).
J. Kevin Connaughton (Age 39) Treasurer 2000 Treasurer of the Columbia Funds and of the Liberty
One Financial Center All-Star Funds since December, 2000; Vice President
Boston, MA 02111 of the Advisor since April, 2003 (formerly
Controller of the Columbia Funds and of the Liberty
All-Star Funds from February, 1998 to October,
2000); Treasurer of the Galaxy Funds since
September, 2002; Treasurer, Columbia Management
Multi-Strategy Hedge Fund, LLC since December, 2002
(formerly Vice President of Colonial from February,
1998 to October, 2000 and Senior Tax Manager,
Coopers & Lybrand, LLP from April, 1996 to January,
1998).
David A. Rozenson (Age 49) Secretary 2003 Secretary of the Columbia Funds and of the Liberty
One Financial Center All-Star Funds since December, 2003; Senior Counsel,
Boston, MA 02111 Fleet Boston Financial Corporation since January,
1996: Associate General Counsel, Columbia Management
Group since November, 2002.
A-99
Trustee Positions
As of December 31, 2003, no disinterested Trustee or any of their immediate
family members owned beneficially or of record any class of securities of
FleetBoston Financial, the Advisor, another investment advisor, sub-advisor or
portfolio manager of any of the funds in the Columbia Funds Complex or any
person controlling, controlled by or under common control with any such entity.
Approving the Investment Advisory Contract
In determining to approve the most recent annual extension of a Fund's
management agreement, the Trustees met over the course of the year with the
relevant investment advisory personnel from the Advisor and considered
information provided by the Advisor relating to the education, experience and
number of investment professionals and other personnel providing services under
that agreement. See "Managing the Fund" in each Fund's Prospectus and "Trustees
and Officers" in this SAI. The Trustees also took into account the time and
attention devoted by senior management to the Funds and the other funds in the
Columbia Funds Complex. The Trustees evaluated the level of skill required to
manage the Funds and concluded that the human resources devoted by the Advisor
to the Funds were appropriate to fulfill effectively the Advisor's duties under
the agreement. The Trustees also considered the business reputation of the
Advisor and its financial resources, and concluded that the Advisor would be
able to meet any reasonably foreseeable obligations under the agreement.
The Trustees received information concerning the investment philosophy and
investment process applied by the Advisor in managing the Funds. See "Principal
Investment Strategies" and "Principal Investment Risks" in the Funds'
Prospectuses. In this connection, the Trustees considered the Advisor's in-house
research capabilities as well as other resources available to the Advisor's
personnel, including research services available to the Advisor as a result of
securities transactions effected for the Funds and other investment advisory
clients. The Trustees concluded that the Advisor's investment process, research
capabilities and philosophy were well suited to each Fund, given each Fund's
investment goal(s) and policies.
The Trustees considered the scope of the services provided by the Advisor to the
Funds under the agreement relative to services provided by third parties to
other mutual funds. See "Fund Charges and Expenses" and "Management of the Funds
- -- The Management Agreement". The Trustees concluded that the scope of the
Advisor's services to the Funds was consistent with the Funds' operational
requirements, including, in addition to its investment goal, compliance with
each Fund's investment restrictions, tax and reporting requirements and related
shareholder services.
The Trustees considered the quality of the services provided by the Advisor to
the Funds. The Trustees evaluated the Advisor's record with respect to
regulatory compliance and compliance with the investment policies of each Fund.
The Trustees also evaluated the procedures of the Advisor designed to fulfill
the Advisor's fiduciary duty to the Funds with respect to possible conflicts of
interest, including the Advisor's code of ethics (regulating the personal
trading of its officers and employees) (see "Management of the Funds -- Code of
Ethics"), the procedures by which the Advisor allocates trades among its various
investment advisory clients and the record of the Advisor in these matters. The
Trustees also received information concerning standards of the Advisor with
respect to the execution of portfolio transactions. See "Management of the Funds
- -- Portfolio Transactions."
The Trustees considered the Advisor's management of non-advisory services
provided by persons other than the Advisor by reference, among other things, to
each Fund's total expenses and the reputation of each Fund's other service
providers. See "Your Expenses" in each Fund's Prospectus(es). The Trustees also
considered information provided by third parties relating to each Fund's
investment performance relative to its performance benchmark(s), relative to
other similar funds managed by the Advisor and relative to funds managed
similarly by other advisors. The Trustees reviewed performance over various
periods, including each Fund's one, five and ten year calendar year periods
and/or the life of the Fund, as applicable (See "Performance History" in the
Fund's Prospectuses), as well as factors identified by the Advisor as
contributing to each Fund's performance. See each Fund's most recent annual and
semi-annual reports. The Trustees concluded that the scope and quality of the
Advisor's services was sufficient to merit reapproval of the agreement for
another year.
In reaching that conclusion, the Trustees also gave substantial consideration to
the fees payable under the agreement. The Trustees reviewed information
concerning fees paid to investment advisors of similarly-managed funds. The
Trustees also considered the fees of the Funds as a percentage of assets at
different asset levels and possible economies of scale to the Advisor. The
Trustees evaluated the Advisor's profitability with respect to the Funds,
concluding that such profitability appeared to be generally consistent with
levels of profitability that had been determined by courts to be "not
excessive." For these purposes, the Trustees took into account not only the
actual dollar amount of fees paid by the Funds directly to the Advisor, but also
so-called "fallout benefits" to the Advisor such as reputational value derived
from serving as investment Advisor to the Funds and the research services
available to the Advisor by reason of brokerage commissions generated by each
Fund's turnover. In evaluating the Funds' advisory fees, the Trustees also took
into account the complexity of investment management for the Funds relative to
other types of funds. Based on challenges associated with less readily available
market information about foreign issuers and smaller capitalization companies,
limited liquidity of certain securities,
A-100
and the specialization required for focused funds, the Trustees concluded that
generally greater research intensity and trading acumen is required for equity
funds, and for international or global funds, as compared to funds investing,
respectively, in debt obligations or in U.S. issuers. Similarly, the Trustees
concluded that, generally, small capitalization equity funds and focused funds
including state specific municipal funds, require greater intensity of research
and trading acumen than larger capitalization or more diversified funds. See
"The Fund" in each Fund's Prospectus.
Based on the foregoing, the Trustees concluded that the fees to be paid the
Advisor under the advisory agreement were fair and reasonable, given the scope
and quality of the services rendered by the Advisor.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty
All-Star Funds. Messrs. Neuhauser and Palombo and Ms. Verville are also
directors of Columbia Management Multi-Strategy Hedge Fund, LLC.
The Trustees serve as trustees of all open-end Funds managed by the
Advisor for which each Trustee (except Mr. Palombo) will receive an annual
retainer of $45,000 and attendance fees of $9,500 for each regular and special
joint board meeting and $1,000 for each special telephonic joint board meeting.
Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the
Board. Mr. Theobald receives an additional annual retainer of $40,000 for
serving in this capacity. All committee chairs, except the Audit Committee
chair, receive an annual retainer of $5,000 and members of Committees, except
the Audit Committee, receive $1,500 for each committee meeting . The Audit
Committee chair receives an annual retainer of $10,000 and each Audit Committee
member receives $2,000 for each Audit Committee meeting. Committee members
receive $1,000 for each special telephonic committee meeting. Two-thirds of the
Trustee fees are allocated among the Funds based on each Fund's relative net
assets and one-third of the fees is divided equally among the Funds.
The Advisor and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Advisor currently serves as investment advisor or
administrator for 71 open-end and 14 closed-end management investment company
portfolios. Trustees and officers of the Trust, who are also officers of the
Advisor or its affiliates, will benefit from the advisory fees, sales
commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder
fund structure. Under this structure, a Fund may invest all or a portion of its
investable assets in investment companies with substantially the same investment
goals, policies and restrictions as the Fund. The primary reason to use the
master fund/feeder fund structure is to provide a mechanism to pool, in a single
master fund, investments of different investor classes, resulting in a larger
portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (Agreement), the Advisor has contracted to furnish
each Fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each Fund pays a monthly fee based on the average of the daily closing value of
the total net assets of each Fund for such month. Under the Agreement, any
liability of the Advisor to the Trust, a Fund and/or its shareholders is limited
to situations involving the Advisor's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Advisor including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any
A-101
Prospectuses sent to shareholders. Columbia Funds Distributor, Inc. (formerly
named Liberty Funds Distributor, Inc.) (CFD) pays the cost of printing and
distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR
RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR
INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the
Administrator to each Fund, has contracted to perform the following
administrative services:
(a) providing office space, equipment and clerical
personnel;
(b) arranging, if desired by the respective Trust, for its
directors, officers and employees to serve as Trustees,
officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents
required for compliance by each Fund with applicable
laws and regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees
and shareholders;
(e) coordinating and overseeing the activities of each
Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Columbia Money Market Fund (formerly named Liberty Money Market
Fund) and Columbia Municipal Money Market Fund (formerly named Liberty Municipal
Money Market Fund), the Administration Agreement for these Funds provides that
the Advisor will monitor compliance by the Fund with Rule 2a-7 under the 1940
Act and report to the Trustees from time to time with respect thereto. The
Advisor is paid a monthly fee at the annual rate of average daily net assets set
forth in Part 1 of this SAI.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to
each Fund pursuant to a pricing and bookkeeping agreement. Under a separate
agreement (Outsourcing Agreement), the Advisor has delegated those functions to
State Street Bank and Trust Company (State Street). The Advisor pays fees to
State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the
Funds. The Advisor's affiliate, CASI, advises other institutional, corporate,
fiduciary and individual clients for which CASI performs various services.
Various officers and Trustees of the Trust also serve as officers or Trustees of
other funds and the other corporate or fiduciary clients of the Advisor. The
Funds and clients advised by the Advisor or the Funds administered by the
Advisor sometimes invest in securities in which the Fund also invests and
sometimes engage in covered option writing programs and enter into transactions
utilizing stock index options and stock index and financial futures and related
options ("other instruments"). If the Fund, such other funds and such other
clients desire to buy or sell the same portfolio securities, options or other
instruments at about the same time, the purchases and sales are normally made as
nearly as practicable on a pro rata basis in proportion to the amounts desired
to be purchased or sold by each. Although in some cases these practices could
have a detrimental effect on the price or volume of the securities, options or
other instruments as far as the Fund is concerned, in most cases it is believed
that these practices should produce better executions. It is the opinion of the
Trustees that the desirability of retaining the Advisor as investment advisor to
the Funds outweighs the disadvantages, if any, which might result from these
practices.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the
National Association of Securities Dealers, Inc., and subject to seeking "best
execution" (as defined below) and such other policies as the Trustees may
determine, the Advisor may consider sales of shares of the Funds as a factor in
the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by
the Advisor and, if applicable, negotiates commissions. Broker-dealers may
receive brokerage commissions on portfolio transactions, including the purchase
and writing of options, the effecting of closing purchase and sale transactions,
and the purchase and sale of underlying securities upon the exercise of options
and the purchase or sale of other instruments. The Funds from time to time also
execute portfolio transactions with such broker-dealers acting as principals.
The Funds do not intend to deal exclusively with any particular broker-dealer or
group of broker-dealers.
A-102
It is the Advisor's policy generally to seek best execution, which is to place
the Funds' transactions where the Funds can be expected to obtain the most
favorable combination of price and execution services in particular transactions
or provided on a continuing basis by a broker-dealer, and to deal directly with
a principal market maker in connection with over-the-counter transactions,
except when it is believed that best execution is obtainable elsewhere. In
evaluating the execution services of, including the overall reasonableness of
brokerage commissions paid to, a broker-dealer, consideration is given to, among
other things, the firm's general execution and operational capabilities, and to
its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also
provide research services (as defined below) to the Advisor and the Funds. The
Advisor may use all, some or none of such research services in providing
investment advisory services to each of its investment company and other
clients, including the Fund. To the extent that such services are used by the
Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion,
it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a
broker-dealer which provides brokerage and research services to the Advisor an
amount of commission for effecting a securities transaction, including the sale
of an option or a closing purchase transaction, for the funds in excess of the
amount of commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the Securities
Exchange Act of 1934, "brokerage and research services" include advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends and portfolio strategy and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The Advisor must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or the Advisor's
overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing
agent with respect to all call options written by Funds that write options and
to pay such clearing agent commissions of a fixed amount per share (currently
1.25 cents) on the sale of the underlying security upon the exercise of an
option written by a Fund.
The Advisor may use the services of Quick & Reilly, Inc., or Fleet Securities,
Inc., each an affiliate of the Advisor, when buying or selling securities for a
Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act
Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays
to affiliates of the Advisor on portfolio transactions are reasonable and fair
compared to commissions received by other broker-dealers in connection with
comparable transactions involving similar securities being bought or sold at
about the same time. The Advisor will report quarterly to the Trustees on all
securities transactions placed through affiliates of the Advisor so that the
Trustees may consider whether such trades complied with these procedures and the
Rule.
PRINCIPAL UNDERWRITER
CFD is the principal underwriter of the Trust's shares. CFD has no obligation to
buy the Funds' shares, and purchases the Funds' shares only upon receipt of
orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CFS is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CFS is based on number of accounts plus reimbursement for
certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF
THIS SAI FOR INFORMATION ON FEES RECEIVED BY CFS. The agreement continues
indefinitely but may be terminated by 90 days' notice by the Fund to CFS or
generally by 6 months' notice by CFS to the Fund. The agreement limits the
liability of CFS to the Fund for loss or damage incurred by the Fund to
situations involving a failure of CFS to use reasonable care or to act in good
faith in performing its duties under the agreement. It also provides that the
Fund will indemnify CFS against, among other things, loss or damage incurred by
CFS on account of any claim, demand, action or suit made on or against CFS not
resulting from CFS's bad faith or negligence and arising out of, or in
connection with, its duties under the agreement.
CODE OF ETHICS
The Funds, the Advisor, and CFD have adopted Codes of Ethics pursuant to the
requirements of the Act. These Codes of Ethics permit personnel subject to the
Codes to invest in securities, including securities that may be purchased or
held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's
Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090.
These Codes are also available on the EDGAR Database on the SEC's internet web
site at http://www.sec.gov, and may also be obtained, after paying a duplicating
fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's
Public Reference Section, Washington, D.C. 20549-0102.
A-103
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and
regulations. Consequently, the Funds may request additional information from you
to verify your identity. If at any time the Funds believe a shareholder may be
involved in suspicious activity or if certain account information matches
information on government lists of suspicious persons, the Funds may choose not
to establish a new account or may be required to "freeze" a shareholder's
account. The Funds also may be required to provide a governmental agency with
information about transactions that have occurred in a shareholder's account or
to transfer monies received to establish a new account, transfer an existing
account or transfer the proceeds of an existing account to a governmental
agency. In some circumstances, the law may not permit a Fund to inform the
shareholder that it has taken the actions described above.
PROXY VOTING POLICIES
THE FUND HAS DELEGATED TO THE ADVISOR THE RESPONSIBILITY TO VOTE PROXIES
RELATING TO PORTFOLIO SECURITIES HELD BY THE FUND. IN DECIDING TO DELEGATE THIS
RESPONSIBILITY TO THE ADVISOR, THE BOARD OF TRUSTEES OF THE TRUST REVIEWED AND
APPROVED THE POLICIES AND PROCEDURES ADOPTED BY THE ADVISOR. THESE INCLUDED THE
PROCEDURES THAT THE ADVISOR FOLLOWS WHEN A VOTE PRESENTS A CONFLICT BETWEEN THE
INTERESTS OF THE FUND AND ITS SHAREHOLDERS AND THE ADVISOR, ITS AFFILIATES, ITS
OTHER CLIENTS OR OTHER PERSONS.
THE ADVISOR'S POLICY IS TO VOTE ALL PROXIES FOR FUND SECURITIES IN A MANNER
CONSIDERED BY THE ADVISOR TO BE IN THE BEST INTEREST OF THE FUND AND ITS
SHAREHOLDERS WITHOUT REGARD TO ANY BENEFIT TO THE ADVISOR, ITS AFFILIATES, ITS
OTHER CLIENTS OR OTHER PERSONS. THE ADVISOR EXAMINES EACH PROPOSAL AND VOTES
AGAINST THE PROPOSAL, IF, IN ITS JUDGMENT, APPROVAL OR ADOPTION OF THE PROPOSAL
WOULD BE EXPECTED TO IMPACT ADVERSELY THE CURRENT OR POTENTIAL MARKET VALUE OF
THE ISSUER'S SECURITIES. THE ADVISOR ALSO EXAMINES EACH PROPOSAL AND VOTES THE
PROXIES AGAINST THE PROPOSAL, IF, IN ITS JUDGMENT, THE PROPOSAL WOULD BE
EXPECTED TO AFFECT ADVERSELY THE BEST INTEREST OF THE FUND. THE ADVISOR
DETERMINES THE BEST INTEREST OF THE FUND IN LIGHT OF THE POTENTIAL ECONOMIC
RETURN ON THE FUND'S INVESTMENT.
The Advisor addresses potential material conflicts of interest by having
predetermined voting guidelines. For those proposals that require special
consideration or in instances where special circumstances may require varying
from the predetermined guideline, the Advisor's Proxy Committee determines the
vote in the best interest of the Fund, without consideration of any benefit to
the Advisor, its affiliates, its other clients or other persons. A member of the
Proxy Committee is prohibited from voting on any proposal for which he or she
has a conflict of interest by reason of a direct relationship with the issuer or
other party affected by a given proposal. Persons making recommendations to the
Proxy Committee or its members are required to disclose to the Committee any
relationship with a party making a proposal or other matter known to the person
that would create a potential conflict of interest.
The Advisor has three classes of proxy proposals. The first two classes are
predetermined guidelines to vote for or against specific proposals, unless
otherwise directed by the Proxy Committee. The third class is for proposals
given special consideration by the Proxy Committee. In addition, the Proxy
Committee considers requests to vote on proposals in the first two classes other
than according to the predetermined guidelines.
The Advisor generally votes in favor of proposals related to the following
matters: selection of auditors (unless the auditor receives more than 50% of its
revenues from non-audit activities from the company and its affiliates),
election of directors (unless the proposal gives management the ability to alter
the size of the board without shareholder approval), different persons for
chairman of the board /chief executive officer (unless, in light of the size of
the company and the nature of its shareholder base, the role of chairman and CEO
are not held by different persons), compensation (if provisions are consistent
with standard business practices), debt limits (unless proposed specifically as
an anti-takeover action), indemnifications (unless for negligence and or
breaches of fiduciary duty), meetings, name of company, principal office (unless
the purpose is to reduce regulatory or financial supervision), reports and
accounts (if the certifications required by Sarbanes-Oxley Act of 2002 have been
provided), par value, shares (unless proposed as an anti-takeover action), share
repurchase programs, independent committees, and equal opportunity employment.
The Advisor generally votes against proposals related to the following matters:
super majority voting, cumulative voting, preferred stock, warrants, rights,
poison pills, reclassification of common stock and meetings held by written
consent.
The Advisor gives the following matters special consideration: new proposals,
proxies of investment company shares (other than those covered by the
predetermined guidelines), mergers/acquisitions (proposals where a hostile
merger/acquisition is apparent or where the Advisor represents ownership in more
than one of the companies involved), shareholder proposals (other than those
covered by the predetermined guidelines), executive/director compensation (other
than those covered by the predetermined guidelines), pre-emptive rights and
proxies of international issuers which block securities sales between submission
of a proxy and the meeting (proposals for these securities are voted only on the
specific instruction of the Proxy Committee and to the extent practicable in
accordance with predetermined guidelines).
A-104
In addition, if a portfolio manager or other party involved with a client of the
Advisor or Fund account concludes that the interest of the client or Fund
requires that a proxy be voted on a proposal other than according to the
predetermined guidelines, he or she may request that the Proxy Committee
consider voting the proxy differently. If any person (or entity) requests the
Proxy Committee (or any of its members) to vote a proxy other than according to
a predetermined guideline, that person must furnish to the Proxy Committee a
written explanation of the reasons for the request and a description of the
person's (or entity's) relationship with the party proposing the matter to
shareholders or any other matter known to the person (or entity) that would
create a potential conflict of interest.
The Proxy Committee may vary from the predetermined guideline if it determines
that voting on the proposal according to the predetermined guideline would be
expected to impact adversely the current or potential market value of the
issuer's securities or to affect adversely the best interest of the client.
References to the best interest of a client refer to the interest of the client
in terms of the potential economic return on the client's investment. In
determining the vote on any proposal, the Proxy Committee does not consider any
benefit other than benefits to the owner of the securities to be voted.
The Advisor's Proxy Committee is composed of operational and investment
representatives of its regional offices as well as senior representatives of the
Advisor's equity investments, equity research, compliance and legal functions.
During the first quarter of each year, the Proxy Committee reviews all
guidelines and establishes guidelines for expected new proposals. In addition to
these reviews and its other responsibilities described above, its functions
include annual review of its Proxy Voting Policy and Procedures to ensure
consistency with internal policies and regulatory agency policies, and
development and modification of voting guidelines and procedures as it deems
appropriate or necessary.
The Advisor uses Institutional Shareholder Services ("ISS"), a third party
vendor, to implement its proxy voting process. ISS provides proxy analysis,
record keeping services and vote disclosure services.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the
close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern
time) each day the Exchange is open, except that certain classes of assets, such
as index futures, for which the market close occurs shortly after the close of
regular trading on the Exchange will be priced at the closing time of the market
on which they trade. Currently, the Exchange is closed Saturdays, Sundays and
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. Funds with portfolio securities which are primarily listed on foreign
exchanges may experience trading and changes in NAV on days on which such Fund
does not determine NAV due to differences in closing policies among exchanges.
This may significantly affect the NAV of the Fund's redeemable securities on
days when an investor cannot redeem such securities Debt securities generally
are valued by a pricing service which determines valuations based upon market
transactions for normal, institutional-size trading units of similar securities.
However, in circumstances where such prices are not available or where the
Advisor deems it appropriate to do so, an over-the-counter or exchange bid
quotation is used. Securities listed on an exchange or on NASDAQ are valued at
the last sale price (or the official closing price as determined by the NASDAQ
system, if different, as applicable). Listed securities for which there were no
sales during the day and unlisted securities generally are valued at the last
quoted bid price. Options are valued at the last sale price or in the absence of
a sale, the mean between the last quoted bid and offering prices. Short-term
obligations with a maturity of 60 days or less are valued at amortized cost
pursuant to procedures adopted by the Trustees. The values of foreign securities
quoted in foreign currencies are translated into U.S. dollars at the exchange
rate for that day. Portfolio positions for which market quotations are not
readily available and other assets are valued at fair value as determined by the
Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each Fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at fair value following procedures approved by
the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund
(formerly named Liberty Newport Tiger Fund), Columbia Newport Greater China Fund
(formerly named Liberty Newport Greater China Fund), Columbia Newport Europe
Fund (formerly named Liberty Newport Europe Fund) and Columbia Newport Asia
Pacific Fund (formerly named Liberty Newport Asia Pacific Fund))
A-105
Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Advisor, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET
FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA
MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA
MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET
FUND))
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued cost and
thereafter amortized to maturity. This method assures a constant NAV but may
result in a yield different from that of the same portfolio under the market
value method. The Trust's Trustees have adopted procedures intended to stabilize
a money market fund's NAV per share at $1.00. When a money market fund's market
value deviates from the amortized cost of $1.00, and results in a material
dilution to existing shareholders, the Trust's Trustees will take corrective
action that may include: realizing gains or losses; shortening the portfolio's
maturity; withholding distributions; redeeming shares in kind; or converting to
the market value method (in which case the NAV per share may differ from $1.00).
All investments will be determined pursuant to procedures approved by the
Trust's Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Columbia Money Market Fund (formerly named Liberty Money Market Fund) for a
specimen price sheet showing the computation of maximum offering price per share
of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public
offering price based on the NAV per share next determined after the order is
placed in good order. The public offering price is the NAV plus the applicable
sales charge, if any. In the case of orders for purchase of shares placed
through FSFs, the public offering price will be determined on the day the order
is placed in good order, but only if the FSF receives the order prior to the
time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CFS,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, CFD's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that CFD retains the entire sales charge on any sales made to a
shareholder who does not specify a FSF on the Investment Account Application
("Application"), and except that CFD may from time to time reallow additional
amounts to all or certain FSFs. CFD generally retains some or all of any
asset-based sales charge (distribution fee) or contingent deferred sales charge.
Such charges generally reimburse CFD for any up-front and/or ongoing commissions
paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CFS acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CFS, provided the new FSF has a sales agreement
with CFD.
A-106
Shares credited to an account are transferable upon written instructions in good
order to CFS and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates are not available for any class of shares offered by
the Fund. If you currently hold previously issued share certificates, you may
send the certificates to CFS for deposit to your account.
CFD may, at its expense, provide special sales incentives (such as cash payments
in addition to the commissions specified in the Fund's Prospectus(es) and SAI)
to FSFs that agree to promote the sale of shares of the Fund or other funds that
CFD distributes. At its discretion, CFD may offer special sales incentives only
to selected FSFs or to FSFs who have previously sold or expect to sell
significant amounts of the Fund's shares.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds
advised by the Advisor may be purchased through the Automatic Investment Plan.
Electronic fund transfers for a fixed amount of at least $50 are used to
purchase a Fund's shares at the public offering price next determined after CFD
receives the proceeds. If your Automatic Investment Plan purchase is by
electronic funds transfer, you may request the Automatic Investment Plan
purchase for any day. Further information and application forms are available
from FSFs or from CFD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, T, G and Z). The Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any fund distributed by CFD in which you have a current balance of at
least $5,000 into the same class of shares of up to four other Funds. Complete
the Automated Dollar Cost Averaging section of the Application. There is no
charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your fund balance is sufficient to
complete the transfers. Your normal rights and privileges as a shareholder
remain in full force and effect. Thus you can buy any Fund, exchange between the
same Class of shares of Funds by written instruction or by telephone exchange if
you have so elected and withdraw amounts from any Fund, subject to the
imposition of any applicable CDSC.
Any additional payments or exchanges into your Fund will extend the time of the
Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax
purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Columbia Funds Services,
Inc. (formerly named Liberty Funds Services, Inc.) (CFS) P.O. Box 8081, Boston,
MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the
Automated Dollar Cost Averaging program is appropriate for you.
CFD offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges. These plans may be altered or discontinued at
any time. See "Programs For Reducing or Eliminating Sales Charges" below for
more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a
Shareholder Services Plan (the "Services Plan") pursuant to which the trusts
plan to enter into servicing agreements with institutions (including Fleet Bank
and its affiliates). Pursuant to these servicing agreements, institutions render
certain administrative and support services to customers who are the beneficial
owners of Class T shares of each Fund other than the Columbia Newport Tiger
Fund. Such services are provided to the institution's customers who are the
beneficial owners of Class T shares and are intended to supplement the services
provided by the Fund's administrator and transfer agent to the shareholders of
record of the Class T shares. The Services Plan provides that each Fund will pay
fees for such services at an annual rate of up to 0.50% of the average daily net
asset value of Class T shares owned beneficially by the institution's customers.
Institutions may receive up to one-half of this fee for providing one or more of
the following services to such customers: (i) aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with CFD; (ii) processing dividend payments from a Fund; (iii) providing
sub-accounting with respect to Class T shares or the information necessary for
sub-accounting; and (iv) providing periodic mailings to customers. Institutions
may also receive up to one-half of this fee for providing one or more of these
additional services to such customers: (i) providing customers with information
as to their positions in Class T shares; (ii) responding to customer inquiries;
and (iii) providing a service to invest the assets of customers in Class T
shares.
A-107
The payments under the servicing agreements entered into as of the date
of this SAI are limited to an aggregate fee of not more than 0.30% (on an
annualized basis) of the average daily net asset value of the Class T shares of
equity funds beneficially owned by customers of institutions and 0.15% (on an
annualized basis) of the average daily net asset value of the Class T shares of
bond funds beneficially owned by customers of institutions. The Funds understand
that institutions may charge fees to their customers who are the beneficial
owners of Class T shares in connection with their accounts with such
institutions. Any such fees would be in addition to any amounts which may be
received by an institution under the Services Plan. Under the terms of each
servicing agreement, institutions are required to provide to their customers a
schedule of any fees that they may charge in connection with customer
investments in Class T shares.
Each servicing agreement with an institution ("Service Organization")
relating to the Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the Service Organization agrees to waive a
portion of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Class T shares of such Funds on any day do not exceed the income to be accrued
to such Class T shares on that day.
During the last three fiscal years, the following payments were made to
Service Organizations (net of expense reimbursements) with respect to Class T
shares as shown in the table below:
SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
FUND(1)(4) 2003 2002(3) 2001(2)
---------- ---- ------- -------
Columbia Asset Allocation Fund $506,628 $722,543 $914,162
Columbia Large Cap Growth Fund $621,536 $872,400 $1,213,883
Columbia Disciplined Value Fund $328,843 $480,502 $585,821
Columbia Large Cap Core Fund $484,124 $666,709 $634,076
Columbia International Equity Fund $107,527 $151,816 N/A
Columbia Small Cap Fund $318,591 $316,465 $258,937
Columbia Small Company Equity Fund $156,029 $201,135 $258,937
Columbia Dividend Income Fund $0 $24,133 $20,192
- --------
(1) Information shown for each Fund for periods prior to its reorganization
is that of Retail A Shares of its predecessor fund. Class T shares are a
newer class of shares created as part of the reorganization of certain
Galaxy Funds.
(2) Expense reimbursements for the fiscal year ended October 31, 2001 were
$26,074, $29,123, $5,541, $8,298 and $47,211, respectively, for the Asset
Allocation Fund, Large Cap Fund, Dividend Fund, Value Fund and Growth
Fund.
(3) Expense reimbursements for the fiscal year ended October 31, 2002 were
$19,673, $90,360, $70,449, $21,761 and $3,789, respectively for the Asset
Allocation Fund, Growth Fund, International Fund, Small Company Fund and
Dividend Fund.
(4) The Funds changed their fiscal year end from October 31 to September 30
in 2003.
The Class T servicing agreements are governed by the Services Plan
approved by the Board of Trustees in connection with the offering of Class T
shares of each Fund. Pursuant to the Services Plan, the Board of Trustees
reviews, at least quarterly, a written report of the amounts paid under the
servicing agreements and the purposes for which the expenditures were made. In
addition, the arrangements with Service Organizations must be approved annually
by a majority of the Trustees, including a majority of the trustees who are not
"interested persons" of the Funds as defined in the 1940 Act and who have no
direct or indirect financial interest in such arrangements (the "Disinterested
Trustees").
The Board of Trustees has approved the service agreements with Service
Organizations based on information provided by the Funds' service contractors
that there is a reasonable likelihood that the arrangements will benefit the
Funds and their shareholders by affording the Funds greater flexibility in
connection with the efficient servicing of the accounts of the beneficial owners
of Class T shares of the Funds. Any material amendment to the Funds'
arrangements with Service Organizations must be approved by a majority of the
Board of Trustees (including a majority of the Disinterested Trustees). So long
as the service agreements with Service Organizations are in effect,
A-108
the selection and nomination of the members of Columbia's Board of Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Funds will be
committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CFD offers prototype
tax-qualified plans, including Pension and Profit-Sharing Plans for individuals,
corporations, employees and the self-employed. The minimum initial Retirement
Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee
and Plan Sponsor of the Columbia Management prototype plans offered through CFD.
In general, a $20 annual fee is charged. Detailed information concerning these
Retirement Plans and copies of the Retirement Plans are available from CFD.
A-109
Participants in Retirement Plans not sponsored by CTC, not including Individual
Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the
Retirement Plan maintains an omnibus account with CFS. Participants in CTC
sponsored prototype plans (other than IRAs) who liquidate the total value of
their account may also be charged a $20 close-out processing fee payable to CFS.
The fee is in addition to any applicable CDSC. The fee will not apply if the
participant uses the proceeds to open a Columbia Management IRA Rollover account
in any Fund distributed by CFD, or if the Retirement Plan maintains an omnibus
account.
Consultation with a competent financial advisor regarding these Retirement Plans
and consideration of the suitability of Fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CFS, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected. Please have your account and taxpayer identification numbers available
when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic
Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a Fund automatically invested in the same class of shares of
another Fund. An ADD account must be in the same name as the shareholder's
existing open account with the particular Fund. Call CFS for more information at
1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Class A, Class B and Class T shares only) (Class T
shares can only be purchased by the shareholders of Columbia Newport Tiger Fund
(formerly named Liberty Newport Tiger Fund) who already own Class T shares).
Reduced sales charges on Class A, B and T shares can be effected by combining a
current purchase of Class A, Class B or Class T shares with prior purchases of
Class A, B, C, T and Z shares of the funds distributed by CFD. The applicable
sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business
on the previous day of all funds' Class A, B, C, T and Z shares
held by the shareholder (except shares of any money market fund,
unless such shares were acquired by exchange from Class A, B C, T
or Z shares of another fund distributed by CFD other than a money
market fund).
CFD must be promptly notified of each purchase which entitles a shareholder to a
reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CFS. A Fund may terminate or amend
this Right of Accumulation.
STATEMENT OF INTENT (Class A and Class T shares only). Any person may qualify
for reduced sales charges on purchases of Class A and T shares made within a
thirteen-month period pursuant to a Statement of Intent ("Statement"). A
shareholder may include, as an accumulation credit toward the completion of such
Statement, the value of all Class A, B, C, T and Z shares held by the
shareholder on the date of the Statement in Funds (except shares of any money
market fund, unless such shares were acquired by exchange from Class A shares of
another non-money market fund). The value is determined at the public offering
price on the date of the Statement. Purchases made through reinvestment of
distributions do not count toward satisfaction of the Statement. Upon request, a
Statement of Intent may be backdated to reflect purchases within 90 days.
During the term of a Statement, CFS will hold shares in escrow to secure payment
of the higher sales charge applicable to Class A or T shares actually purchased.
Dividends and capital gains will be paid on all escrowed shares and these shares
will be released when the amount indicated has been purchased. A Statement does
not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to CFD the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
CFD an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CFS will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CFS at 1-800-345-6611.
A-110
REINSTATEMENT PRIVILEGE. An investor who has redeemed Class A, B, C or T shares
(other than shares of the Columbia Newport Asia Pacific Fund (formerly named
Liberty Newport Asia Pacific Fund), Columbia Newport Europe Fund (formerly named
Liberty Newport Europe Fund), Columbia Newport Greater China Fund (formerly
named Liberty Newport Greater China Fund), Columbia Global Equity Fund (formerly
named Liberty Newport Global Equity Fund), Columbia Newport Japan Opportunities
Fund (formerly named Liberty Newport Japan Opportunities Fund), Columbia Newport
Tiger Fund (formerly named Liberty Newport Tiger Fund), Columbia International
Equity Fund (formerly named Liberty International Equity Fund), Columbia
European Thematic Equity Fund (formerly named Liberty European Thematic Equity
Fund) and Columbia Global Thematic Equity Fund (formerly named Liberty Global
Thematic Equity Fund) that were redeemed within 30 days of their acquisition by
exchange from another fund) may, upon request, reinstate within one year a
portion or all of the proceeds of such sale in shares of Class A of any Fund at
the NAV next determined after CFS receives a written reinstatement request and
payment. Investors who desire to exercise this privilege should contact their
FSF or CFS. Shareholders may exercise this privilege an unlimited amount of
times. Exercise of this privilege does not alter the federal income tax
treatment of any capital gains realized on the prior sale of Fund shares, but to
the extent any such shares were sold at a loss, some or all of the loss may be
disallowed for tax purposes. Consult your tax advisor.
PRIVILEGES OF COLUMBIA EMPLOYEES OR FINANCIAL SERVICE FIRMS (IN THIS SECTION,
THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS
THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS). Class A shares of certain Funds
may be sold at NAV to the following individuals whether currently employed or
retired: Trustees of funds advised or administered by the Advisor; directors,
officers and employees of the Advisor, CFD and companies affiliated with the
Advisor; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with CFD; and such persons' families and their beneficial accounts.
PRIVILEGES OF COLUMBIA ACORN FUNDS (FORMERLY NAMED LIBERTY ACORN FUNDS)
SHAREHOLDERS. Any shareholder who owned shares of any fund of Columbia Acorn
Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of
the then outstanding shares of Columbia Acorn Trust were re-designated Class Z
shares) and who since that time has remained a shareholder of any fund
distributed by CFD, may purchase Class A shares of any fund distributed by CFD
at NAV in those cases where a Columbia Fund Class Z share is not available.
Qualifying shareholders will not be subject to any Class A initial sales charge
or CDSC; however, they will be subject to the annual Rule 12b-1 service fee.
EXCHANGES FOR CLIENTS OF AFFILIATES OF INVESTMENT ADVISOR. Clients of affiliates
of CFD who have previously purchased shares of other investment companies and
have been charged a front-end load or other sales charge on such purchases may
exchange those shares for Class A shares of any funds distributed by CFD,
without incurring an additional front-end load or sales charge for those
exchanged shares. Certain funds may charge an annual Rule 12b-1 distribution and
service fee.
SPONSORED ARRANGEMENTS. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Columbia Newport Tiger Fund (formerly named
Liberty Newport Tiger Fund) who already own Class T shares and shareholders who
received (and who have continuously held) Class T shares in connection with the
merger of certain Galaxy Funds into various Columbia Funds (formerly named
Liberty Funds)) of certain funds may be purchased at a reduced or no sales
charge pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the Fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge, will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The Funds reserve the right to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport
Tiger Fund) who already own Class T shares) of certain funds may also be
purchased at reduced or no sales charge by clients of dealers, brokers or
registered investment advisors that have entered into agreements with CFD
pursuant to which the Funds are included as investment options in programs
involving fee-based compensation arrangements, and by participants in certain
retirement plans.
A-111
WAIVER OF INITIAL SALES CHARGES (CLASS A AND CLASS T SHARES)
Class A share initial sales charges (but not contingent deferred sales
charges) are waived for the following categories of investors:
- Galaxy Fund shareholders prior to December 1, 1995; and
- Shareholders who (i) purchased Galaxy Fund Prime A Shares at net
asset value and received Class A shares in exchange for those
shares during the Galaxy/Liberty Fund reorganization; and (ii)
continue to maintain the account in which the Prime A shares were
originally purchased.
Class T share sales charges are waived for the following categories of
investors:
- Galaxy Fund shareholders prior to December 1, 1995;
- Shareholders who (i) purchased Galaxy Fund Retail A Shares at net
asset value and received Class T shares in exchange for those
shares during the Galaxy/Liberty Fund reorganization; and (ii)
continue to maintain the account in which the Retail A shares were
originally purchased; and
- Boston 1784 Fund shareholders on the date the Funds were
reorganized into Galaxy Funds.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE
"ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE
ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Classes A, B, C and T) CDSCs may be
waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a
joint tenant where the surviving joint tenant is the deceased's spouse,
or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA),
Uniform Transfers to Minors Act (UTMA) or other custodial account. If,
upon the occurrence of one of the foregoing, the account is transferred
to an account registered in the name of the deceased's estate, the CDSC
will be waived on any redemption from the estate account occurring
within one year after the death. If the Class B shares are not redeemed
within one year of the death, they will remain subject to the
applicable CDSC, when redeemed from the transferee's account. If the
account is transferred to a new registration and then a redemption is
requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP
established with CFS, to the extent the redemptions do not exceed, on
an annual basis, 12% of the account's value, so long as at the time of
the first SWP redemption the account had had distributions reinvested
for a period at least equal to the period of the SWP (e.g., if it is a
quarterly SWP, distributions must have been reinvested at least for the
three-month period prior to the first SWP redemption). Otherwise, CDSCs
will be charged on SWP redemptions until this requirement is met; this
requirement does not apply if the SWP is set up at the time the account
is established, and distributions are being reinvested. See below under
"Investor Services - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as defined
in Section 72(m)(7) of the Internal Revenue Code). To be eligible for
such waiver, (i) the disability must arise AFTER the purchase of shares
(ii) the disabled shareholder must have been under age 65 at the time
of the initial determination of disability, and (iii) a letter from a
physician signed under penalty of perjury stating the nature of the
disability. If the account is transferred to a new registration and
then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death
of the sole trustee where (i) the grantor of the trust is the sole
trustee and the sole life beneficiary, (ii) death occurs following the
purchase AND (iii) the trust document provides for dissolution of the
trust upon the trustee's death. If the account is transferred to a new
registration (including that of a successor trustee), the applicable
CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return the
applicable portion of any commission paid by the Advisor.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required
to make distributions from qualified
A-112
retirement plans following normal retirement (as stated in the Plan
document). CDSCs also will be waived on SWP redemptions made to make
required minimum distributions from qualified retirement plans that
have invested in Funds distributed by CFD for at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
CLASS G SHARES. CDSCs are not assessed on Class G shares in the
following circumstances: (a) redemptions in connection with required (or, in
some cases, discretionary) distributions to participants or beneficiaries of an
employee pension, profit sharing or other trust or qualified retirement or Keogh
plan, individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Code; (b) redemptions in connection with required (or,
in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (c) redemptions effected pursuant to a Fund's
right to liquidate a shareholder's account if the aggregate net asset value of
Class G shares held in the account is less than the minimum account size; (d)
redemptions in connection with the combination of a Fund with any other
investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (e) redemptions resulting from a tax-free
return of an excess contribution pursuant to Section 408(d)(4) or (5) of the
Code; or (f) any redemption of Class G shares held by investors, provided the
investor was the beneficial owner of shares of a Fund (or any of the other
portfolios offered by Columbia or otherwise advised by Fleet or its affiliates)
before December 1, 1995.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund may delay
selling your shares for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CFS, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor that participates in the Medallion
Signature Guarantee Program. Stock power forms are available from FSFs, CFS and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners, individual retirement account
holders and other legal entities. Call CFS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CFS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN (SWP). If a shareholder's account balance is at least
$5,000, the shareholder may establish a SWP. A specified dollar amount or
percentage of the then current net asset value of the shareholder's investment
in any Fund designated by the shareholder will be paid monthly, quarterly or
semi-annually to a designated payee. The amount or percentage the shareholder
specifies generally may not, on an annualized basis, exceed 12% of the value, as
of the time the shareholder makes the election, of the shareholder's investment.
Withdrawals from Class B and Class C shares of the Fund under a SWP will be
treated as redemptions of shares purchased through the reinvestment of Fund
distributions, or, to the extent such shares in the shareholder's account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares of such Fund in the shareholder's account. No CDSCs apply to a redemption
pursuant to a SWP of 12% or less, even if, after giving effect to the
redemption, the shareholder's account balance is less than the shareholder's
base amount. Qualified plan participants who are required by Internal Revenue
Service regulation to withdraw more than 12%, on an annual basis, of the value
of their Class B and Class C share account may do so but will be subject to a
CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If
a shareholder wishes to participate in a SWP, the shareholder must elect to have
all of the shareholder's income dividends and other Fund distributions payable
in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the Fund
(other than through the reinvestment of dividends) and a SWP at the same time.
A-113
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CFS will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name," the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions are limited to a total of $100,000 in a 30-day period. Redemptions
that exceed $100,000 may be accomplished by placing a wire order trade through a
broker or furnishing a signature guarantee request. Signatures must be
guaranteed by either a bank, a member firm of a national stock exchange or
another eligible guarantor that participates in the Medallion Signature
Guarantee Program. CFS will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Telephone redemptions are
not available on accounts with an address change in the preceding 30 days and
proceeds and confirmations will only be mailed or sent to the address of record
unless the redemption proceeds are being sent to a pre-designated bank account.
Shareholders and/or their FSFs will be required to provide their name, address
account and taxpayer identification numbers. FSFs will also be required to
provide their broker number. All telephone transactions are recorded. A loss to
a shareholder may result from an unauthorized transaction reasonably believed to
have been authorized. Certain restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT
ADVISORS, INC. ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS)
(Available only on the Class A shares of certain Funds) Shares may be redeemed
by check if a shareholder has previously completed an Application and Signature
Card. CFS will provide checks to be drawn on Mellon Trust of New England, N.A.
(the "Bank"). These checks may be made payable to the order of any person in the
amount of not less than $500 ($250 for money market funds) nor more than
$100,000. The shareholder will continue to earn dividends on shares until a
check is presented to the Bank for payment. At such time a sufficient number of
full and fractional shares will be redeemed at the next determined net asset
value to cover the amount of the check. Certificate shares may not be redeemed
in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks., However, you may incur customary fees for services such as a
stop payment request or a request for copies of a check. The shareholder should
make sure that there are sufficient shares in his or her open account to cover
the amount of any check drawn since the net asset value of shares will
fluctuate. If insufficient shares are in the shareholder's open account, the
check will be returned marked "insufficient funds" and no shares will be
redeemed; the shareholder will be charged a $15 service fee for each check
returned. It is not possible to determine in advance the total value of an open
account because prior redemptions and possible changes in net asset value may
cause the value of an open account to change. Accordingly, a check redemption
should not be used to close an open account. In addition, a check redemption,
like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset
value, a Fund may make the payment or a portion of the payment with portfolio
securities held by that Fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their
sales charge structures and shareholder servicing/distribution expenses.
Investments in Class T shares of the Funds are subject to a front-end sales
charge. Investments in Class G shares of the Funds are subject to a back-end
sales charge. This back-end sales charge declines over time and is known as a
"contingent deferred sales charge." An investor should understand that the
purpose and function of the sales charge structures and shareholder
servicing/distribution arrangements for both Class G and Class T shares are the
same. Class T shares of a bond fund and an equity fund are currently subject to
ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%,
respectively, of the Fund's average daily net assets attributable to its Class T
shares. Class G shares of a bond fund and an equity fund are currently subject
to ongoing shareholder servicing and distribution fees at an annual rate of up
to 0.80% and 0.95%, respectively, of the Fund's average daily net assets
attributable to its Class G shares. These ongoing fees, which are higher than
those charged on Class T shares, will cause Class G shares to have a higher
expense ratio and pay lower dividends than Class T shares.
Class G and Class T shares may only be purchased by current shareholders of
Class G and Class T, respectively.
A-114
INFORMATION APPLICABLE TO CLASS T SHARES RECEIVED BY FORMER GALAXY FUND RETAIL A
SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. Unless
otherwise noted, Class T shares received by former Galaxy Fund Retail A
shareholders in connection with the reorganizations are subject to a 1% CDSC if
the Retail A Shares were purchased without an initial sales charge in accounts
aggregating $1 million or more at the time of purchase and the Class A shares
are sold within 12 months of the time of purchase of the Retail A Shares. The
12-month holding period begins on the first day of the month in which each
purchase was made.
CLASS T SHARES. The public offering price for Class T shares of the
Funds is the sum of the net asset value of the Class T shares purchased plus any
applicable front-end sales charge as described in the applicable Prospectus. A
deferred sales charge of up to 1.00% is assessed on certain redemptions of Class
T shares that are purchased with no initial sales charge as part of an
investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge
may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE - BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ---------------------- ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
The appropriate reallowance to dealers will be paid by CFD to
broker-dealer organizations which have entered into agreements with CFD. The
reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide
additional compensation to broker-dealer affiliates of Columbia and to
unaffiliated broker-dealers whose customers purchase significant amounts of
Class T shares of the Funds. Such compensation will not represent an additional
expense to the Funds or their shareholders, since it will be paid from the
assets of Fleet's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND
RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The
following table describes the CDSC schedule applicable to Class G shares
received by former Galaxy Fund Retail B shareholders in exchange for Retail B
Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
Class G shares received in exchange for Galaxy Fund Retail B Shares
that were purchased prior to January 1, 2001 will automatically convert to Class
T shares six years after purchase. For purposes of calculating the CDSC, all
purchases are considered to be made on the first day of the month in which each
purchase was made.
A-115
The following table describes the CDSC schedule applicable to Class G
shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund
Retail B Shares were acquired in connection with the reorganization of the
Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
If you acquired Retail B Shares in connection with the reorganization
of the Pillar Funds, your Class G shares will automatically convert to Class T
shares eight years after you purchased the Pillar Fund Class B shares you held
prior to the reorganization. For purposes of calculating the CDSC, all purchases
are considered to be made on the first day of the month in which each purchase
was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The
public offering price for Class G shares of the Funds is the net asset value of
the Class G shares purchased. Although investors pay no front-end sales charge
on purchases of Class G shares, such shares are subject to a contingent deferred
sales charge at the rates set forth in the applicable Prospectus if they are
redeemed within seven years of purchase. Securities dealers, brokers, financial
institutions and other industry professionals will receive commissions from CFD
in connection with sales of Class G shares. These commissions may be different
than the reallowances or placement fees paid to dealers in connection with sales
of Class T shares. Certain affiliates of Columbia may, at their own expense,
provide additional compensation to broker-dealer affiliates of Columbia and to
unaffiliated broker-dealers, whose customers purchase significant amounts of
Class G shares of a Fund. See "Class T Shares." The contingent deferred sales
charge on Class G shares is based on the lesser of the net asset value of the
shares on the redemption date or the original cost of the shares being redeemed.
As a result, no sales charge is imposed on any increase in the principal value
of an investor's Class G shares. In addition, a contingent deferred sales charge
will not be assessed on Class G shares purchased through reinvestment of
dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor
may pay upon redemption go to CFD, which may use such amounts to defray the
expenses associated with the distribution-related services involved in selling
Class G shares.
Class G shares of a Fund will convert automatically to Class T shares
eight years after purchase. The purpose of the conversion is to relieve a holder
of Class G shares of the higher ongoing expenses charged to those shares, after
enough time has passed to allow CFD to recover approximately the amount it would
have received if the applicable front-end sales charge had been charged. The
conversion from Class G shares to Class T shares takes place at net asset value,
as a result of which an investor receives dollar-for-dollar the same value of
Class T shares as he or she had of Class G shares. The conversion occurs eight
years after the beginning of the calendar month in which the shares are
purchased. Upon conversion, the converted shares will be relieved of the
distribution and shareholder servicing fees borne by Class G shares, although
they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are
also converted at the earlier of two dates - (i) eight years after the beginning
of the calendar month in which the reinvestment occurred or (ii) the date of
conversion of the most recently purchased Class G shares that were not acquired
through reinvestment of dividends or distributions. For example, if an investor
makes a one-time purchase of Class G shares of a Fund, and subsequently acquires
additional Class G shares of the Fund only through reinvestment of dividends
and/or distributions, all of such investor's Class G shares in the Fund,
including those acquired through reinvestment, will convert to Class T shares of
the Fund on the same date.
A-116
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. Shareholders may reinvest all or
a portion of a recent cash distribution without a sales charge. A shareholder
request must be received within 30 calendar days of the distribution. A
shareholder may exercise this privilege only once. No charge is currently made
for reinvestment.
Shares of some Funds that pay daily dividends (include Funds) will normally earn
dividends starting with the date the Fund receives payment for the shares and
will continue through the day before the shares are redeemed, transferred or
exchanged. Shares of some Funds that pay daily dividends (exclude Funds)
Columbia will be earned starting with the day after that Fund receives payments
for the shares. To determine whether a particular Fund is an include or exclude
fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered funds (with certain exceptions) on the basis of the NAVs
per share at the time of exchange. Class T and Z shares may be exchanged for
Class A shares of certain other funds. The prospectus of each Fund describes its
investment goal and policies, and shareholders should obtain a prospectus and
consider these goals and policies carefully before requesting an exchange.
Shares of certain Funds are not available to residents of all states. Consult
CFS before requesting an exchange.
By calling CFS, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting CFS by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another fund, completion of an exchange may be delayed under unusual
circumstances, such as if the Fund suspends repurchases or postpones payment for
the Fund shares being exchanged in accordance with federal securities law. CFS
will also make exchanges upon receipt of a written exchange request and share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CFS will require customary additional documentation.
Prospectuses of the other Funds are available from the CFD Literature Department
by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
Consult your FSF or CFS. In all cases, the shares to be exchanged must be
registered on the records of the Fund in the name of the shareholder desiring to
exchange.
Shareholders of the other open-end funds generally may exchange their shares at
NAV for the same class of shares of the Fund.
An exchange is generally a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for
more than seven days unless the Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the SEC during periods
when trading on the Exchange is restricted or during any emergency which makes
it impracticable for the Fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the Fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Fund or the
Trust's Trustees. The Declaration provides for indemnification out of Fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the Fund would be unable to meet its obligations and
the disclaimer was inoperative.
A-117
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History", the Fund will not
hold annual shareholders' meetings. The Trustees may fill any vacancies in the
Board of Trustees except that the Trustees may not fill a vacancy if,
immediately after filling such vacancy, less than two-thirds of the Trustees
then in office would have been elected to such office by the shareholders. In
addition, at such times as less than a majority of the Trustees then in office
have been elected to such office by the shareholders, the Trustees must call a
meeting of shareholders. Trustees may be removed from office by a written
consent signed by a majority of the outstanding shares of the Trust or by a vote
of the holders of a majority of the outstanding shares at a meeting duly called
for the purpose, which meeting shall be held upon written request of the holders
of not less than 10% of the outstanding shares of the Trust. Upon written
request by the holders of 1% of the outstanding shares of the Trust stating that
such shareholders of the Trust, for the purpose of obtaining the signatures
necessary to demand a shareholders' meeting to consider removal of a Trustee,
request information regarding the Trust's shareholders, the Trust will provide
appropriate materials (at the expense of the requesting shareholders). Except as
otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue
to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees, but each
series would vote separately from the others on other matters, such as changes
in the investment policies of that series or the approval of the management
agreement for that series.
A-118
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for bonds in the A
category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC bonds have a currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, the bonds are not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned
an actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
A-119
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and
interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on the obligation are being
continued.
A-120
D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large in
Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact, have speculative
characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
A-121
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
A-122
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in the
`AAA' and `AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'.
A bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
securities and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or
the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such
securities are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these securities, and `D'
represents the lowest potential for recovery.
A-123
PLEASE VOTE PROMPTLY
*********************************
Your vote is important, no matter how many shares you own. Please vote on the
reverse side of this proxy card and sign in the space(s) provided. Return your
completed proxy card in the enclosed envelope today.
You may receive additional proxies for other accounts. These are not duplicates;
you should sign and return each proxy card in order for your votes to be
counted.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The signers
of this proxy hereby appoint each of [________], [_________], [__________],
[___________] and [__________] proxies of the signers, with power of
substitution, to vote at the Special Meeting of Shareholders to be held at
Boston, Massachusetts, on February 16, 2005, and at any adjournments, as
specified herein and in accordance with their best judgment, on any other
business that may properly come before this meeting.
AFTER CAREFUL REVIEW, THE BOARD OF DIRECTORS UNANIMOUSLY HAS RECOMMENDED A VOTE
"FOR" ALL MATTERS.
[COLUMBIA LOGO]
--------------------------------
COLUMBIA COMMON STOCK FUND, INC.
--------------------------------
Please be sure to sign and date this proxy. Date
--------
- ------------------------- -------------------------
Shareholder sign here Co-owner sign here
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BELOW
AND, ABSENT DIRECTION, WILL BE VOTED FOR PROPOSAL 1 LISTED BELOW. THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGMENT AS TO ANY OTHER
MATTER.
THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL:
1. Proposal to approve the Agreement and Plan of [ ] FOR [ ] AGAINST
Reorganization with respect to the acquisition of
Columbia Common Stock Fund by Columbia Large [ ] ABSTAIN
Cap Core Fund.
(Item 1 of the Notice)
MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE NEW ADDRESS AT LEFT
[ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name or names appear hereon. Joint owners should each
sign personally. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
DETACH CARD DETACH CARD
THREE CONVENIENT WAYS TO VOTE YOUR PROXY
The enclosed proxy statement provides details on important issues affecting your
fund. The Board of Directors recommends that you vote for the proposal.
You can vote your proxies over the Internet, by telephone, or by fax - it's
easy and confidential!
If you are voting by Internet, telephone, or fax, you should NOT mail your
proxy card.
Vote by Internet:
- Read the proxy statement and have your proxy card available.
- Go to www.[_________].com or www.[________].com.
- Click on the proxy link and follow the instructions provided.
Vote by telephone:
- Read the proxy statement and have your proxy card available.
- When you are ready to vote, call toll free [___]-[___]-[____].
- Enter the voter control number located on the upper left corner of
your proxy card.
- Follow the instructions provided to cast your vote. A representative
will be available to answer questions regarding the meeting agenda
and execution of proxies.
Vote by fax:
- Read the proxy statements and have your proxy card available.
- When you are ready to vote, fax your completed proxy card to
[___]-[___]-[____].
INTERNET, TELEPHONE, AND FAX VOTING ARE AVAILABLE 24 HOURS A DAY, SEVEN DAYS A
WEEK. If you have any questions or concerns, please call 866-270-3134 from 9:00
a.m. to 11:00 p.m. EDT Monday through Friday, and Saturdays from 12:00 to 6:00
p.m.
COLUMBIA FUNDS TRUST XI
FORM N-14
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Incorporated by reference to Item 25 of Post-Effective Amendment No. 85 to the
Registrant's Registration Statement on Form N-1A under the Securities Act of
1933 and the Investment Company Act of 1940 (File Nos. 33-11351 and 811-4978).
ITEM 16. EXHIBITS
(1)(a) Amended and Restated Agreement and Declaration of Trust as
amended on July 28, 2000.(1)
(1)(b) Amendment to the Agreement and Declaration of Trust dated October
13, 2003.(2)
(2)(a) By-laws of Registrant as amended through February 3, 1993. (3)
(2)(b) Amendment to By-Laws dated February 4, 1998.(4)
(2)(c) Amendment to By-Laws dated February 8, 2000.(5)
(2)(d) Amendment to By-Laws dated September 28, 2000.(5)
(2)(e) Amendment to By-Laws dated June 20, 2001. (6)
(3) Not applicable.
(4)(a) Agreement and Plan of Reorganization -- Constitutes Appendix A to
the Prospectus/Proxy Statement relating to the Acquisition of the
Assets and Liabilities of Columbia Growth Fund by and in Exchange
for Shares of Columbia Large Cap Growth Fund.
(4)(b) Agreement and Plan of Reorganization -- Constitutes Appendix A to
the Prospectus/Proxy Statement relating to the Acquisition of the
Assets and Liabilities of Columbia Common Stock Fund by and in
Exchange for Shares of Columbia Large Cap Core Fund.
(5) Articles 4, 5, 10, 11, and 13 of the Registrant's Agreement and
Declaration of Trust and Articles VII and X of the Registrant's
By-Laws define the rights of Shareholders.
(6)(a) Management Agreement between Registrant and Columbia Management
Advisors, Inc. dated November 1, 2003, on behalf of Columbia Asset
Allocation Fund, Columbia Dividend Income Fund, Columbia Large Cap
Core Fund, Columbia International Equity Fund, Columbia Large Cap
Growth Fund, Columbia Disciplined Value Fund, and Columbia Small
Company Equity Fund.(2)
(7)(a) Underwriting Agreement between Registrant and Columbia Funds
Distributor, Inc., dated November 1, 2003. (2)
(7)(b) Specimen copy of selected dealer agreement. (7)
(7)(c) Shareholder Services Plan between Registrant and Columbia
Management Advisors, Inc. dated November 1, 2002. (2)
(7)(d) Form of Class T Shares Servicing Agreement between Registrant and
Columbia Management Advisors, Inc. dated November 1, 2002. (2)
(8) None.
(9)(a) Custodian contract between Registrant and State Street Corporation
(formerly known as State Street Bank and Trust Company ) dated
October 10, 2001 -- Filed as Exhibit (g) in Part C, Item 23 of
Post-Effective Amendment No. 56 to the Registration Statement on
Form N-1A of Liberty Funds Trust II (File Nos. 2-66976 and
811-3009), filed with the Commission on or about October 26, 2001,
and incorporated by reference and made part of this Registration
Statement.
(9)(b) Appendix A to the Custodian Contract between Registrant and State
Street Corporation (formerly known as State Street Bank and Trust
Company) -- Filed as Exhibit (j)(2) in Part C, Item 24(2) of
Post-Effective Amendment No. 6 to the Registration Statement on
Form N-2 of Columbia Floating Rate Fund (File Nos. 333-
-2-
51466 and 811-08953), filed with the Commission on or about
December 17, 2003, and incorporated by reference and made part of
this Registration Statement.
(10)(a) Rule 12b-1 Distribution Plan dated August 3, 1999, as amended and
restated on June 19, 2003, July 1, 2002, November 4, 2002,
November 1, 2003, and on February 17, 2004. (8)
(10)(b) Appendix 1 to Rule 12b-1 Distribution Plan. (8)
(10)(c) Rule 18f-3 Plan amended and restated as of November 1, 2003, and
on February 17, 2004.(8)
(11)(a) Form of opinion of Ropes & Gray LLP relating to the acquisition
of Columbia Growth Fund by Columbia Large Cap Growth Fund. (9)
(11)(b) Form of opinion of Ropes & Gray LLP relating to the acquisition
of Columbia Common Stock Fund by Columbia Large Cap Core Fund. (9)
(11)(c) Consent of Ropes & Gray LLP. (9)
(12)(a) Opinion of Ropes & Gray LLP as to tax matters -- Exhibit 1.*
(12)(b) Opinion of Ropes & Gray LLP as to tax matters -- Exhibit 2.*
(13)(a) Amended and Restated Agency Agreement between Registrant and
Columbia Funds Services, Inc. dated November 1, 2003. (2)
(13)(b) Amended and Restated Pricing and Bookkeeping Agreement between
Registrant and Columbia Management Advisors, Inc. -- Filed as
Exhibit (k)(9) in Part C, Item 24(2) of Post-Effective Amendment
No. 5 to the Registration Statement on Form N-2 of Columbia
Floating Rate Advantage Fund (File Nos. 333-51788 and 811-09709),
filed with the Commission on or about December 17, 2003, and
incorporated by reference and made a part of this Registration
Statement.
(13)(c) Administrative Agreement between Registrant and Columbia
Management Advisors, Inc. dated November 1, 2003. (2)
-3-
(13)(d) Amended and Restated Accounting and Bookkeeping Agreement between
Registrant and Columbia Management Advisors, Inc. dated November
1, 2003.(8)
(13)(e) Schedule A to Amended and Restated Accounting and Bookkeeping
Agreement between the Registrant and Columbia Management Advisors,
Inc. dated November 1, 2003. (8)
(13)(f) Appendix 1 to Amended and Restated Accounting and Bookkeeping
Agreement between the Registrant and Columbia Management Advisors,
Inc. dated November 1, 2003. (8)
(13)(g) Administrative Services Plan adopted by Registrant on February 10,
2004. (8)
(13)(h) Amended and Restated Credit Agreement with Bank of America dated
April 29, 1996, Amendment and Restatement as of April 25, 2003 --
Filed as Exhibit (h)(8) in Part C, Item 23 of Post-Effective
Amendment No. 38 to the Registration Statement on Form N-1A of
Columbia Funds Trust V (filed under former name Liberty Funds
-4-
Trust V) (File Nos. 33-12109 and 811-5030), filed with the
Commission on or about May 28, 2003, and incorporated by reference
and made part of this Registration Statement.
(14)(a) Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm to Columbia Large Cap Growth Fund and
Columbia Growth Fund, Inc. (9)
(14)(b) Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm to Columbia Large Cap Core Fund and
Columbia Common Stock Fund, Inc. (9)
(14)(c) Consent of Ernst & Young, Independent Registered Public
Accounting Firm. (9)
(15) Not Applicable.
(16) Powers of Attorney. (9)
- -------------------------------------------
(1) Incorporated by Reference to Post-Effective Amendment No. 68 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-11351
and 811-4978) filed July 27, 2000.
(2) Incorporated by Reference to Post-Effective Amendment No. 84 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-11351
and 811-4978) filed January 28, 2004.
(3) Incorporated by Reference to Post-Effective Amendment No. 34 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-11351
and 811-4978) filed June 25, 1996.
(4) Incorporated by Reference to Post-Effective Amendment No. 45 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-11351
and 811-4978) filed February 11, 1998.
(5) Incorporated by Reference to Post-Effective Amendment No. 69 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-11351
and 811-4978) filed October 19, 2000.
(6) Incorporated by Reference to Post-Effective Amendment No. 72 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-11351
and 811-4978) filed December 3, 2001.
(7) Incorporated by Reference to Post-Effective Amendment No. 40 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-11351
and 811-4978) filed May 7, 1997.
(8) Incorporated by Reference to Post-Effective Amendment No. 85 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-11351
and 811-4978) filed February 25, 2004.
(9) Incorporated by Reference to the Registrant's Registration Statement
on Form N-14, File No. 333-121037, filed December 7, 2004.
-5-
- ---------------------------
*Filed herewith
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) under the Securities Act of 1933, as amended
(the "1933 Act"), the reoffering prospectus will contain the information called
for by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to this Registration
Statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new Registration Statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
-6-
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of the Registrant
is on file with the Secretary of The Commonwealth of Massachusetts, and notice
is hereby given that this Registration Statement has been executed on behalf of
the Registrant by an officer of the Registrant as an officer and not
individually, and the obligations of or arising out of this Registration
Statement are not binding upon any of the Trustees, officers, or shareholders of
the Registrant individually, but are binding only upon the assets and property
of the Registrant.
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of Boston and
The Commonwealth of Massachusetts on the 15th day of June, 2005.
COLUMBIA FUNDS TRUST XI
By: Christopher L. Wilson, President
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<Table>
<Caption>
Signature Title Date
/s/ Christopher L. Wilson President (Chief Executive June 15, 2005
- --------------------------- Officer)
Christopher L. Wilson
/s/ J. Kevin Connaughton Treasurer (Principal
- --------------------------- Financial Officer) June 15, 2005
J. Kevin Connaughton
/s/ Michael G. Clarke Chief Accounting Officer
- --------------------------- (Principal Accounting Officer) June 15, 2005
Michael G. Clarke
/s/ Douglas A. Hacker* Trustee June 15, 2005
- ---------------------------
Douglas A. Hacker
/s/ Janet Langford Kelly* Trustee June 15, 2005
- ---------------------------
Janet Langford Kelly
/s/ Richard W. Lowry* Trustee June 15, 2005
- ---------------------------
Richard W. Lowry
</Table>
-7-
/s/ William E. Mayer*
- ----------------------------
William E. Mayer Trustee June 15, 2005
/s/ Dr. Charles R. Nelson*
- ----------------------------
Dr. Charles R. Nelson Trustee June 15, 2005
/s/ John J. Neuhauser*
- ----------------------------
John J. Neuhauser Trustee June 15, 2005
/s/ Patrick J. Simpson*
- ----------------------------
Patrick J. Simpson Trustee June 15, 2005
/s/ Thomas E. Stitzel*
- ----------------------------
Thomas E. Stitzel Trustee June 15, 2005
/s/ Thomas C. Theobald*
- ----------------------------
Thomas C. Theobald Trustee June 15, 2005
/s/ Anne-Lee Verville*
- ----------------------------
Anne-Lee Verville Trustee June 15, 2005
/s/ Richard L. Woolworth*
- ----------------------------
Richard L. Woolworth Trustee June 15, 2005
*By: Vincent P. Pietropaolo
----------------------------
as Attorney-in-Fact
June 15, 2005
-8-
EXHIBIT INDEX
(12)(a) Opinion of Ropes & Gray LLP as to tax matters -- Exhibit 1.
(12)(b) Opinion of Ropes & Gray LLP as to tax matters -- Exhibit 2.
-9-