-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AOtd3w8Ft9DKgKlRSvCw/XuWhxX0YgAEWuhifNwhEs6Z02m38qUXbH4DiCsI253e Pv20+eShGD4Hw0tnmmzf4g== 0000891804-05-000872.txt : 20050301 0000891804-05-000872.hdr.sgml : 20050301 20050228183911 ACCESSION NUMBER: 0000891804-05-000872 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20050301 DATE AS OF CHANGE: 20050228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA ACORN TRUST CENTRAL INDEX KEY: 0000002110 IRS NUMBER: 362692100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-34223 FILM NUMBER: 05647376 BUSINESS ADDRESS: STREET 1: 227 W MONROE STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 MAIL ADDRESS: STREET 1: 227 W MONROE STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY ACORN TRUST DATE OF NAME CHANGE: 20010424 FORMER COMPANY: FORMER CONFORMED NAME: ACORN INVESTMENT TRUST DATE OF NAME CHANGE: 19940204 FORMER COMPANY: FORMER CONFORMED NAME: ACORN FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA ACORN TRUST CENTRAL INDEX KEY: 0000002110 IRS NUMBER: 362692100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-01829 FILM NUMBER: 05647377 BUSINESS ADDRESS: STREET 1: 227 W MONROE STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 MAIL ADDRESS: STREET 1: 227 W MONROE STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY ACORN TRUST DATE OF NAME CHANGE: 20010424 FORMER COMPANY: FORMER CONFORMED NAME: ACORN INVESTMENT TRUST DATE OF NAME CHANGE: 19940204 FORMER COMPANY: FORMER CONFORMED NAME: ACORN FUND INC DATE OF NAME CHANGE: 19920703 485APOS 1 file002.txt COLUMBIA ACORN TRUST As filed with the Securities and Exchange Commission on March 1, 2005 Securities Act registration no. 2-34223 Investment Company Act file no. 811-1829 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A ------------------------------ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 77 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 52 ------------------------------ COLUMBIA ACORN TRUST (previously named Acorn Investment Trust and Liberty Acorn Trust) (Registrant) 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone number: 312/634-9200 ------------------------------
Charles P. McQuaid Vincent P. Pietropaolo Cameron S. Avery Columbia Acorn Trust Columbia Management Group, Inc. Bell, Boyd & Lloyd LLC 227 West Monroe Street, Suite 3000 One Financial Center 70 West Madison Street, Suite 3100 Chicago, Illinois 60606 Boston, Massachusetts 02111 Chicago, Illinois 60602
(Agents for service) ----------------------------- Amending Parts A, B, and C, and filing exhibits ------------------------------ It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to rule 485(b) [ ] on __________ pursuant to rule 485(b) [ ] 60 days after filing pursuant to rule 485(a)(1) [X] on May 1, 2005 pursuant to rule 485(a)(1) [ ] 75 days after filing pursuant to rule 485(a)(2) [ ] on ___________ pursuant to rule 485(a)(2). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Columbia Acorn Fund Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class Z Shares Advised by Columbia Wanger Asset Management, L.P. TABLE OF CONTENTS - -------------------------------------------------------------------------------- THE FUND 2 - -------------------------------------------------------------------------------- Investment Goal ............................................................ 2 Principal Investment Strategies ............................................ 2 Principal Investment Risks ................................................. 2 Performance History ........................................................ 3 Your Expenses .............................................................. 5 YOUR ACCOUNT 7 - -------------------------------------------------------------------------------- How to Buy Shares .......................................................... 7 Eligible Investors ......................................................... 8 Sales Charges .............................................................. 9 How to Exchange Shares ..................................................... 10 How to Sell Shares ......................................................... 10 Fund Policy on Trading of Fund Shares ...................................... 11 Intermediary Compensation .................................................. 12 Other Information About Your Account ....................................... 13 BOARD OF TRUSTEES 15 - -------------------------------------------------------------------------------- MANAGING THE FUND 16 - -------------------------------------------------------------------------------- Investment Adviser ......................................................... 16 Portfolio Managers ......................................................... 16 Legal Proceedings .......................................................... 17 OTHER INVESTMENT STRATEGIES AND RISKS 18 - -------------------------------------------------------------------------------- The Information Edge ....................................................... 18 Long-Term Investing ........................................................ 18 Derivative Strategies ...................................................... 19 Temporary Defensive Strategies ............................................. 19 FINANCIAL HIGHLIGHTS 20 - -------------------------------------------------------------------------------- Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information. Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn Fund seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn Fund generally invests in the stocks of small- and medium-sized companies. The Fund generally invests in the stocks of companies with market capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that these smaller companies, which are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Columbia Acorn Fund typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give a company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. Columbia Acorn Fund invests the majority of its assets in U.S. companies, but also may invest up to 33% of its assets in companies outside the U.S. in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser'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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times the Fund may have a significant 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 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. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. Their securities markets may be underdeveloped. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. An investment in the 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. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of broad measures of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. 3 The Fund -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses. Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses. The Fund's returns are compared to the Russell 2500 Index (Russell 2500), the Standard & Poor's 500 Index (S&P 500 Index) and the Russell 2000(R) Index (Russell 2000(R)). The Russell 2500, the Fund's primary benchmark, is a market-weighted index of 2500 small companies formed by taking the largest 3000 companies and eliminating the largest 500 of those companies. The S&P 500 Index is a broad market-weighted average of large U.S. blue-chip companies. The Russell 2000(R) is a market-weighted index of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. All third party trademarks are the property of their owners. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. -------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class Z) - -------------------------------------------------------------------------------- 1995 20.80% 1996 22.55% 1997 24.98% 1998 6.02% 1999 33.38% 2000 10.06% 2001 6.14% 2002 -13.31% 2003 45.68% 2004 21.51% For period shown in bar chart: Best quarter: 4th quarter 1999, +21.94% Worst quarter: 3rd quarter 1998, -19.51% After tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. 4 The Fund - ------------------------------------------------------------------------------------------------------------- Average Annual Total Returns--for periods ended December 31, 2004 - -------------------------------------------------------------------------------------------------------------
Inception Date 1 Year 5 Years 10 Years Class Z (%) 6/10/70 Return Before Taxes 21.51 12.38 16.71 Return After Taxes on Distributions 20.81 11.35 14.69 Return After Taxes on Distributions and Sale of Fund Shares 14.73 10.33 13.88 - ------------------------------------------------------------------------------------------------------------- Russell 2500 (%) N/A 18.29 8.35 13.75 - ------------------------------------------------------------------------------------------------------------- S&P 500 Index (%) N/A 10.88 (2.30) 12.07 - ------------------------------------------------------------------------------------------------------------- Russell 2000(R) (%) N/A 18.33 6.61 11.54 - -------------------------------------------------------------------------------------------------------------
YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions -------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - -------------------------------------------------------------------------------- Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) None - -------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) None - -------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(2) - -------------------------------------------------------------------------------- (1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent. (2) There is a $7.50 charge for wiring sale proceeds to the transfer agent. 5 The Fund - -------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from Fund assets) - -------------------------------------------------------------------------------- Management fees(1)(2) (%) 0.65 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses(3) (%) 0.14 - -------------------------------------------------------------------------------- Total annual fund operating expenses (%) 0.79 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rates: 0.74% of net assets up to $700 million; 0.69% of the next $1.3 billion; 0.64% of the next $4 billion; and 0.63% of net assets in excess of $6 billion. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rates set forth above. If the fee waiver had not been implemented as noted above, actual expenses of the Fund would be as follows: management fee, 0.66%; and total operating expenses, 0.80%. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this arrangement had not been in place, total annual fund operating expenses would have been 0.81%. - -------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - -------------------------------------------------------------------------------- 1 Year 3 Years 5 Years 10 Years $ 81 $ 257 $ 448 $ 1,000 6 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described below), when the Fund receives your purchase request in "good form," your shares will be bought at the next calculated price after the Fund receives your purchase request in "good form." "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with Columbia Funds Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. The USA Patriot Act may require us to obtain 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. 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 or Class A of the Fund at no additional cost. To exchange by telephone, call 1-800-422-3737. Please see "How to Exchange Shares" for more information. - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To receive financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing account) statement, or send a letter of instruction including the 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 (and, in some cases, certain other classes) 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 You may purchase shares of the Fund by electronically transferring money from your bank account to your funds transfer Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to (existing account) 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 ($50 minimum) automatically from your bank account to your investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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. There may be an additional sales charge if exchanging from a money market fund. Be sure to complete the appropriate section of the account application for this feature. - ----------------------------------------------------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by another fund into the same class of shares of the diversification Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611.
7 Your Account ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z Shares of the Funds generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements. Important Things to Consider When Deciding on a Class of Shares: Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in the Fund in connection with different pricing options for their programs. Investors should consider carefully any separate transaction and other fees charged by these programs in connection with investing in each available share class before selecting a share class. Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. Eligible Investors and their applicable investment minimums are as follows: No minimum initial investment o Any trustee or director (or family member) of Columbia Acorn Trust; o Any employee (or family member) of Columbia Wanger Asset Management, L.P.; o Any investor purchasing through Columbia Management Group state tuition plans organized under Section 529 of the Internal Revenue Code; or o Any retirement plan for which an intermediary or other entity provides services and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent. $50,000 minimum initial investment (by purchase, exchange or transfer) o 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 or Class Z shares; or (iii) who purchased certain no-load shares of funds merged with funds distributed by Columbia Funds Distributor, Inc.; o Any trustee or director (or family member of a trustee or director) of any fund other than the Columbia Acorn Funds distributed by Columbia Funds Distributor, Inc.; o Any employee (or family member of an employee) of Bank of America Corporation or its subsidiaries (other than Columbia Wanger Asset Management L.P.); 8 Your Account o Any investor participating in an account offered by an intermediary or other entity that provides services to such account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agents; o Any client of Bank of America Corporation or a subsidiary (for shares purchased through an asset management company, trust, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary); o 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; or o Any insurance company, trust company, bank, endowment, investment company or foundation purchasing shares for its own account. The Fund reserves the right to change the criteria for eligible investors and the investment minimums. For accounts opened prior to December 15, 2003, no minimum investment applies to accounts participating in the automatic investment plan. 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. SALES CHARGES - -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers one class of shares in this prospectus--Class Z. The Fund also offers three additional classes of shares--Class A, B and C shares are available through a separate prospectus. Each other share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. 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. -------------------------------------------------------------------------- If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. 9 Your Account If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your 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 adviser in its discretion determines that your exchange activity may 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 - -------------------------------------------------------------------------------- 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 net asset value. "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, and (ii) 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 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. 10 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's price, financial advisor 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 Class Z shares or Class A shares 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 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 ($50 minimum) or percentage of your account on a withdrawal plan monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. 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 proceeds be electronically transferred to your bank. funds transfer 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.
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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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. 11 Your Account The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Columbia Funds (other than the Funds) impose a redemption fee on the proceeds of 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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. INTERMEDIARY COMPENSATION - -------------------------------------------------------------------------------- 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. 12 Your Account In addition, the distributor, and/or the Fund's investment adviser, 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 a Fund's Class Z shares is based on their 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 on days the NYSE is closed for trading. When you request a transaction, it will be processed at the net asset value 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 Fund 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 its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the value of each security in its portfolio at the close of each trading day. Because the Fund may hold securities that are traded on foreign exchanges, the value of these 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 for a security are unavailable, or when the adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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. 13 Your Account 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 Class Z shares. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. Distribution Options The Fund distributes dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. -------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 also may be subject to state and local income taxes. 14 Your Account 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. The Fund's investments in foreign securities may be subject to foreign withholding taxes. You may be entitled to claim a credit or deduction with respect to foreign taxes. Your investment in the Fund may have additional personal tax implications. Please consult you 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 taxes. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia service to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. 15 - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM)), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P., and its predecessor was named Wanger Asset Management, L.P. ("WAM"). CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.66% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Columbia WAM uses a team to assist the lead portfolio managers in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. Portfolio managers make strategic decisions and monitor and supervise individual transactions. While certain analysts recommend transactions for approval by the portfolio managers, more seasoned analysts are authorized to buy and sell securities for the Fund, within the guidelines set by portfolio managers. Charles P. McQuaid Lead portfolio manager Charles McQuaid is president and a member of Columbia Acorn Trust's Board of Trustees. He has been president of CWAM since October 13, 2003, chief investment officer of CWAM since September 30, 2003, was director of research at CWAM and its predecessor from July 1992 through December 2003, and was a principal of WAM from July 1992 to September 29, 2000. Mr. McQuaid has been a member of Columbia Acorn Fund's management team since 1978, co-managed Columbia Acorn Fund from 1995 through September 30, 2003 and has been the Fund's lead portfolio manager since September 30, 2003. He served as CWAM's interim director of international research from October 2003 to December 15, 2004. Mr. McQuaid is also president of Wanger Advisors Trust. The SAI provides additional information about Mr. McQuaid's compensation, other accounts he manages and his ownership of securities in the Fund. Robert A. Mohn Co-portfolio manager Robert Mohn is a vice president of Columbia Acorn Trust. He has been a member of the domestic analytical team at CWAM and its predecessor since August 1992, and was a principal of WAM from 1995 to September 29, 2000. He has managed Columbia Acorn USA since its inception in 1996, co-managed Columbia Acorn Fund since May 2003, and also manages Wanger U.S. Smaller Companies, a mutual fund underlying variable insurance products, and the U.S. portfolio of an investment company whose shares are offered only to non-U.S. investors. Mr. Mohn is a vice president of Wanger Advisors Trust and the director of domestic research for CWAM. The SAI provides additional information about Mr. Mohn's compensation, other accounts he manages and his ownership of securities in the Fund. 16 Managing the Fund LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 17 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed smaller and mid-sized companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from those trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------------------------------------------------ o superior technology o low debt o reasonable stock price relative to o innovative marketing o adequate working capital growth potential and financial o managerial skill o conservative accounting practices strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an attractive potential would likely produce greater flexibility to pursue strategic company, it identifies a and is superior performance that is objectives and is important to maintaining essential to maintaining price that sustainable over time. a competitive advantage. it believes would also make the stock a good value. - ------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). However, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 18 Other Investment Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 19 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last five fiscal years, which run from January 1 to December 31. Certain information in the table reflects the financial results for a single Class Z share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750.
- ---------------------------------------------------------------------------------------------------------- Columbia Acorn Fund - ---------------------------------------------------------------------------------------------------------- Year ended December 31, 2004 2003 2002 2001 2000 Class Z Class Z Class Z Class Z Class Z Net asset value -- Beginning of period ($) 22.56 15.50 17.88 17.21 18.53 - ---------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income(a) 0.04 0.03 0.02 0.05 0.10 Net realized and unrealized gain (loss) 4.78 7.05 (2.40) 1.01 1.55 - ---------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.82 7.08 (2.38) 1.06 1.65 - ---------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.02) -- -- (0.04) (0.11) From net realized gains (0.91) (0.02) -- (0.35) (2.86) - ---------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.93) (0.02) -- (0.39) (2.97) - ---------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 26.45 22.56 15.50 17.88 17.21 - ---------------------------------------------------------------------------------------------------------- Total return (%)(b) 21.51(c) 45.68 (13.31) 6.14 10.06 - ---------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(d) 0.81 0.80 0.82 0.82 0.83 Net investment income(d) 0.18 0.17 0.15 0.28 0.55 Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 20 10 13 20 29 Net assets at end of period (in millions) ($) 8,689 7,065 4,022 4,220 3,983 (a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested. (c) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact.
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-------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 23 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly named Liberty Acorn Trust): 811-01829 o Columbia Acorn Fund (formerly named Liberty Acorn Fund) - -------------------------------------------------------------------------------- [LOGO] ColumbiaFunds A Member of Columbia Management Group (C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com - -------------------------------------------------------------------------------- Columbia Acorn Fund Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class A, B and C Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND .................................................................. 2 - -------------------------------------------------------------------------------- Investment Goal ........................................................... 2 Principal Investment Strategies ........................................... 2 Principal Investment Risks ................................................ 2 Performance History ....................................................... 4 Your Expenses ............................................................. 5 YOUR ACCOUNT .............................................................. 7 - -------------------------------------------------------------------------------- How to Buy Share .......................................................... 7 Sales Charges ............................................................. 9 Payments to Your Financial Advisor ........................................ 13 How to Exchange Shares .................................................... 14 How to Sell Shares ........................................................ 14 Fund Policy on Trading of Fund Shares ..................................... 15 Distribution and Service Fees ............................................. 16 Other Information About Your Account ...................................... 17 BOARD OF TRUSTEES ......................................................... 19 - -------------------------------------------------------------------------------- MANAGING THE FUND ......................................................... 20 - -------------------------------------------------------------------------------- Investment Adviser ........................................................ 20 Portfolio Managers ........................................................ 20 Legal Proceedings ......................................................... 21 OTHER INVESTMENT STRATEGIES AND RISKS ..................................... 22 - -------------------------------------------------------------------------------- The Information Edge ...................................................... 22 Long-Term Investing ....................................................... 22 Derivative Strategies ..................................................... 23 Temporary Defensive Strategies ............................................ 23 FINANCIAL HIGHLIGHTS ...................................................... 24 - -------------------------------------------------------------------------------- Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn Fund seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn Fund invests generally in the stocks of small- and medium-sized companies. The Fund generally invests in the stocks of companies with market capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that these smaller companies, which are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Columbia Acorn Fund typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give a company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. Columbia Acorn Fund invests the majority of its assets in U.S. companies, but also may invest up to 33% of its assets in companies outside the U.S. in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser'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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times the Fund may have a significant 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 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. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. Their securities markets may be underdeveloped. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. An investment in the 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. 3 The Fund PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of broad measures of market performance for one year and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class A share performance for each completed calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower. Average Annual Total Returns are a measure of the Fund's average performance over the past one-year and for the life of the Fund. The table shows returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see section "Your Account--Sales Charges"). The Fund's returns are compared to the Russell 2500 Index (Russell 2500), Standard & Poor's 500 Index (S&P 500 Index) and the Russell 2000(R) Index (Russell 2000(R)). The Russell 2500, the Fund's primary benchmark, is a market-weighted index of 2500 small companies formed by taking the largest 3000 companies and eliminating the largest 500 of those companies. The S&P 500 Index is a broad market-weighted average of large U.S. blue-chip companies. The Russell 2000(R) is a market-weighted index of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. All third party trademarks are the property of their owners. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. -------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A)(1) - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 5.56% 2002 -13.82% 2003 44.85% 2004 21.05% For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +19.85% Worst quarter: 3rd quarter 2001, -18.69% 4 The Fund After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. - ----------------------------------------------------------------------------------------------------------- Average Annual Total Returns--for periods ended December 31, 2004(1) - -----------------------------------------------------------------------------------------------------------
Inception Life of Date 1 Year the Fund Class A(%) 10/16/00 Return Before Taxes 14.09 12.03 Return After Taxes on Distributions 13.45 11.16 Return After Taxes on Distributions and Sale of Fund Shares 9.88 10.07 - ----------------------------------------------------------------------------------------------------------- Class B(%) 10/16/00 Return Before Taxes 15.15 12.55 Return After Taxes on Distributions 14.46 11.66 Return After Taxes on Distributions and Sale of Fund Shares 10.63 10.53 - ----------------------------------------------------------------------------------------------------------- Class C(%) 10/16/00 Return Before Taxes 19.11 12.86 Return After Taxes on Distributions 18.41 11.98 Return After Taxes on Distributions and Sale of Fund Shares 13.20 10.81 - ----------------------------------------------------------------------------------------------------------- Russell 2500(2) (%) N/A 18.29 9.74 - ----------------------------------------------------------------------------------------------------------- S&P 500 Index(2) (%) N/A 10.88 (1.37) - ----------------------------------------------------------------------------------------------------------- Russell 2000(R)(2) (%) N/A 18.33 8.93 (1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) Performance information is from October 16, 2000.
YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. 5 The Fund -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions o Class B shares convert to Class A shares after eight years -------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - -----------------------------------------------------------------------------------------------------------
Class A Class B Class C Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 None None - ----------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 1.00(2) 5.00 1.00 - ----------------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(3) None(3) None(3) (1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent. (2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (3) There is a $7.50 charge for wiring sale proceeds to your bank.
6 The Fund - ----------------------------------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from fund assets) - -----------------------------------------------------------------------------------------------------------
Class A Class B Class C Management fees(1),(2) (%) 0.65 0.65 0.65 Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 Other expenses(3) (%) 0.20 0.29 0.25 Total annual fund operating expenses (%) 1.10 1.79 1.90 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rates: 0.74% of net assets up to $700 million; 0.69% of the next $1.3 billion; 0.64% of the next $4 billion; and 0.63% of net assets in excess of $6 billion. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rates set forth above. If the fee waiver had not been implemented as noted above, the Fund's actual management fee would be 0.66% and total operating expenses would be 1.11%, 1.80%, and 1.91% for Class A, B, and C shares, respectively. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this arrangement had not been in place, total annual fund operating expenses for Classes A, B and C would have been 1.12%, 1.81% and 1.92%, respectively. - ----------------------------------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - ----------------------------------------------------------------------------------------------------------- Class 1 Year 3 Years 5 Years 10 Years Class A: $681 $909 $1,155 $1,858 - ----------------------------------------------------------------------------------------------------------- Class B: did not sell your shares $182 $568 $978 $1,944 sold all your shares at the end of the period $682 $868 $1,178 $1,944 - ----------------------------------------------------------------------------------------------------------- Class C: did not sell your shares $193 $601 $1,035 $2,242 sold all your shares at the end of the period $293 $601 $1,035 $2,242
- -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. 7 Your Account -------------------------------------------------------------------------- INVESTMENT MINIMUMS Initial Investment........................................... $50,000 Subsequent Investments....................................... $ 50 The Fund reserves the right to change these investment minimums. For accounts opened prior to December 15, 2003, no minimum investment applies to accounts participating in the automatic investment plan. 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. -------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -----------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your financial advisor 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 made payable to the Fund to (new account) Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in (existing account) 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 (and, in some cases, certain other classes) 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 You may purchase shares of the Fund by electronically transferring money from your funds transfer bank account to your Fund account by calling 1-800-422-3737. An electronic funds (existing account) 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 ($50 minimum) automatically from your investment plan 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 exchanging $100 or more each cost averaging month from another fund for shares of the same class of the Fund at no additional cost. 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. There may be an additional sales charge if exchanging from a money market fund. Be sure to complete the appropriate section of the account application for this feature. - ----------------------------------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by another fund into the same class diversification of share (and, in some cases, certain other classes) of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611.
8 Your Account SALES CHARGES - -------------------------------------------------------------------------------- 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 reduced or waived, as described below and in the Statement of Additional Information. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus--Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class 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 also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. -------------------------------------------------------------------------- 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. - ----------------------------------------------------------------------------------------------------------- Class A Sales Charges - -----------------------------------------------------------------------------------------------------------
% of offering Sales Charge as % of: price net retained by offering amount your financial Amount of purchase* price invested 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 or more 2.00 2.04 1.75 * Mutual fund wrap programs and group retirement plans that invest $50,000 or more in Class A shares of the Fund will not be subject to a sales charge. Discretionary wrap programs that invest directly with the Fund, trade on an omnibus basis and were invested in the Fund prior to December 15, 2003 became subject to the $50,000 investment minimum effective February 2, 2004. ** Only applicable to accounts opened prior to December 15, 2003.
In addition to the initial sales charge paid to your financial advisor and distributor, a 0.25% annual commission is paid to your financial advisor over the life of your investment out of your Fund assets as a 12b-1 fee. The Fund's distributor may also pay additional compensation to financial advisors as a promotional incentive. 9 Your Account 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. For purchases of $3 million to less than $5 million, $5 million to less than $25 million and for $25 million or more, the financial advisors receive from the distributor a commission of 0.80%, 0.50% and 0.25%, respectively. -------------------------------------------------------------------------- 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 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 Investment. A. What are the principal ways to obtain a breakpoint discount? There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds. Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price. Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. 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. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by the Fund. B. What accounts are eligible for breakpoint discounts? The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include: o Individual accounts o Joint accounts 10 Your Account o Certain IRA accounts o Certain trusts o UTMA/UGMA accounts For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depends on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? 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. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com. Class B shares Your purchases of Class B shares are 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 the 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. In addition, Class B shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. 11 Your Account Purchases of less than $250,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 Up-front commission to financial advisors is 4.00% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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 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 receive 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. Purchases of $250,000 to less than $500,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 Up-front commission to financial advisors is 2.50% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically four years after purchase. 12 Your Account Purchases of $500,000 to less than $1 million: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 Up-front commission to financial advisors is 1.75% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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 financial advisor. 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. In addition, Class C shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 A 1.00% annual commission is paid to your financial advisor and the distributor over the life of your investment out of your Fund assets. PAYMENTS TO YOUR FINANCIAL ADVISOR - -------------------------------------------------------------------------------- Normally your financial advisor receives certain initial and ongoing payments based on your purchase and continued holding of shares of the Fund as described above under "Sales Charges." For specific details on those payments or any other payments that may be received, you should contact your financial advisor. 13 Your Account 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 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. Shareholders of Columbia Acorn Funds that qualify to purchase Class A shares at net asset value may exchange their Class A shares for Class Z shares of another fund distributed by Columbia Funds Distributor, Inc. (see the Statement of Additional Information for a description of these situations). 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 adviser 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. 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 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. 14 Your Account - ----------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares:. - -----------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current financial advisor 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. - ----------------------------------------------------------------------------------------------------------- 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 your 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 ($50 minimum) or percentage of withdrawal plan 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 proceeds be electronically funds transfer 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.
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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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 Columbia Funds (other than the Fund) impose a redemption fee on the proceeds of shares that are redeemed or exchanged within 60 days of their purchase. 15 Your Account 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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 under the Investment Company Act that permits it to pay its distributor ongoing 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, and your financial advisor may receive all or a portion of those fees attributable to your shares (see "Payments to Your Financial Advisor"). The annual service fee, as a percentage of the value of the shares, may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee is normally 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment and 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 you purchased your shares under. See "Your Account -- Sales Charge" for the conversion schedules applicable to Class B shares. 16 Your Account 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 adviser, 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 on days 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 value 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 these 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 for a security are unavailable, or when the adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. 17 Your Account The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- Dividends Represents interest and dividends earned from securities held by the Fund, net of - -------------------------------------------------------------------------------- Capital expenses incurred by the Fund. 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.
Distribution Options The Fund distributes dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. -------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund. 18 Your Account 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 also may 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. The Fund's investments in foreign securities may be subject to foreign withholding taxes. You may be entitled to claim a credit or deduction with respect to foreign 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. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. 19 - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P., and its predecessor was named Wanger Asset Management, L.P. ("WAM"). CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.66% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- CWAM uses a team to assist the lead portfolio managers in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. Portfolio managers make strategic decisions and monitor and supervise individual transactions. While certain analysts recommend transactions for approval by the portfolio managers, more seasoned analysts are authorized to buy and sell securities for the Fund, within the guidelines set by portfolio managers. Charles P. McQuaid Lead portfolio manager Charles McQuaid is president and a member of Columbia Acorn Trust's Board of Trustees. He has been president of CWAM since October 13, 2003, chief investment officer of CWAM since September 30, 2003, was director of research at CWAM and WAM from July 1992 through December 2003, and was a principal of WAM from July 1992 to September 29, 2000. Mr. McQuaid has been a member of Columbia Acorn Fund's management team since 1978, co-managed Columbia Acorn Fund from 1995 through September 29, 2003 and has been the Fund's lead portfolio manager since September 30, 2003. He served as CWAM's interim director of international research from October 2003 to December 15, 2004. Mr. McQuaid has been the president of Wanger Advisors Trust since September 2003. The SAI provides additional information about Mr. McQuaid's compensation, other accounts he manages and his ownership of securities in the Fund. Robert A. Mohn Co-portfolio manager Robert Mohn is a vice president of Columbia Acorn Trust. He has been a member of the domestic analytical team at CWAM and WAM since August 1992, and was a principal of WAM from 1995 to September 29, 2000. He has managed Columbia Acorn USA since its inception in 1996, co-managed Columbia Acorn Fund since May 2003, and also manages Wanger U.S. Smaller Companies, a mutual fund underlying variable insurance products, and the U.S. portfolio of an investment company whose shares are offered only to non-U.S. investors. Mr. Mohn is a vice president of Wanger Advisors Trust and the director of domestic research for CWAM. The SAI provides additional information about Mr. Mohn's compensation, other accounts he manages and his ownership of securities in the Fund. 20 Managing the Fund LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 21 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed smaller and mid-sized companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from these trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------------------------------------------------- o superior technology o low debt o reasonable stock price relative o innovative marketing o adequate working capital to growth potential and financial o managerial skill o conservative accounting practices strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an attractive potential would likely produce greater flexibility to pursue strategic company, it identifies a price that it superior performance that is objectives and is important to maintaining believes would also make the stock a good sustainable over time. a competitive advantage. value. - -------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). However, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 22 Managing the Fund DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 23 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's Class A, Class B and Class C shares fiscal years since inception which run from January 1 to December 31, unless otherwise indicated. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - -------------------------------------------------------------------------------------------------------------------------- Columbia Acorn Fund - --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000(a) Class A Class A Class A Class A Class A - -------------------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period ($) 22.20 15.34 17.80 17.19 17.88 - -------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income (loss)(b) (0.05) (0.07) (0.07) (0.05) 0.01 Net realized and unrealized gain (loss) 4.69 6.95 (2.39) 1.01 1.22 - -------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.64 6.88 (2.46) 0.96 1.23 - -------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income -- -- -- -- (0.06) From net realized gains (0.91) (0.02) -- (0.35) (1.86) - -------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.91) (0.02) -- (0.35) (1.92) - -------------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 25.93 22.20 15.34 17.80 17.19 - -------------------------------------------------------------------------------------------------------------------------- Total return (%)(c) 21.05(d) 44.85 (13.82) 5.56 7.40(e) - -------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 1.20 1.33 1.42 1.42 1.25(g)(h) Net investment income (loss)(f) (0.21) (0.36) (0.45) (0.33) 0.17(g)(h) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 20 10 13 20 29 Net assets at end of period (000's) ($) 2,669,936 1,982,260 724,121 306,405 18,252 (a) Class A shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.03% and 0.39% respectively, were revised to reflect all class specific expenses in this period.
24 Financial Highlights - --------------------------------------------------------------------------------------------------------------------------- Columbia Acorn Fund - ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000(a) Class B Class B Class B Class B Class B - --------------------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period ($) 21.75 15.13 17.67 17.17 17.88 - --------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(b) (0.22) (0.18) (0.17) (0.16) (0.01) Net realized and unrealized gain (loss) 4.57 6.82 (2.37) 1.01 1.22 - --------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.35 6.64 (2.54) 0.85 1.21 - --------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income -- -- -- -- (0.06) From net realized gains (0.91) (0.02) -- (0.35) (1.86) - --------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.91) (0.02) -- (0.35) (1.92) - --------------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 25.19 21.75 15.13 17.67 17.17 - --------------------------------------------------------------------------------------------------------------------------- Total return (%)(c) 20.15(d) 43.89 (14.37) 4.92 7.27(e) - --------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 1.95 1.98 2.07 2.07 1.90(g)(h) Net investment loss(f) (0.96) (1.01) (1.10) (0.98) (0.48)(g)(h) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 20 10 13 20 29 Net assets at end of period (000's) ($) 1,399,135 1,221,931 618,727 286,422 15,951 (a) Class B shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.68% and (0.26) respectively, were revised to reflect all class specific expenses in this period.
25 Financial Highlights - -------------------------------------------------------------------------------------------------------------------------- Columbia Acorn Fund - --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000(a) Class C Class C Class C Class C Class C - -------------------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period ($) 21.75 15.12 17.66 17.17 17.88 Income from Investment Operations ($): Net investment loss(b) (0.22) (0.18) (0.17) (0.17) (0.01) Net realized and unrealized gain (loss) 4.56 6.83 (2.37) 1.01 1.22 - -------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.34 6.65 (2.54) 0.84 1.21 - -------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income -- -- -- -- (0.06) From net realized gains (0.91) (0.02) -- (0.35) (1.86) - -------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.91) (0.02) -- (0.35) (1.92) - -------------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 25.18 21.75 15.12 17.66 17.17 - -------------------------------------------------------------------------------------------------------------------------- Total return (%)(c) 20.11(d) 43.99 (14.38) 4.86 7.27(e) - -------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 1.95 1.98 2.07 2.07 1.90(g)(h) Net investment loss(f) (0.96) (1.01) (1.10) (0.98) (0.48)(g)(h) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 20 10 13 20 29 Net assets at end of period (000's) ($) 1,083,006 900,016 376,024 150,727 8,510 (a) Class C shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.68% and (0.26)% respectively, were revised to reflect all class specific expenses in this period.
26 - -------------------------------------------------------------------------------- Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 27 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly named Liberty Acorn Trust): 811-01829 o Columbia Acorn Fund (formerly named Liberty Acorn Fund) - -------------------------------------------------------------------------------- [LOGO] ColumbiaFunds A Member of Columbia Management Group (C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com - -------------------------------------------------------------------------------- Columbia Acorn International Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class Z Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - -------------------------------------------------------------------------------- Investment Goal ........................................................... 2 Principal Investment Strategies ........................................... 2 Principal Investment Risks ................................................ 2 Performance History ....................................................... 4 Your Expenses ............................................................. 5 YOUR ACCOUNT 7 - -------------------------------------------------------------------------------- How to Buy Shares ......................................................... 7 Eligible Investors ........................................................ 8 Sales Charges ............................................................. 9 How to Exchange Shares .................................................... 10 How to Sell Shares ........................................................ 10 Fund Policy on Trading of Fund Shares and Redemption Fees ................. 11 Intermediary Compensation ................................................. 14 Other Information About Your Account ...................................... 14 BOARD OF TRUSTEES 17 - -------------------------------------------------------------------------------- MANAGING THE FUND 17 - -------------------------------------------------------------------------------- Investment Adviser ........................................................ 17 Portfolio Managers ........................................................ 17 Legal Proceedings ......................................................... 18 OTHER INVESTMENT STRATEGIES AND RISKS 20 - -------------------------------------------------------------------------------- The Information Edge ...................................................... 20 Long-Term Investing ....................................................... 20 Derivative Strategies ..................................................... 21 Temporary Defensive Strategies ............................................ 21 FINANCIAL HIGHLIGHTS 22 - -------------------------------------------------------------------------------- Only eligible investors may purchase Class Z shares. See "Your Account--Eligible Investors" for more information. Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn International seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn International generally invests in stocks of non-U.S. small- and medium-sized companies. The Fund generally invests in the stocks of companies based outside the U.S. with market capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that smaller companies, particularly outside the U.S., that are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Columbia Acorn International typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give the company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. Columbia Acorn International is an international fund and invests the majority (under normal market conditions, at least 75%) of its total assets in the stocks of foreign companies based in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser'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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times the Fund may have a significant 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 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. Market timers. Because the Fund invests predominantly in foreign securities, the Fund may be particularly susceptible to market timers. Market timers generally attempt to take advantage of the way the Fund prices its shares by trading based on market information they expect will lead to a change in the Fund's net asset value on the next pricing day. Market timing activity may be disruptive to Fund management and, since a market timer's profits are effectively paid directly out of the Fund's assets, may negatively impact the investment returns of other shareholders. Although the Fund has adopted certain policies and methods intended to identify and discourage frequent trading based on this strategy, it cannot ensure that all such activity can be identified or terminated. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be susceptible to market downturns, and their prices could be more volatile. An investment in the 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. 3 The Fund PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of broad measures of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses. Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses. The Fund's returns are compared to the Citigroup EMI Global ex-U.S. index and the Morgan Stanley Europe, Australasia and Far East Index (EAFE). The Citigroup EMI Global ex-U.S., the Fund's primary benchmark, is Citigroup's index of the bottom 20% of institutionally investable capital of developed and emerging countries as selected by Citigroup, excluding the U.S. The Citigroup EMI Global ex-U.S. is rebalanced once a year in June. EAFE is an unmanaged index of companies throughout the world in proportion to world stock market capitalizations, excluding the U.S. and Canada. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. -------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class Z)(1) - -------------------------------------------------------------------------------- 1995 8.93% 1996 20.65% 1997 0.19% 1998 15.43% 1999 79.19% 2000 -20.02% 2001 -21.11% 2002 -16.10% 2003 47.80% 2004 29.47% For the periods shown in bar chart: Best quarter: 4th quarter 1999, +41.63% Worst quarter: 3rd quarter 2002, -19.67% 4 The Fund After tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. - ----------------------------------------------------------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004(1) - -----------------------------------------------------------------------------------------------------------------------------------
Inception Date 1 Year 5 Year(1) 10 Years Class Z (%) 9/23/92 Return Before Taxes 29.47 0.26 10.68 Return After Taxes on Distributions 29.49 (0.60) 9.78 Return After Taxes on Distributions and Sale of Fund Shares 19.57 0.12 9.11 - ----------------------------------------------------------------------------------------------------------------------------------- Citigroup EMI (Global ex-U.S.) (pretax) (%) N/A 29.27 6.84 6.62 - ----------------------------------------------------------------------------------------------------------------------------------- MSCI EAFE (pretax) (%) N/A 20.25 (1.13) 5.62 - ----------------------------------------------------------------------------------------------------------------------------------- (1) The Fund's performance in 1999 was achieved during a period of unusual market conditions.
YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions -------------------------------------------------------------------------- 5 The Fund - ------------------------------------------------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - -------------------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) None - ------------------------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) None - ------------------------------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) 2.00(2)(3) (1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent. (2) Charged only when selling or exchanging shares you have owned for 60 days or less. For more information, see "Fund Policy on Trading of Fund Shares and Redemption Fees". (3) There is a $7.50 charge for wiring sale proceeds to your bank. - ------------------------------------------------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from fund assets) - ------------------------------------------------------------------------------------------------------------------------- Management fees(1)(2) (%) 0.81 - ------------------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - ------------------------------------------------------------------------------------------------------------------------- Other expenses(3)(%) 0.25 - ------------------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.06 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rates: 1.19% of net assets up to $100 million; 0.94% of the next $400 million; and 0.74% of net assets in excess of $500 million. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rates set forth above. If the fee waiver had not been implemented as noted above, actual expenses of the Fund would be as follows: management fee, 0.82%; and total operating expenses, 1.07%. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this arrangement had not been in place, total annual fund operating expenses would have been 1.08%.
- -------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - -------------------------------------------------------------------------------- 1 Year 3 Years 5 Years 10 Years $108 $341 $594 $1,315 6 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described below), when the Fund receives your purchase request in "good form," your shares will be bought at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with Columbia Funds Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. 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 or Class A of the Fund at no additional cost. To exchange by telephone, call 1-800-422-3737. Please see "How to Exchange Shares" for more information. - ---------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - ----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To financial receive the advisor 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 made payable to the Fund to Columbia (new account) Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your (existing account) account statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund and mailed to Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By exchange You 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 or Class A 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 You may purchase shares of the Fund by electronically transferring money from your bank account to your funds transfer Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days (existing account) 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 ($50 minimum) automatically from your bank account to investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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 another fund into the same class of shares of the diversification Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611.
7 Your Account ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z Shares of the Funds generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements. Important Things to Consider When Deciding on a Class of Shares: Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in the Fund in connection with different pricing options for their programs. Investors should consider carefully any separate transaction and other fees charged by these programs in connection with investing in each available share class before selecting a share class. Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. Eligible Investors and their applicable investment minimums are as follows: No Minimum Initial Investment o Any client of Bank of America Corporation or a subsidiary (for shares purchased through an asset management company, trust, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary); o Any retirement plan for which an intermediary or other entity provides services and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; o Investors purchasing through Columbia Management Group state tuition plans organized under Section 529 of the Internal Revenue Code; or o 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. $1,000 Minimum Initial Investment o 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.; 8 Your Account o Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Funds Distributor, Inc.; o Any employee (or family member of an employee) of Bank of America Corporation or its subsidiaries; o Any investor participating in an account offered by an intermediary or other entity that provides services to such account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Funds transfer agents; or o Any insurance company, trust company, bank, endowment, investment company or foundation purchasing shares for its own account. 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 $50 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. SALES CHARGES - -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers one class of shares in this prospectus -- Class Z. The Fund also offers three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each other share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. 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. -------------------------------------------------------------------------- If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. 9 Your Account HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- Generally, you may exchange your 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. However, if you exchange shares of Columbia Acorn International that you have owned 60 days or less for shares of a fund distributed by Columbia Funds Distributor, Inc. that does not have a redemption fee (including Columbia Acorn Fund, Columbia Acorn USA and Columbia Acorn Select), the Fund will charge you a redemption fee of 2% of the redemption proceeds. Exchanges between Columbia Acorn International and Columbia Acorn International Select (or a fund distributed by Columbia Funds Distributor, Inc. that has a redemption fee) will not be subject to the 2% redemption fee. You also may exchange your Class Z shares of any Fund for Class Z shares or, if there are no Class Z shares, Class A shares of certain other funds distributed by Columbia Funds Distributor, Inc., at net asset value without a sales charge. 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 Funds may terminate your exchange privilege if the adviser in its discretion determines that your exchange activity may adversely impact its ability to manage the Funds. See "Fund Policy on Trading of Fund Shares and Redemption Fees" 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 - -------------------------------------------------------------------------------- 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, and (ii) 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 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. 10 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's financial advisor 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 adviser may sell shares of the Fund by exchanging from the Fund into Class Z shares or Class A shares 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 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 ($50 minimum) or percentage of your account on a withdrawal plan monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. 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 proceeds be electronically transferred to your bank. funds transfer 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.
FUND POLICY ON TRADING OF FUND SHARES AND REDEMPTION FEES - -------------------------------------------------------------------------------- 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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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. 11 Your Account The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, the Fund imposes 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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. The Funds will assess, subject to limited exceptions, a 2.00% redemption fee on the proceeds of Fund shares that are redeemed (either by selling shares or exchanging into another Columbia Fund) within 60 days of their purchase. The redemption fee is paid to the Fund. The redemption fee is imposed on Fund shares redeemed (including redemptions by exchange) within 60 days of purchase. In determining which shares are being redeemed, we generally apply a first-in, first-out approach. For Fund shares acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to assess the redemption fee. The redemption fee will not be imposed if you qualify for a waiver and the Fund has received proper notification, unless the waiver is automatic as noted below. We'll redeem any shares that are eligible for a waiver first. 12 Your Account A Fund shareholder won't pay an otherwise applicable redemption fee on any of the following transactions: o shares sold following the death or disability (as defined in the tax code) of the shareholder, including a registered joint owner o shares sold by or distributions from participant directed retirement plans, such as 401(k), 403(b), 457, Keogh, profit sharing, and money purchase pension accounts, where the Fund does not have access to information about the individual participant account activity, except where the Fund has received an indication that the plan administrator is able to assess the redemption fee to the appropriate accounts (automatic) o shares sold by certain investment funds, including those that Columbia Management Advisors or its affiliates may manage (automatic) o shares sold as part of an automatic rebalancing within an asset allocation program or by certain wrap programs where the program sponsor has provided assurances reasonably satisfactory to the Fund that the program is not designed to be a vehicle for market timing o shares sold by accounts maintained by a financial institution or intermediary where the Fund has received information reasonably satisfactory to the Fund indicating that the financial institution or intermediary is unable for administrative reasons to assess the redemption fee to underlying shareholders o shares sold by an account which has demonstrated a hardship, such as a medical emergency, as determined in the absolute discretion of the Fund o shares that were purchased by reinvested dividends (automatic) o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an individual retirement account (IRA) or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 The Fund also has the discretion to waive the 2.00% redemption fee if the Fund is in jeopardy of failing the 90% income test or losing its RIC qualification for tax purposes. As described above, certain intermediaries do not assess redemption fees to certain categories of redemptions that do not present significant market timing concerns (such as automatic withdrawal plan redemptions). In these situations, the Fund's ability to assess redemption fees is generally limited by the intermediary's policies and, accordingly, no redemption fees will be assessed on such redemptions. 13 Your Account INTERMEDIARY COMPENSATION - -------------------------------------------------------------------------------- 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 adviser, 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 a Fund's Class Z shares is based on their 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 on days the NYSE is closed for trading. When you request a transaction, it will be processed at the net asset value 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 Fund 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 its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the value 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 these 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 for a security are unavailable, or when the adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. 14 Your Account The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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 Funds' 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 Class Z shares. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. Distribution Options The Fund distributes dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. -------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- 15 Your Account - -------------------------------------------------------------------------------- Distribution Options - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 also may 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. The Fund's investments in foreign securities may be subject to foreign withholding taxes. You may be entitled to claim a credit or deduction with respect to foreign 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. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. 16 - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P., and its predecessor was named Wanger Asset Management, L.P. CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.82% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- CWAM uses a team to assist the lead portfolio managers in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. Portfolio managers make strategic decisions and monitor and supervise individual transactions. While certain analysts recommend transactions for approval by the portfolio managers, more seasoned analysts are authorized to buy and sell securities for the Fund, within the guidelines set by portfolio managers. 17 Managing the Fund P. Zachary Egan Co-portfolio manager P. Zachary Egan is a vice president of Columbia Acorn Trust and co-portfolio manager of Columbia Acorn International since May 2003. He has been CWAM's director of international research since December 2004. He has been a member of the international team since 1999 and a research fellow with the Robert Bosch Foundation in Stuttgart, Germany prior thereto. The SAI provides additional information about Mr. Egan's compensation, other accounts he manages and his ownership of securities in the Fund. Louis J. Mendes Co-portfolio manager Louis J. Mendes is a vice president of Columbia Acorn Trust and co-portfolio manager of Columbia Acorn International since May 2003. He has been a member of the international team since 2001 and an analyst and portfolio manager with Merrill Lynch Investment Managers specializing in Asian equity markets prior thereto. The SAI provides additional information about Mr. Mendes' compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. 18 Managing the Fund Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 19 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed smaller and mid-sized non-U.S. companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from those trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------------------------------------------------ o superior technology o low debt o reasonable stock price relative to o innovative marketing o adequate working capital growth potential and financial o managerial skill o conservative accounting practices strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an potential would likely produce greater flexibility to pursue strategic attractive company, it identifies a price superior performance that is objectives and is important to maintaining that it believes would also make the sustainable over time. a competitive advantage. stock a good value.
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). Occasionally, however, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 20 Other Investment Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 21 - ---------------------------------------------------------------------------------------------------------------------------------- Financial Highlights - ---------------------------------------------------------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last five fiscal years, which run from January 1 to December 31. Certain information in the table reflects the financial results for a single Class Z share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - ---------------------------------------------------------------------------------------------------------------------------------- Columbia Acorn International - ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000 Class Z Class Z Class Z Class Z Class Z - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- Beginning of Period ($) 22.66 15.40 18.47 23.85 35.33 - ---------------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($) Net investment income(a) 0.25 0.21 0.14 0.12 0.01 Net realized and unrealized gain (loss) 6.37 7.13 (3.10) (5.11) (6.73) - ---------------------------------------------------------------------------------------------------------------------------------- Total Income from Investment Operations 6.62 7.34 (2.96) (4.99) (6.72) - ---------------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.25) (0.08) (0.11) -- (0.66) From net realized gains -- -- -- (0.39) (4.10) - ---------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.25) (0.08) (0.11) (0.39) (4.76) - ---------------------------------------------------------------------------------------------------------------------------------- Redemption Fees Redemption fees added to paid in capital 0.00(a)(b) -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period ($) 29.03 22.66 15.40 18.47 23.85 - ---------------------------------------------------------------------------------------------------------------------------------- Total return (%)(c) 29.47(d) 47.80 (16.10) (21.11) (20.02) - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets(%): Expenses(e) 1.08 1.05 1.06 1.06 1.05 Net investment income(e) 1.01 1.19 0.80 0.62 0.02 Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 40 40 52 45 63 Net assets, end of period (000's)($) 1,919 1,563 1,241 1,613 2,459 (a) Per share data was calculated using average shares outstanding during the period. (b) Rounds to less than $0.01 per share. (c) Total return at net asset value assuming all distributions reinvested. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) The benefits derived from custody fees paid indirectly had no impact.
22 - -------------------------------------------------------------------------------- Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 23 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly named Liberty Acorn Trust): 811-01829 o Columbia Acorn International (formerly named Liberty Acorn International) - -------------------------------------------------------------------------------- [LOGO] ColumbiaFunds A Member of Columbia Management Group (c)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com - -------------------------------------------------------------------------------- Columbia Acorn International Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class A, B and C Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - ------------------------------------------------------------------------------ Investment Goal ........................................................ 2 Principal Investment Strategies ........................................ 2 Principal Investment Risks ............................................. 2 Performance History .................................................... 4 Your Expenses .......................................................... 6 YOUR ACCOUNT 8 - ------------------------------------------------------------------------------ How to Buy Shares ...................................................... 8 Sales Charges .......................................................... 10 Payments to Your Financial Advisor ..................................... 15 How to Exchange Shares ................................................. 15 How to Sell Shares ..................................................... 15 Fund Policy on Trading of Fund Shares .................................. 16 Distribution and Service Fees .......................................... 18 Other Information About Your Account ................................... 19 BOARD OF TRUSTEES 22 - ------------------------------------------------------------------------------ MANAGING THE FUND 22 - ------------------------------------------------------------------------------ Investment Adviser ..................................................... 22 Portfolio Managers ..................................................... 23 Legal Proceedings ...................................................... 23 OTHER INVESTMENT STRATEGIES AND RISKS 25 - ------------------------------------------------------------------------------ The Information Edge ................................................... 25 Long-Term Investing .................................................... 25 Derivative Strategies .................................................. 26 Temporary Defensive Strategies ......................................... 26 FINANCIAL HIGHLIGHTS 27 - ------------------------------------------------------------------------------ Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn International seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn International invests generally in stocks of non-U.S. small- and medium-sized companies. The Fund generally invests in the stocks of companies based outside the U.S. with capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that smaller companies, particularly outside the U.S., that are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Columbia Acorn International typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give the company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. Columbia Acorn International is an international fund and invests the majority (under normal market conditions, at least 75%) of its total assets in the stocks of foreign companies based in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser'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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times the Fund may have a significant 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 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. Market timers. Because the Fund invests predominantly in foreign securities, the Fund may be particularly susceptible to market timers. Market timers generally attempt to take advantage of the way the Fund prices its shares by trading based on market information they expect will lead to a change in the Fund's net asset value on the next pricing day. Market timing activity may be disruptive to Fund management and, since a market timer's profits are effectively paid directly out of the Fund's assets, may negatively impact the investment returns of other shareholders. Although the Fund has adopted certain policies and methods intended to identify and to discourage frequent trading based on this strategy, it cannot ensure that all such activity can be identified or terminated. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. An investment in the 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. 3 The Fund PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of broad measures of market performance for one year and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class A share performance for each completed calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower. Average Annual Total Returns are a measure of the Fund's average performance over the past one-year and for the life of the Fund. The table shows returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges"). The Fund's returns are compared to the Citigroup EMI Global ex-U.S. index and the Morgan Stanley Europe, Australasia and Far East Index (EAFE). The Citigroup EMI Global ex-U.S., the Fund's primary benchmark, is Citigroup's index of the bottom 20% of institutionally investable capital of developed and emerging countries as selected by Citigroup, excluding the U.S. The Citigroup EMI Global ex-U.S. is rebalanced once a year in June. EAFE is an unmanaged index of companies throughout the world in proportion to world stock market capitalizations, excluding the U.S. and Canada. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. -------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A)(1) - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 -21.59% 2002 -16.46% 2003 46.94% 2004 28.91% For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +21.37% Worst quarter: 3rd quarter 2002, -19.96 4 The Fund After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
- -------------------------------------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004(1) - -------------------------------------------------------------------------------------------------------------- Inception Date 1 Year Life of the Fund Class A (%) 10/16/00 Return Before Taxes 21.50 2.57 Return After Taxes on Distributions 21.59 1.89 Return After Taxes on Distributions and Sale of Fund Shares 14.29 2.00 - -------------------------------------------------------------------------------------------------------------- Class B (%) 10/16/00 Return Before Taxes 22.91 2.90 Return After Taxes on Distributions 23.10 2.26 Return After Taxes on Distributions and Sale of Fund Shares 15.14 2.32 - -------------------------------------------------------------------------------------------------------------- Class C (%) 10/16/00 Return Before Taxes 27.01 3.33 Return After Taxes on Distributions 27.20 2.70 Return After Taxes on Distributions and Sale of Fund Shares 17.81 2.69 - -------------------------------------------------------------------------------------------------------------- Citigroup EMI Global ex-U.S.(2) (%) N/A 29.27 11.63 - -------------------------------------------------------------------------------------------------------------- MSCI EAFE(3) (%) N/A 20.25 2.55 - -------------------------------------------------------------------------------------------------------------- (1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) Performance information is from October 31, 2000. (3) Performance information is from October 16, 2000.
5 The Fund YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions o Class B shares convert to Class A shares after eight years -------------------------------------------------------------------------- 6 The Fund - ------------------------------------------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - -------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 None None - ------------------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 1.00(2) 5.00 1.00 - ------------------------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(3)(4) None(3)(4) None(3)(4) (1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. (2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (3) There is a $7.50 charge for wiring sale proceeds to your bank. (4) A redemption fee of 2.00% may be charged on shares that were owned for 60 days or less. For more information, see "Fund Policy on Trading of Fund Shares" below. - ------------------------------------------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from Fund assets) - ------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Management fees(1)(2) (%) 0.81 0.81 0.81 - ------------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 - ------------------------------------------------------------------------------------------------------------------- Other expenses(3) (%) 0.32 0.46 0.37 - ------------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.38 2.12 2.18 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rates: 1.19% of net assets up to $100 million; 0.94% of the next $400 million; and 0.74% of net assets in excess of $500 million. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rates set forth above. If the fee waiver had not been implemented as noted above, the Fund's actual management fee would be 0.82% and total operating expenses would be 1.39%, 2.13%, and 2.19% for Class A, B, and C shares, respectively. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this arrangement had not been in place, total annual fund operating expenses for Classes A, B and C would have been 1.40%, 2.14% and 2.20%, respectively. - ------------------------------------------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - ------------------------------------------------------------------------------------------------------------------- Class 1 Year 3 Years 5 Years 10 Years Class A $ 707 $ 991 $ 1,295 $ 2,156 - ------------------------------------------------------------------------------------------------------------------- Class B: did not sell your shares $ 215 $ 668 $ 1,147 $ 2,283 sold all your shares at the end of the period $ 715 $ 968 $ 1,347 $ 2,283 - ------------------------------------------------------------------------------------------------------------------- Class C: did not sell your shares $ 221 $ 686 $ 1,178 $ 2,532 sold all your shares at the end of the period $ 321 $ 686 $ 1,178 $ 2,532
7 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. -------------------------------------------------------------------------- INVESTMENT MINIMUMS Initial Investment .............................................. $1,000 Subsequent Investments........................................... $ 50 Automatic Investment Plan*....................................... $ 50 Retirement Plans* ............................................... $ 25 * 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. -------------------------------------------------------------------------- 8 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To receive financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing 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 (and, in some cases, certain other classes) 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 You may purchase shares of the Fund by electronically transferring money from your bank account to your funds transfer Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to (existing account) 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 ($50 minimum) automatically from your bank account to your investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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. There may be an additional sales charge if exchanging from a money market fund. Be sure to complete the appropriate section of the account application for this feature. - ----------------------------------------------------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by another fund into the same class of shares (and, in diversification some cases, certain other classes) of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611.
9 Your Account SALES CHARGES - -------------------------------------------------------------------------------- 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 reduced or waived, as described below and in the Statement of Additional Information. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class 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 also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. -------------------------------------------------------------------------- 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. - --------------------------------------------------------------------------------------------------- Class A Sales Charges - ---------------------------------------------------------------------------------------------------
% of offering price retained by As a % of the As a % of financial Amount of purchase public offering price your 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
In addition to the initial sales charge paid to your financial advisor and distributor, a 0.25% annual commission is paid to your financial advisor over the life of your investment out of your Fund assets as a 12b-1 fee. The Fund's distributor may also pay additional compensation to financial advisors as an incentive for promoting the sale of shares of funds that the distributor distributes. 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 or purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $25 million) 10 Your Account 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 - -------------------------------------------------------------------------------- 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 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 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 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. A. What are the principal ways to obtain a breakpoint discount? There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds. Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price. Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. 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. To calculate 11 Your Account the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by the Fund. B. What accounts are eligible for breakpoint discounts? The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include: o Individual accounts o Joint accounts o Certain IRA accounts o Certain trusts o UTMA/UGMA accounts For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depends on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? 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. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com. 12 Your Account Class B shares Your purchases of Class B shares are 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 the 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. In addition, Class B shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. Purchases of less than $250,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when shares Holding period after purchase 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 Up-front commission to financial advisors is 4.00% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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 firm 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 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 receive 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. Purchases of $250,000 to less than $500,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when shares Holding period after purchase are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 13 Your Account Up-front commission to financial advisors is 2.50% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically four years after purchase. Purchases of $500,000 to less than $1 million: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when shares Holding period after purchase are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 Up-front commission to financial advisors is 1.75% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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. 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. In addition, Class C shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when shares Holding period after purchase are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 A 1.00% annual commission is paid to your financial advisor and the distributor over the life of your investment out of your Fund assets. 14 Your Account PAYMENTS TO YOUR FINANCIAL ADVISOR - -------------------------------------------------------------------------------- Normally your financial advisor receives certain initial and ongoing payments based on your purchase and continued holding of shares of the Fund as described above under "Sales Charges." For specific details on those payments or any other payments that may be received, you should contact your financial advisor. 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 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. Shareholders of Columbia Acorn Funds that qualify to purchase Class A shares at net asset value may exchange their Class A shares for Class Z shares of another fund distributed by Columbia Funds Distributor, Inc. (see the Statement of Additional Information for a description of these situations). 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 adviser 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. 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 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. 15 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's price, financial advisor 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. - ----------------------------------------------------------------------------------------------------------------------------- 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 your 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 ($50 minimum) or percentage of your account on a withdrawal plan 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 proceeds be electronically transferred to your bank. funds transfer 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.
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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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, the Fund imposes a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase. 16 Your Account 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 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. The Funds will assess, subject to limited exceptions, a 2.00% redemption fee on the proceeds of Fund shares that are redeemed (either by selling shares or exchanging into another Columbia Fund) within 60 days of their purchase. The redemption fee is paid to the Fund. The redemption fee is imposed on Fund shares redeemed (including redemptions by exchange) within 60 days of purchase. In determining which shares are being redeemed, we generally apply a first-in, first-out approach. For Fund shares acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to assess the redemption fee. The redemption fee will not be imposed if you qualify for a waiver and the Fund has received proper notification, unless the waiver is automatic as noted below. We'll redeem any shares that are eligible for a waiver first. A Fund shareholder won't pay an otherwise applicable redemption fee on any of the following transactions: o shares sold following the death or disability (as defined in the tax code) of the shareholder, including a registered joint owner 17 Your Account o shares sold by or distributions from participant directed retirement plans, such as 401(k), 403(b), 457, Keogh, profit sharing, and money purchase pension accounts, where the Fund does not have access to information about the individual participant account activity, except where the Fund has received an indication that the plan administrator is able to assess the redemption fee to the appropriate accounts (automatic) o shares sold by certain investment funds, including those that Columbia Management Advisors or its affiliates may manage (automatic) o shares sold as part of an automatic rebalancing within an asset allocation program or by certain wrap programs where the program sponsor has provided assurances reasonably satisfactory to the Fund that the program is not designed to be a vehicle for market timing o shares sold by accounts maintained by a financial institution or intermediary where the Fund has received information reasonably satisfactory to the Fund indicating that the financial institution or intermediary maintaining the account is unable for administrative reasons to assess the redemption fee to underlying shareholders o shares sold by an account which has demonstrated a hardship, such as a medical emergency, as determined in the absolute discretion of the Fund o shares that were purchased by reinvested dividends (automatic) o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following retirement (or following attainment of age 591 1/42 in the case of a "key employee" of a "top heavy" plan) o distributions from an individual retirement account (IRA) or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 The Fund also has the discretion to waive the 2.00% redemption fee if the Fund is in jeopardy of failing the 90% income test or losing its RIC qualification for tax purposes. As described above, certain intermediaries do not assess redemption fees to certain categories of redemptions that do not present significant market timing concerns (such as automatic withdrawal plan redemptions). In these situations, the Fund's ability to assess redemption fees is generally limited by the intermediary's policies and, accordingly, no redemption fees will be assessed on such redemptions. DISTRIBUTION AND SERVICE FEES - -------------------------------------------------------------------------------- Rule 12b-1 Plan The Fund has adopted a plan under Rule 12b-1 under the Investment Company Act that permits it to pay its distributor ongoing 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, and your financial advisor may receive all or a portion of those fees attributable to your shares (see "Payments to Your Financial Advisor"). The annual service fee, as a percentage of the value of the shares, may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee is normally 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment and 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 18 Your Account fee upon conversion. Conversion may occur three, four or eight years after purchase, depending on the program you purchased your shares under. See "Your Account -- Sales Charge" for the conversion schedules 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 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 adviser, 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 on days 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 value 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 these 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 19 Your Account which market quotations are available are valued each day at the current market value. However, where market quotations for a security are not available, or when the adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. Distribution Options The Fund distributes dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. -------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- 20 Your Account - -------------------------------------------------------------------------------- Distribution Options - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 also may 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. The Fund's investments in foreign securities may be subject to foreign withholding taxes. You may be entitled to claim a credit or deduction with respect to foreign 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. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. 21 - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P., and its predecessor was named Wanger Asset Management, L.P. CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.82% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. 22 Managing the Fund PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- CWAM uses a team to assist the lead portfolio managers in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. Portfolio managers make strategic decisions and monitor and supervise individual transactions. While certain analysts recommend transactions for approval by the portfolio managers, more seasoned analysts are authorized to buy and sell securities for the Fund, within the guidelines set by portfolio managers. P. Zachary Egan Co-portfolio manager P. Zachary Egan is a vice president of Columbia Acorn Trust and co-portfolio manager of Columbia Acorn International since May 2003. He has been CWAM's director of international research since December 2004. He has been a member of the international team since 1999 and a research fellow with the Robert Bosch Foundation in Stuttgart, Germany prior thereto. The SAI provides additional information about Mr. Egan's compensation, other accounts he manages and his ownership of securities in the Fund. Louis J. Mendes Co-portfolio manager Louis J. Mendes is a vice president of Columbia Acorn Trust and co-portfolio manager of Columbia Acorn International since May 2003. He has been a member of the international team since 2001 and an analyst and portfolio manager with Merrill Lynch Investment Managers specializing in Asian equity markets prior thereto. The SAI provides additional information about Mr. Mendes' compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. 23 Managing the Fund On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 24 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks and the Fund's fundamental and non-fundamental investment policies are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed smaller and mid-sized non-U.S. companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from these trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------------------------------------------- o superior technology o low debt o reasonable stock price relative to o innovative marketing o adequate working capital growth potential and financial o managerial skill o conservative accounting practices strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an attractive potential would likely produce greater flexibility to pursue strategic company, it identifies a price that it superior performance that is objectives and is important to maintaining believes would also make the stock sustainable over time. a competitive advantage. a good value. - -------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). However, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 25 Other Investment Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 26 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's Class A, Class B and Class C shares fiscal years since inception which run from January 1 to December 31, unless otherwise indicated. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - ---------------------------------------------------------------------------------------------------------- Columbia Acorn International - ----------------------------------------------------------------------------------------------------------
Year ended December 31, - ---------------------------------------------------------------------------------------------------------- 2004 2003 2002 2001 2000(a) Class A Class A Class A Class A Class A - ---------------------------------------------------------------------------------------------------------- Net Asset Value -- Beginning of Period ($) 22.45 15.32 18.35 23.84 28.67 - ---------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income(b) 0.14 0.10 0.05 0.01 0.02 Net realized and unrealized loss 6.31 7.08 (3.07) (5.11) (1.26) - ---------------------------------------------------------------------------------------------------------- Total from Investment Operations 6.45 7.18 (3.02) (5.10) (1.24) - ---------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.15) (0.05) (0.01) -- -- From net realized gains -- -- -- (0.39) (3.59) - ---------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.15) (0.05) (0.01) (0.39) (3.59) - ---------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period ($) 28.75 22.45 15.32 18.35 23.84 - ---------------------------------------------------------------------------------------------------------- Total return (%)(c) 28.91(d) 46.94 (16.46) (21.59) (4.85)(e) - ---------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 1.48 1.59 1.56 1.65 1.26(g)(h) Net investment income(f) 0.61 0.57 0.30 0.03 0.73(g)(h) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 40 40 52 45 63 Net assets at end of period (000's) ($) 70,582 52,872 33,806 25,587 10,323 (a) Class A Shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.59% and 0.40% respectively, were revised to reflect all class specific expenses in this period.
27 Financial Highlights - ----------------------------------------------------------------------------------------------------------- Columbia Acorn International - -----------------------------------------------------------------------------------------------------------
Year ended December 31, - ----------------------------------------------------------------------------------------------------------- 2004 2003 2002 2001 2000(a) Class B Class B Class B Class B Class B - ----------------------------------------------------------------------------------------------------------- Net Asset Value -- Beginning of Period ($) 22.07 15.11 18.22 23.81 28.67 - ----------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(b) (0.04) (0.02) (0.06) (0.12) (0.01) Net realized and unrealized loss 6.19 6.98 (3.05) (5.08) (1.28) - ----------------------------------------------------------------------------------------------------------- Total from Investment Operations 6.15 6.96 (3.11) (5.20) (1.27) - ----------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.04) -- -- -- -- From net realized gains -- -- -- (0.39) (3.59) - ----------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.04) -- -- (0.39) (3.59) - ----------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period ($) 28.18 22.07 15.11 18.22 23.81 - ----------------------------------------------------------------------------------------------------------- Total return (%)(c) 27.91(d) 46.06 (17.07) (22.04) (4.97)(e) - ----------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 2.27 2.24 2.21 2.30 1.91(g)(h) Net investment loss(f) (0.18) (0.10) (0.35) (0.62) (0.08)(g)(h) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 40 40 52 45 63 Net assets at end of period (000's) ($) 54,752 39,800 22,560 17,235 5,675 (a) Class B Shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 2.24% and (0.25)% respectively, were revised to reflect all class specific expenses in this period.
28 Financial Highlights - ----------------------------------------------------------------------------------------------------------- Columbia Acorn International - -----------------------------------------------------------------------------------------------------------
Year ended December 31, - ----------------------------------------------------------------------------------------------------------- 2004 2003 2002 2001 2000(a) Class C Class C Class C Class C Class C - ----------------------------------------------------------------------------------------------------------- Net Asset Value -- Beginning of Period ($) 22.06 15.11 18.21 23.81 28.67 - ----------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(b) (0.03) (0.01) (0.06) (0.13) (0.01) Net realized and unrealized loss 6.20 6.96 (3.04) (5.08) (1.28) - ----------------------------------------------------------------------------------------------------------- Total from Investment Operations 6.17 6.95 (3.10) (5.21) (1.27) - ----------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.04) -- -- -- -- From net realized gains -- -- -- (0.39) (3.59) - ----------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.04) -- -- (0.39) (3.59) - ----------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period ($) 28.19 22.06 15.11 18.21 23.81 - ----------------------------------------------------------------------------------------------------------- Total return (%)(c) 28.01(d) 46.00 (17.02) (22.08) (4.97)(e) - ----------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 2.24 2.24 2.21 2.30 1.91(g)(h) Net investment income (loss)(f) (0.15) (0.06) (0.35) (0.62) (0.08)(g)(h) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 40 40 52 45 63 Net assets at end of period (000's) ($) 30,547 22,990 14,575 14,327 3,965 (a) Class C Shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 2.24% and (0.25)% respectively, were revised to reflect all class specific expenses in this period.
29 - -------------------------------------------------------------------------------- Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 30 - -------------------------------------------------------------------------------- Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 31 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly named Liberty Acorn Trust): 811-01829 o Columbia Acorn International (formerly named Liberty Acorn International) - ------------------------------------------------------------------------------ [LOGO] ColumbiaFunds A Member of Columbia Management Group (C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.345.6611 www.columbiafunds.com - -------------------------------------------------------------------------------- Columbia Acorn USA Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class Z Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - -------------------------------------------------------------------------------- Investment Goal .......................................................... 2 Principal Investment Strategies .......................................... 2 Principal Investment Risks ............................................... 2 Performance History ...................................................... 3 Your Expenses ............................................................ 5 YOUR ACCOUNT 6 - -------------------------------------------------------------------------------- How to Buy Shares ........................................................ 6 Eligible Investors ....................................................... 7 Sales Charges ............................................................ 8 How to Exchange Shares ................................................... 9 How to Sell Shares ....................................................... 9 Fund Policy on Trading of Fund Shares .................................... 10 Intermediary Compensation................................................. 11 Other Information About Your Account ..................................... 12 BOARD OF TRUSTEES 14 - -------------------------------------------------------------------------------- MANAGING THE FUND 14 - -------------------------------------------------------------------------------- Investment Adviser ....................................................... 14 Portfolio Manager ........................................................ 15 Legal Proceedings......................................................... 15 OTHER INVESTMENT STRATEGIES AND RISKS 17 - -------------------------------------------------------------------------------- The Information Edge ..................................................... 17 Long-Term Investing ...................................................... 17 Derivative Strategies .................................................... 18 Temporary Defensive Strategies ........................................... 18 FINANCIAL HIGHLIGHTS 19 - -------------------------------------------------------------------------------- Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information. Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn USA seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn USA generally invests in stocks of small- and medium-sized U.S. companies. The Fund generally invests in the stocks of U.S. companies with market capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that these smaller companies, which are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Columbia Acorn USA typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give the company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. The Fund generally invests substantially all of its assets in U.S. companies, and, under normal circumstances, will invest at least 80% of its net assets (plus any borrowings for investment purposes) in U.S. companies. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser'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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. An investment in the 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. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of a broad measure of market performance for one year, five years and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class Z share performance for each completed calendar year since the Fund commenced operations. They include the effects of Fund expenses. Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and life of the Fund periods. They include the effects of Fund expenses. The Fund's returns are compared to the Russell 2000(R) Index (Russell 2000(R)). The Russell 2000(R) is a market-weighted index of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. All third party trademarks are the property of their owners. Unlike the Fund, an index is not an investment, does not incur fees, expenses or taxes, and is not professionally managed. -------------------------------------------------------------------------- 3 The Fund [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class Z) - -------------------------------------------------------------------------------- 1995 1996 1997 32.30% 1988 5.79% 1999 23.02% 2000 -8.99% 2001 19.25% 2002 -18.49% 2003 47.13% 2004 20.62% For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +23.22% Worst quarter: 3rd quarter 2002, -21.21% After tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. - -------------------------------------------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004 - --------------------------------------------------------------------------------------------------------------------
Inception Life of Date 1 Year 5 Years the Fund Class Z (%) 9/4/96 Return Before Taxes 20.62 9.44 14.77 Return After Taxes on Distributions 20.52 9.23 14.05 Return After Taxes on Distributions and Sale of Fund Shares 13.53 8.10 12.83 - -------------------------------------------------------------------------------------------------------------------- Russell 2000(R)(1) (%) N/A 18.33 6.61 9.81(1) - -------------------------------------------------------------------------------------------------------------------- (1) Performance information is from September 4, 1996.
YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. 4 The Fund -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions -------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - -------------------------------------------------------------------------------------------------------------------- Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) None - -------------------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) None - -------------------------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(2) (1) A $10 annual fee may be deduced from accounts of less than $1,000 and paid to the transfer agent. (2) There is a $7.50 charge for wiring sale proceeds to your bank. - -------------------------------------------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from Fund assets) - -------------------------------------------------------------------------------------------------------------------- Management fees(1),(2) (%) 0.90 - -------------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------------------------------------------- Other expenses(3) (%) 0.18 - -------------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.08 - -------------------------------------------------------------------------------------------------------------------- (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rates: 0.94% of net assets up to $200 million; and 0.89% of net assets in excess of $200 million. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rates set forth above. If the fee waiver had not been implemented as noted above, actual expenses of the Fund would be as follows: management fee, 0.91%; and total operating expenses, 1.09%. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this agreement had not been in place, total annual fund operating expenses would have been 1.10%. - -------------------------------------------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - -------------------------------------------------------------------------------------------------------------------- 1 Year 3 Years 5 Years 10 Years $110 $348 $604 $1,338
5 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described below), when the Fund receives your purchase request in "good form," your shares will be bought at the next calculated price. "Good form" means the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with Columbia Funds Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. 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 or Class A of the Fund at no additional cost. To exchange by telephone, call 1-800-422-3737. Please see "How to Exchange Shares" for more information. - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing account) statement, or send a letter of instruction including the 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 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 or Class A shares 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 You may purchase shares of the Fund by electronically transferring money from your bank account to your funds transfer Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to (existing account) 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 ($50 minimum) automatically from your bank account to your investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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 another fund into the same class of shares of the diversification Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611.
6 Your Account ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z Shares of the Funds generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements. Important Things to Consider When Deciding on a Class of Shares: Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in the Fund in connection with different pricing options for their programs. Investors should consider carefully any separate transaction and other fees charged by these programs in connection with investing in each available share class before selecting a share class. Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. Eligible Investors and their applicable investment minimums are as follows: No minimum initial investment o Any trustee or director (or family member) of Columbia Acorn Trust; o Any employee (or family member) of Columbia Wanger Asset Management, L.P.; o Any investor purchasing through Columbia Management Group state tuition plans organized under Section 529 of the Internal Revenue Code; or o Any retirement plan for which an intermediary or other entity provides services and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent. $50,000 minimum initial investment (by purchase, exchange or transfer) o 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 or Class Z shares; or (iii) who purchased certain no-load shares of funds merged with funds distributed by Columbia Funds Distributor, Inc.; o Any trustee or director (or family member of a trustee or director) of any fund other than the Columbia Acorn Funds distributed by Columbia Funds Distributor, Inc.; o Any employee (or family member of an employee) of Bank of America Corporation or its subsidiaries (other than Columbia Wanger Asset Management L.P.); 7 Your Account o Any investor participating in an account offered by an intermediary or other entity that provides services to such account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agents; o Any client of Bank of America Corporation or a subsidiary (for shares purchased through an asset management company, trust, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary); o 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; or o Any insurance company, trust company, bank, endowment, investment company or foundation purchasing shares for its own account. The Fund reserves the right to change the criteria for eligible investors and the investment minimums. For accounts opened prior to December 15, 2003, no minimum investment applies to accounts participating in the automatic investment plan. 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. SALES CHARGES - -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers one class of shares in this prospectus -- Class Z. The Fund also offers three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each other share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. 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. -------------------------------------------------------------------------- If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. 8 Your Account If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your 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 adviser in its discretion determines that your exchange activity may 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 - -------------------------------------------------------------------------------- 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 net asset value. "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, and (ii) 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 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. 9 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's financial advisor 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 Class Z shares or Class A shares 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 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 ($50 minimum) or percentage of your account on a withdrawal plan monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. 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 proceeds be electronically transferred to your funds transfer 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. - -----------------------------------------------------------------------------------------------------------------------------
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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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. 10 Your Account The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Columbia Funds (other than the Fund) impose a redemption fee on the proceeds of 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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. INTERMEDIARY COMPENSATION - -------------------------------------------------------------------------------- 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. 11 Your Account 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 adviser, 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 a Fund's Class Z shares is based on their 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 on days the NYSE is closed for trading. When you request a transaction, it will be processed at the net asset value 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 Fund 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 its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the value of 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 for a security are unavailable, or when the adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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. 12 Your Account 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 Class Z shares. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. Distribution Options The Fund distributes dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. -------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 also may be subject to state and local income taxes. 13 Your Account 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. - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. 14 Managing the Fund CWAM was previously named Liberty Wanger Asset Management, L.P. and its predecessor was named Wanger Asset Management, L.P. ("WAM"). CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.91% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund of 0.05% of the Fund's average daily net assets. PORTFOLIO MANAGER - -------------------------------------------------------------------------------- Columbia WAM uses a team to assist the lead portfolio manager in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio manager is responsible for making daily investment decisions, and utilizes the management team's input and advice when making buy and sell determinations. Robert A. Mohn Lead portfolio manager Robert Mohn is a vice president of Columbia Acorn Trust. He has been a member of the domestic analytical team at CWAM and WAM since August 1992, and was a principal of WAM from 1995 to September 29, 2000. He has managed Columbia Acorn USA since its inception in 1996, co-managed Columbia Acorn Fund since May 2003, and also manages Wanger U.S. Smaller Companies, a mutual fund underlying variable insurance products, and the U.S. portfolio of an investment company whose shares are offered only to non-U.S. investors. Mr. Mohn is a vice president of Wanger Advisors Trust and the director of domestic research for CWAM. The SAI provides additional information about Mr. Mohn's compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. 15 Managing the Fund On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 16 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed smaller and mid-sized companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from those trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------------------------------------------------- o superior technology o low debt o reasonable stock price relative to o innovative marketing o adequate working capital growth potential and financial o managerial skill o conservative accounting practices strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an potential would likely produce greater flexibility to pursue strategic attractive company, it identifies a superior performance that is objectives and is important to maintaining a price that it believes would also make sustainable over time. competitive advantage. the stock a good value. - -------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). However, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 17 Other Investments and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 18 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last five fiscal years, which run from January 1 to December 31. Certain information in the table reflects the financial results for a single Class Z share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 by PricewaterhouseCooper 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - ----------------------------------------------------------------------------------------------------------------------------------- Columbia Acorn USA - -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2004 2003 2002 2001 2000 Class Z Class Z Class Z Class Z Class Z - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period ($) 21.01 14.28 17.52 14.90 16.75 - ----------------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($) Net investment income (loss)(a) (0.15) (0.13) (0.10) (0.08) (0.05) Net realized and unrealized gain (loss) 4.48 6.86 (3.14) 2.94 (1.48) - ----------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.33 6.73 (3.24) 2.86 (1.53) - ----------------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income -- -- -- -- (0.00)(b) From net realized gains (0.14) -- -- (0.24) (0.32) - ----------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.14) -- -- (0.24) (0.32) - ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- End of Period ($) 25.20 21.01 14.28 17.52 14.90 - ----------------------------------------------------------------------------------------------------------------------------------- Total Return (%)(c) 20.62(d) 47.13 (18.49) 19.25 (8.99) - ----------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(e) 1.09 1.11 1.17 1.17 1.15 Net investment income (loss)(e) (0.66) (0.72) (0.64) (0.46) (0.32) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 18 7 31 24 45 Net assets at end of period (000's) ($) 646 502 235 229 222 (a) Per share data was calculated using average shares outstanding during the period. (b) Rounds to less than $0.01 per share. (c) Total return at net asset value assuming all distributions reinvested. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) The benefits derived from custody fees paid indirectly had no impact.
19 FOR MORE INFORMATION Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly named Liberty Acorn Trust): 811-01829 o Columbia Acorn USA (formerly named Liberty Acorn USA) - -------------------------------------------------------------------------------- [LOGO] ColumbiaFunds A Member of Columbia Management Group (C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com - -------------------------------------------------------------------------------- Columbia Acorn USA Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class A, B and C Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - ------------------------------------------------------------------------------ Investment Goal........................................................... 2 Principal Investment Strategies........................................... 2 Principal Investment Risks................................................ 2 Performance History....................................................... 4 Your Expenses............................................................. 6 YOUR ACCOUNT 8 - ------------------------------------------------------------------------------ How to Buy Shares......................................................... 8 Sales Charges............................................................. 10 Payments to Your Financial Advisor ....................................... 14 How to Exchange Shares ................................................... 15 How to Sell Shares........................................................ 15 Fund Policy on Trading of Fund Shares..................................... 16 Distribution and Service Fees............................................. 17 Other Information About Your Account...................................... 18 BOARD OF TRUSTEES 21 - ------------------------------------------------------------------------------ MANAGING THE FUND 21 - ------------------------------------------------------------------------------ Investment Adviser........................................................ 21 Portfolio Manager......................................................... 21 Legal Proceedings......................................................... 22 OTHER INVESTMENT STRATEGIES AND RISKS 24 - ------------------------------------------------------------------------------ The Information Edge...................................................... 24 Long-Term Investing....................................................... 24 Derivative Strategies..................................................... 25 Temporary Defensive Strategies............................................ 25 FINANCIAL HIGHLIGHTS 26 - ------------------------------------------------------------------------------ Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn USA seeks to provide long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn USA invests generally in stocks of small- and medium-sized U.S. companies. The Fund generally invests in the stocks of U.S. companies with capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that these smaller companies, which are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Columbia Acorn USA typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give the company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. The Fund generally invests substantially all of its assets in U.S. companies and, under normal circumstances, will invest at least 80% of its net assets (plus any borrowings for investment purposes) in U.S. companies. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser'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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns and their prices could be more volatile. An investment in the 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. 3 The Fund PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of a broad measure of market performance for one year and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class A share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower. Average Annual Total Returns are a measure of the Fund's average performance over the past one-year and for the life of the Fund. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see section "Your Account -- Sales Charges"). The Fund's returns are compared to the Russell 2000(R) Index (Russell 2000(R)). The Russell 2000(R) is a market-weighted index of 2000 small companies formed by taking the largest 3000 companies and eliminating the largest 1000 of those companies. All third party trademarks are the property of their owners. Unlike the Fund, an index is not an investment, does not incur fees, expenses or taxes, and is not professionally managed. -------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A)(1) - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 18.65% 2002 -18.97% 2003 46.26% 2004 20.12% For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +23.06% Worst quarter: 3rd quarter 2002, -21.36 4 The Fund After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
- ------------------------------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004(1) - ------------------------------------------------------------------------------------------------------- Inception Life of Date 1 Year the Fund Class A % 10/16/00 Return Before Taxes 13.21 13.61 Return After Taxes on Distributions 13.11 13.54 Return After Taxes on Distributions and Sale of Fund Shares 8.71 11.86 - ------------------------------------------------------------------------------------------------------- Class B % 10/16/00 Return Before Taxes 14.26 14.18 Return After Taxes on Distributions 14.16 14.12 Return After Taxes on Distributions and Sale of Fund Shares 9.40 12.38 - ------------------------------------------------------------------------------------------------------- Class C % 10/16/00 Return Before Taxes 18.26 14.49 Return After Taxes on Distributions 18.16 14.43 Return After Taxes on Distributions and Sale of Fund Shares 12.00 12.65 - ------------------------------------------------------------------------------------------------------- Russell 2000(R)(2)% N/A 18.33 8.93 (1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) Performance information is from October 16, 2000.
5 The Fund YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions o Class B shares convert to Class A shares after eight years -------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - ---------------------------------------------------------------------------------------------------------
Class A Class B Class C Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 None None - --------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 1.00(2) 5.00 1.00 - --------------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(3) None(3) None(3) (1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent. (2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (3) There is a $7.50 charge for wiring sale proceeds to your bank.
6 The Fund - --------------------------------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from fund assets) - ---------------------------------------------------------------------------------------------------------
Class A Class B Class C Management fees(1)(2) (%) 0.90 0.90 0.90 - --------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 - --------------------------------------------------------------------------------------------------------- Other expenses(3) (%) 0.26 0.34 0.29 - --------------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.41 2.09 2.19 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rates: 0.94% of net assets up to $200 million; and 0.89% of net assets in excess of $200 million. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rates set forth above. If the fee waiver had not been implemented as noted above, the Fund's actual management fee would be 0.91% and total operating expenses would be 1.42%, 2.10%, and 2.20% for Class A, B, and C shares, respectively. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this arrangement had not been in place, total annual fund operating expenses for Classes A, B and C would have been 1.43%, 2.11% and 2.17%, respectively. - --------------------------------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - --------------------------------------------------------------------------------------------------------- Class 1 Year 3 Years 5 Years 10 Years Class A: $710 $1,000 $1,310 $2,188 - --------------------------------------------------------------------------------------------------------- Class B: did not sell your shares $212 $ 659 $1,132 $2,267 sold all your shares at the end of the period $712 $ 959 $1,332 $2,267 - --------------------------------------------------------------------------------------------------------- Class C: did not sell your shares $222 $ 689 $1,183 $2,543 sold all your shares at the end of the period $322 $ 689 $1,183 $2,543
7 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. -------------------------------------------------------------------------- INVESTMENT MINIMUMS Initial Investment............................................ $ 50,000 Subsequent Investments........................................ $ 50 The Fund reserves the right to change these investment minimums. For accounts opened prior to December 15, 2003, no minimum investment applies to accounts participating in the automatic investment plan. 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. -------------------------------------------------------------------------- 8 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing 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 (and, in some cases, certain other classes) 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 You may purchase shares of the Fund by electronically transferring money from your bank account to your funds transfer Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to (existing account) 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 ($50 minimum) automatically from your bank account investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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. There may be an additional sales charge if exchanging from a money market fund. Be sure to complete the appropriate section of the account application for this feature. - ----------------------------------------------------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by another fund into the same class of shares (and, diversification in some cases, certain other classes) of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611.
9 Your Account SALES CHARGES - -------------------------------------------------------------------------------- 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 reduced or waived, as described below and in the Statement of Additional Information. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class 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 also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. -------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Class A Sales Charges - -------------------------------------------------------------------------------- % of offering Sales Charge as % of: price net retained by offering amount your financial Amount of purchase* price invested 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 or more* 2.00 2.04 1.75 * Mutual fund wrap programs and group retirement plans that invest $50,000 or more in Class A shares of the Fund will not be subject to a sales charge. Discretionary wrap programs that invest directly with the Fund, trade on an omnibus basis and were invested in the Fund prior to December 15, 2003 became subject to the $50,000 investment minimum effective February 2, 2004. ** Only applicable to accounts opened prior to December 15, 2003. In addition to the initial sales charge paid to your financial advisor and distributor, a 0.25% annual commission is paid to your financial advisor over the life of your investment out of your Fund assets as a 12b-1 fee. The Fund's distributor may also pay additional compensation to financial advisors as a promotional incentive. 10 Your Account 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. For purchases of $3 million to less than $5 million, $5 million to less than $25 million and for $25 million or more, the financial advisors receive from the distributor a commission of 0.80%, 0.50% and 0.25%, respectively. -------------------------------------------------------------------------- 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 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. A. What are the principal ways to obtain a breakpoint discount? There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds. Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price. Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. 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. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by the Fund. B. What accounts are eligible for breakpoint discounts? The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include: o Individual accounts o Joint accounts 11 Your Account o Certain IRA accounts o Certain trusts o UTMA/UGMA accounts For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depends on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? 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. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com. Class B shares Your purchases of Class B shares are 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 the 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. In addition, Class B shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. 12 Your Account Purchases of less than $250,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 Up-front commission to financial advisors is 4.00% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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 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 receive 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. Purchases of $250,000 to less than $500,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 Up-front commission to financial advisors is 2.50% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically four years after purchase. 13 Your Account Purchases of $500,000 to less than $1 million: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 Up-front commission to financial advisors is 1.75% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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. 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. In addition, Class C shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 A 1.00% annual commission is paid to your financial advisor and the distributor over the life of your investment out of your Fund assets. PAYMENTS TO YOUR FINANCIAL ADVISOR - -------------------------------------------------------------------------------- Normally your financial advisor receives certain initial and ongoing payments based on your purchase and continued holding of shares of the Fund as described above under "Sales Charges." For specific details on those payments or any other payments that may be received, you should contact your financial advisor. 14 Your Account 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 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. Shareholders of Columbia Acorn Funds that qualify to purchase Class A shares at net asset value may exchange their Class A shares for Class Z shares of another fund distributed by Columbia Funds Distributor, Inc. (See the Statement of Additional Information for a description of these situations.) 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 adviser 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. 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 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. 15 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's financial advisor 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. - ----------------------------------------------------------------------------------------------------------------------------- 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 your 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 ($50 minimum) or percentage of your account on a withdrawal plan 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 proceeds be electronically transferred to your funds transfer 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.
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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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 Columbia Funds (other than the Funds) impose a redemption fee on the proceeds of shares that are redeemed or exchanged within 60 days of their purchase. 16 Your Account 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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 under the Investment Company Act that permits it to pay its distributor ongoing 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, and your financial advisor may receive all or a portion of those fees attributable to your shares (see "Payments to Your Financial Advisor"). The annual service fee, as a percentage of the value of the shares, may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee is normally 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment and 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 you purchased your shares under. See "Your Account -- Sales Charge" for the conversion schedules 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 17 Your Account 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 adviser, 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 on days 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 value of 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 for a security are unavailable, or when the adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 18 Your Account 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. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- 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 dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. - -------------------------------------------------------------------------------- Distribution Options - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 also may be subject to state and local income taxes. 19 Your Acccount 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. 20 - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P. and its predecessor was named Wanger Asset Management, L.P. ("WAM"). CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.91% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. PORTFOLIO MANAGER - -------------------------------------------------------------------------------- CWAM uses a team to assist the lead portfolio manager in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. 21 Managing the Fund Robert A. Mohn Lead portfolio manager Robert Mohn is a vice president of Columbia Acorn Trust. He has been a member of the domestic analytical team at CWAM and WAM since August 1992, and was a principal of WAM from 1995 to September 29, 2000. He has managed Columbia Acorn USA since its inception in 1996, co-managed Columbia Acorn Fund since May 2003, and also manages Wanger U.S. Smaller Companies, a mutual fund underlying variable insurance products, and the U.S. portfolio of an investment company whose shares are offered only to non-U.S. investors. Mr. Mohn is a vice president of Wanger Advisors Trust and the director of domestic research for CWAM. The SAI provides additional information about Mr. Mohn's compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff 22 Managing the Fund and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 23 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed smaller and mid-sized companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from these trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------------------------------------------------- o superior technology o low debt o reasonable stock price relative to o innovative marketing o adequate working capital growth potential and financial o managerial skill o conservative accounting practices strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an attractive potential would likely produce greater flexibility to pursue strategic company, it identifies a price that it superior performance that is objectives and is important to maintaining a believes would also make the stock sustainable over time. competitive advantage. a good value. - -------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). However, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 24 Other Investment Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 25 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's Class A, Class B and Class C shares fiscal years since inception which run from January 1 to December 31, unless otherwise indicated. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - ----------------------------------------------------------------------------------------------------------------------------------- The Fund - -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000(a) Class A Class A Class A Class A Class A - ----------------------------------------------------------------------------------------------------------------------------------- Net Asset Value -- Beginning of Period ($) 20.74 14.18 17.50 14.88 13.83 - ----------------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(b) (0.24) (0.22) (0.19) (0.19) (0.01) Net realized and unrealized gain (loss) 4.41 6.78 (3.13) 2.96 1.06 - ----------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 4.17 6.56 (3.32) 2.77 1.05 - ----------------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net realized gains (0.14) -- -- (0.15) -- - ----------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.14) -- -- (0.15) -- - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value -- End of Period ($) 24.77 20.74 14.18 17.50 14.88 - ----------------------------------------------------------------------------------------------------------------------------------- Total Return (%)(c) 20.12(d) 46.26 (18.97) 18.65 7.59(e) - ----------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 1.51 1.65 1.74 1.84 1.41(g)(h) Net investment loss(f) (1.08) (1.26) (1.21) (1.13) (0.73)(g)(h) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 18 7 31 24 45 Net assets at end of period (000's) ($) 112,509 89,650 32,422 20,455 798 (a) Class A shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.17% and (0.49)% respectively, were revised to reflect all class specific expenses in this period.
26 Financial Highlights - ----------------------------------------------------------------------------------------------------------------------------------- The Fund - -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000(a) Class B Class B Class B Class B Class B - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period ($) 20.36 14.01 17.40 14.87 13.83 - ----------------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(b) (0.39) (0.32) (0.29) (0.30) (0.03) Net realized and unrealized gain (loss) 4.31 6.67 (3.10) 2.96 1.07 - ----------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.92 6.35 (3.39) 2.66 1.04 - ----------------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net realized gains (0.14) -- -- (0.13) -- - ----------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.14) -- -- (0.13) -- - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 24.14 20.36 14.01 17.40 14.87 - ----------------------------------------------------------------------------------------------------------------------------------- Total Return (%)(c) 19.26(d) 45.32 (19.48) 17.92 7.52(e) - ----------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 2.23 2.30 2.39 2.49 2.06(g)(h) Net investment loss(f) (1.80) (1.91) (1.86) (1.78) (1.38)(g)(h) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 18 7 31 24 45 Net assets at end of period (000's) ($) 72,643 66,175 37,478 27,722 685 (a) Class B shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (g) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.82% and (1.14)%, respectively, were revised to reflect all class specific expenses in this period.
27 Financial Highlights - ----------------------------------------------------------------------------------------------------------------------------------- The Fund - -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000(a) Class C Class C Class C Class C Class C - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of Period ($) 20.36 14.01 17.40 14.87 13.83 - ----------------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(b) (0.39) (0.32) (0.29) (0.30) (0.03) Net realized and unrealized gain (loss) 4.31 6.67 (3.10) 2.96 1.07 - ----------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.92 6.35 (3.39) 2.66 1.04 - ----------------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net realized gains (0.14) -- -- (0.13) -- - ----------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.14) -- -- (0.13) -- - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value -- End of Period ($) 24.14 20.36 14.01 17.40 14.87 - ----------------------------------------------------------------------------------------------------------------------------------- Total return (%)(c) 19.26(d) 45.32 (19.48) 17.92 7.52(e) - ----------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 2.23 2.30 2.39 2.49 2.06(g)(h) Net investment loss(f) (1.80) (1.91) (1.86) (1.78) (1.38)(g)(h) Reimbursement 0.02 -- -- -- -- Portfolio turnover rate (%) 18 7 31 24 45 Net assets at end of period (000's) ($) 39,643 35,662 18,313 13,049 347 (a) Class C shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.82% and (1.14)%, respectively, were revised to reflect all class specific expenses in this period.
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-------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 31 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly named Liberty Acorn Trust): 811-01829 o Columbia Acorn USA (formerly named Liberty Acorn USA) - -------------------------------------------------------------------------------- [LOGO] ColumbiaFunds A Member of Columbia Management Group (c)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbisfunds.com - -------------------------------------------------------------------------------- Columbia Acorn Select Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class Z Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - -------------------------------------------------------------------------------- Investment Goal............................................................. 2 Principal Investment Strategies............................................. 2 Principal Investment Risks.................................................. 2 Performance History......................................................... 3 Your Expenses............................................................... 5 YOUR ACCOUNT 6 - -------------------------------------------------------------------------------- How to Buy Shares........................................................... 6 Eligible Investors.......................................................... 7 Sales Charges............................................................... 8 How to Exchange Shares...................................................... 9 How to Sell Shares.......................................................... 9 Fund Policy on Trading of Fund Shares....................................... 10 Intermediary Compensation................................................... 11 Other Information About Your Account ....................................... 12 BOARD OF TRUSTEES 14 - -------------------------------------------------------------------------------- MANAGING THE FUND 15 - -------------------------------------------------------------------------------- Investment Adviser.......................................................... 15 Portfolio Manager........................................................... 15 Legal Proceedings........................................................... 15 OTHER INVESTMENT STRATEGIES AND RISKS 17 - -------------------------------------------------------------------------------- The Information Edge........................................................ 17 Long-Term Investing......................................................... 17 Derivative Strategies....................................................... 18 Temporary Defensive Strategies.............................................. 18 FINANCIAL HIGHLIGHTS 19 - -------------------------------------------------------------------------------- Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information. Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn Select seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn Select generally invests in the stocks of U.S. companies. The Fund is a non-diversified fund that takes advantage of its adviser's research and stock-picking capabilities to invest in a limited number of companies (between 20-40) with market capitalizations under $20 billion at the time of initial purchase, offering the potential to provide above-average growth over time. The Fund believes that companies within this capitalization range, which are not as well known by financial analysts as the largest companies, may offer higher return potential than the stocks of companies with capitalizations above $20 billion. Columbia Acorn Select typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give the company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. Although the Fund does not buy securities with a short-term view, there is no restriction on the length of time the Fund must hold a security. To the extent the Fund buys and sells securities frequently, its transaction costs will be higher (which may adversely affect the Fund's performance) and it may realize additional capital gains. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser'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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly. An investment in the 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. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of a broad measure of market performance for one year, five years and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements. If these arrangements had not been in place, then performance would have been lower. Any expense reduction arrangements may be discontinued at any time. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class Z share performance for each completed calendar year since the Fund commenced operations. They include the effects of Fund expenses. Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five year and for life of the Fund periods. They include the effects of Fund expenses. The Fund's returns are compared to the Standard & Poor's Mid Cap 400 Index (S&P Mid Cap 400 Index). The S&P Mid Cap 400 Index is an unmanaged, market value-weighted index of 400 mid cap U.S. companies. Unlike the Fund, an index is not an investment, does not incur fees, expenses or taxes, and is not professionally managed. -------------------------------------------------------------------------- 3 The Fund [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class Z) - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 29.30% 2000 11.68% 2001 8.00% 2002 -7.81% 2003 30.61% 2004 18.58% For the periods shown in bar chart: Best quarter: 4th quarter 2001, +17.57% Worst quarter: 3rd quarter 2001, -11.34% After tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
- -------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004 - -------------------------------------------------------------------------------- Inception Life of Date 1 Year 5 Years the Fund Class Z (%) 11/23/98 Return Before Taxes 18.58 11.48 15.29 Return After Taxes on Distributions 18.20 10.94 14.76 Return After Taxes on Distributions and Sale of Fund Shares 12.55 9.77 13.28 - ----------------------------------------------------------------------------------------------------------- S&P Mid Cap 400 Index(1)(%) N/A 16.48 9.54 12.11(1)
(1) Performance information is from November 23, 1998. YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. 4 The Fund -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions -------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - -------------------------------------------------------------------------------- Maximum sales charge (load) on purchases (%) (as a percentage of offering price) None - -------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) None - -------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(2) (1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent. (2) There is a $7.50 charge for wiring sale proceeds to your bank. - -------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from Fund assets) - -------------------------------------------------------------------------------- Management fees(2) (%) 0.84 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses(3) (%) 0.23 - -------------------------------------------------------------------------------- Total annual fund operating expenses(4) (%) 1.07 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rates: 0.85% of net assets up to $700 million; and 0.80% of net assets in excess of $700 million. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rates set forth above. If the fee waiver had not been implemented as noted above, actual expenses of the Fund would be as follows: management fee, 0.89%; and total operating expenses, 1.12%. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this arrangement had not been in place, total annual fund operating expenses would have been 1.09%. (4) The Fund's adviser has voluntarily agreed to reimburse the Fund for any ordinary operating expenses (exclusive of distribution and service fees, interest, taxes and extraordinary expenses, if any) exceeding 1.35% of the average annual net assets for Class Z. This arrangement may be modified or terminated by either the Fund or its adviser on 30 days' notice. - -------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - -------------------------------------------------------------------------------- 1 Year 3 Years 5 Years 10 Years $109 $345 $599 $1,327 5 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described below), when the Fund receives your purchase request in "good form,"your shares will be bought at the next calculated price after the Fund receives your purchase request in "good form." "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with Columbia Funds Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. 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 or Class A of the Fund at no additional cost. To exchange by telephone, call 1-800-422-3737. Please see "How to Exchange Shares" for more information. - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing account) statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund and mailed to Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By exchange You 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 or Class A shares 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 You may purchase shares of the Fund by electronically transferring money from your bank account to your funds transfer Fund account by calling 1-800-422-3737. An electronic fund transfer may take up to two business days to (existing account) 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 ($50 minimum) automatically from your bank account to your investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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 another fund into the same class of shares of the diversification Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611.
6 Your Account ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z Shares of the Funds generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements. Important Things to Consider When Deciding on a Class of Shares: Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in the Fund in connection with different pricing options for their programs. Investors should consider carefully any separate transaction and other fees charged by these programs in connection with investing in each available share class before selecting a share class. Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. Eligible Investors and their applicable investment minimums are as follows: No minimum initial investment o Any client of Bank of America Corporation or a subsidiary (for shares purchased through an asset management company, trust, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary); o Any retirement plan for which an intermediary or other entity provides services and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; o Investors purchasing through Columbia Management Group state tuition plans organized under Section 529 of the Internal Revenue Code; or o 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. $1,000 minimum initial investment o 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.; 7 Your Account o Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Funds Distributor, Inc.; o Any employee (or family member of an employee) of Bank of America Corporation or its subsidiaries; o Any investor participating in an account offered by an intermediary or other entity that provides services to such account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agents; or o Any insurance company, trust company, bank, endowment, investment company or foundation purchasing shares for its own account. 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 $50 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. SALES CHARGES - -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers one class of shares in this prospectus -- Class Z. The Fund also offers three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each other share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. 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. -------------------------------------------------------------------------- If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. 8 Your Account HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your 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 adviser in its discretion determines that your exchange activity may 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 - -------------------------------------------------------------------------------- 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, and (ii) 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 1-800-422-3737. 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 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. 9 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions - ----------------------------------------------------------------------------------------------------------------------------- Through your You may call your financial advisor to place your sell order. To receive the current trading day's financial advisor 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 Class Z shares or Class A shares 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 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 ($50 minimum) or percentage of your account on a withdrawal plan monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. 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 proceeds be electronically transferred to your funds transfer 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.
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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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. 10 Your Account The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Columbia Funds (other than the Fund) impose a redemption fee on the proceeds of 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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. INTERMEDIARY COMPENSATION - -------------------------------------------------------------------------------- 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. 11 Your Account 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 adviser, 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 a Fund's Class Z shares is based on their 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 on days the NYSE is closed for trading. When you request a transaction, it will be processed at the net asset value 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 Fund 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 its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the value of 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 adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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. 12 Your Account 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 Funds' 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 Class Z shares. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. Distribution Options The Fund distributes dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. -------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 also may be subject to state and local income taxes. 13 Your Account 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. - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. 14 - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P. and its predecessor was named Wanger Asset Management, L.P. CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.89% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. PORTFOLIO MANAGER - -------------------------------------------------------------------------------- Columbia WAM uses a team to assist the lead portfolio manager in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio manager is responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Ben Andrews Lead portfolio manager Ben Andrews has managed Columbia Acorn Select since March 2004. He is a vice president of Columbia Acorn Trust and has been part of the CWAM investment team since 1998, most recently as a senior technology analyst. His analytical experience includes covering a broad range of industries and special situations. Mr. Andrews is also the lead portfolio manager of Wanger Select, a mutual fund underlying variable insurance products. Prior to joining CWAM, Mr. Andrews was a senior analyst at Rothschild Investment Corporation. The SAI provides additional information about Mr. Andrews' compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. 15 Managing the Fund On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 16 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. The Fund may not always achieve its investment goal. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed mid-sized and larger companies that it believes are not as well known by financial analysts as the largest companies and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from those trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ----------------------------------------------------------------------------------------------------------------------- o superior technology o low debt o reasonable stock price relative to o innovative marketing o adequate working capital growth potential and financial o managerial skill o conservative accounting practices strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an potential would likely produce greater flexibility to pursue strategic attractive company, it identifies a superior performance that is objectives and is important to maintaining price that it believes would also make sustainable over time. a competitive advantage. the stock a good value. - -----------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). However, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 17 Other Investment Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 18 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last five fiscal years, which run from January 1 to December 31. Certain information in the table reflects the financial results for a single Class Z share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements.You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - ----------------------------------------------------------------------------------------------------------- Columbia Acorn Select - -----------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000 Class Z Class Z Class Z Class Z Class Z - ----------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period ($) 18.20 14.04 15.23 14.13 13.70 - ----------------------------------------------------------------------------------------------------------- Income from Investment Operations ($) Net investment income (loss)(a) (0.10) (0.10) (0.10) (0.05) (0.07) Net realized and unrealized gain (loss) 3.47 4.39 (1.09) 1.18 1.59 - ----------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.37 4.29 (1.19) 1.13 1.52 - ----------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income -- -- -- -- (0.01) From net realized gains (0.44) (0.13) -- (0.03) (1.08) - ----------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.44) (0.13) -- (0.03) (1.09) - ----------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 21.13 18.20 14.04 15.23 14.13 - ----------------------------------------------------------------------------------------------------------- Total return (%)(b) 18.58(c) 30.61 (7.81)(c) 8.00(c) 11.68 - ----------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses 1.13(d) 1.12(d) 1.26(d) 1.35 1.34(e) Net investment loss (0.52)(d) (0.63)(d) (0.67)(d) (0.44) (0.52)(e) Reimbursement 0.02 -- 0.01 0.03 -- Portfolio turnover rate (%) 34 16 40 82 116 Net assets at end of period (000's) ($) 445 294 93 70 67 (a) Per share data was calculated using average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested. (c) Had the Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. (e) In accordance with a requirement of the Securities and Exchange Commission, the ratios reflect total expenses prior to the reduction of custody fees for cash balances it maintains with the custodian ("custody fees paid indirectly"). The ratios of expenses to average daily net assets and net investment income to average daily net assets net of custody fees paid indirectly would have been 1.32% and (0.50%), respectively for the year ended December 31, 2000.
19 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly Liberty Acorn Trust): 811-01829 o Columbia Acorn Select (formerly Liberty Acorn Twenty) - -------------------------------------------------------------------------------- [LOGO] ColumbiaFunds A Member of Columbia Management Group (c)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com - -------------------------------------------------------------------------------- Columbia Acorn Select Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class A, B and C Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - -------------------------------------------------------------------------------- Investment Goal.............................................................. 2 Principal Investment Strategies.............................................. 2 Principal Investment Risks................................................... 2 Performance History.......................................................... 4 Your Expenses................................................................ 6 YOUR ACCOUNT 8 - -------------------------------------------------------------------------------- How to Buy Shares............................................................ 8 Sales Charges................................................................ 10 Payments to Your Financial Advisor........................................... 15 How to Exchange Shares....................................................... 15 How to Sell Shares........................................................... 15 Fund Policy on Trading of Fund Shares........................................ 16 Distribution and Service Fees................................................ 17 Other Information About Your Account......................................... 18 BOARD OF TRUSTEES 21 - -------------------------------------------------------------------------------- MANAGING THE FUND 21 - -------------------------------------------------------------------------------- Investment Adviser........................................................... 21 Portfolio Manager............................................................ 22 Legal Proceedings............................................................ 22 OTHER INVESTMENT STRATEGIES AND RISKS 24 - -------------------------------------------------------------------------------- The Information Edge ........................................................ 24 Long-Term Investing.......................................................... 24 Derivative Strategies........................................................ 25 Temporary Defensive Strategies............................................... 25 FINANCIAL HIGHLIGHTS 26 - -------------------------------------------------------------------------------- Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn Select seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn Select invests generally in the stocks of U.S. companies. The Fund is a non-diversified fund that takes advantage of its advisor's research and stock-picking capabilities to invest in a limited number of companies (between 20-40) with market capitalizations under $20 billion at the time of initial purchase, offering the potential to provide above-average growth over time. The Fund believes that companies within this capitalization range, which are not as well known by financial analysts as the largest companies, may offer higher return potential than the stocks of companies with capitalizations above $20 billion. Columbia Acorn Select typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give the company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. Although the Fund does not buy securities with a short-term view, there is no restriction on the length of time the Fund must hold a security. To the extent the Fund buys and sells securities frequently, its transaction costs will be higher (which may adversely affect the Fund's performance) and it may realize additional capital gains. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser'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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times the Fund may have a significant portion of its assets invested in a particular sector. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly. An investment in the 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. 3 The Fund PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of a broad measure of market performance for one year and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class A share performance for each completed calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower. Average Annual Total Returns are a measure of the Fund's average performance over the past one-year and for the life of the Fund. The table shows returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see section "Your Account -- Sales Charges"). The Fund's returns are compared to the Standard & Poor's Mid Cap 400 Index (S&P Mid Cap 400 Index). The S&P Mid Cap 400 Index is an unmanaged, market value-weighted index of 400 midcap U.S. companies. Unlike the Fund, an index is not an investment, does not incur fees, expenses or taxes, and is not professionally managed. -------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A)(1) - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 7.65% 2002 -8.17% 2003 29.95% 2004 8.16% For the periods shown in bar chart: Best quarter: 4th quarter 2001, +17.47% Worst quarter: 3rd quarter 2001, -11.43% 4 The Fund After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. - ----------------------------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004(1) - -----------------------------------------------------------------------------------------------------
Inception Life of Date 1 Year the Fund Class A(%) 10/16/00 Return Before Taxes 11.37 9.33 Return After Taxes on Distributions 11.01 9.14 Return After Taxes on Distributions and Sale of Fund Shares 7.84 8.05 - ----------------------------------------------------------------------------------------------------- Class B(%) 10/16/00 Return Before Taxes 12.24 9.76 Return After Taxes on Distributions 11.85 9.56 Return After Taxes on Distributions and Sale of Fund Shares 8.45 8.43 - ----------------------------------------------------------------------------------------------------- Class C(%) 10/16/00 Return Before Taxes 16.24 10.10 Return After Taxes on Distributions 15.85 9.91 Return After Taxes on Distributions and Sale of Fund Shares 11.05 8.73 - ----------------------------------------------------------------------------------------------------- S&P Mid Cap 400 Index(2)(%) N/A 16.48 8.07 (1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) Performance information is from October 16, 2000.
5 The Fund YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions o Class B shares convert to Class A shares after eight years -------------------------------------------------------------------------- 6 The Fund - ------------------------------------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - -------------------------------------------------------------------------------------------------------------
Class A Class B Class C Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 None None - ------------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 1.00(2) 5.00 1.00 - ------------------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(3) None(3) None(3) (1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent. (2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (3) There is a $7.50 charge for wiring sale proceeds to your bank. Annual Fund Operating Expenses (deducted directly from fund assets) - ------------------------------------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from fund assets) - ------------------------------------------------------------------------------------------------------------- Class A Class B Class C Management fees(1),(2) (%) 0.84 0.84 0.84 - ------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 - ------------------------------------------------------------------------------------------------------------- Other expenses(3) (%) 0.24 0.38 0.32 - ------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses(4) (%) 1.33 2.07 2.16 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rates: 0.85% of net assets up to $700 million; and 0.80% of net assets in excess of $700 million. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rates set forth above. If the fee waiver had not been implemented as noted above, the Fund's actual management fee would be 0.89% and total operating expenses would be 1.38%, 2.12%, and 2.21% for Class A, B, and C shares, respectively. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this arrangement had not been in place, total annual fund operating expenses for Classes A, B and C would have been 1.35%, 2.09% and 2.18%, respectively. (4) The Fund's adviser has voluntarily agreed to reimburse the Fund for any ordinary operating expenses (exclusive of distribution and service fees, interest, taxes and extraordinary expenses, if any) exceeding 1.35% of the average annual net assets for Class A, Class B and Class C shares. This arrangement may be modified or terminated by either the Fund or its adviser on 30 days' notice. As a result, the actual total annual Fund operating expenses for Class A, B and C shares would be 1.35%, 2.09% and 2.18%, respectively. - ------------------------------------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - ------------------------------------------------------------------------------------------------------------- Class 1 Year 3 Years 5 Years 10 Years Class A: $703 $976 $1,270 $2,104 - ------------------------------------------------------------------------------------------------------------- Class B: did not sell your shares $210 $653 $1,122 $2,230 sold all your shares at the end of the period $710 $953 $1,322 $2,230 Class C: did not sell your shares $219 $680 $1,168 $2,512 sold all your shares at the end of the period $319 $680 $1,168 $2,512
7 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. -------------------------------------------------------------------------- INVESTMENT MINIMUMS Initial Investment............................................... $1,000 Subsequent Investments........................................... $ 50 Automatic Investment Plan*....................................... $ 50 Retirement Plans*................................................ $ 25 * 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. -------------------------------------------------------------------------- 8 Your Account - ------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing 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 (and, in some cases, certain other classes) 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 You may purchase shares of the Fund by electronically transferring money from your bank account to funds transfer your Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two (existing account) 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 ($50 minimum) automatically from your bank account to investment plan 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 exchanging $100 or more each month from cost averaging another fund for shares of the same class of the Fund at no additional cost. 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 (DELTA) exchange (subject to the $100 minimum) by calling 1-800-345-6611. There may be an additional sales charge if exchanging from a money market fund. Be sure to complete the appropriate section of the account application for this feature. - ------------------------------------------------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by another fund into the same class of shares diversification (and, in some cases, certain other classes) of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611. - -------------------------------------------------------------------------------------------------------------------------
9 Your Account SALES CHARGES - -------------------------------------------------------------------------------- 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 reduced or waived, as described below and in the Statement of Additional Information. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class 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 also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. -------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Class A Sales Charges - -------------------------------------------------------------------------------- % of offering Sales Charge as % of: price net retained by offering amount your financial Amount of purchase* price invested 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 - ------------------------------------------------------------------------------- The Fund's distributor may also pay additional compensation to financial advisors as a promotional incentive. 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 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 following each purchase. The CDSC does not apply to retirement plans purchasing shares through a fee-based program. 10 Your Account In addition to the initial sales charge paid to your financial advisor and distributor, a 0.25% annual commission is paid to your financial advisor over the life of your investment out of your Fund assets as a 12b-1 fee. 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 - -------------------------------------------------------------------------------- Amount purchased Commission % First $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 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 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 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. A. What are the principal ways to obtain a breakpoint discount? There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds. Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price. Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. 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. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to 11 Your Account substantiate historic costs because the Fund and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by the Fund. B. What accounts are eligible for breakpoint discounts? The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include: o Individual accounts o Joint accounts o Certain IRA accounts o Certain trusts o UTMA/UGMA accounts For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depends on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? 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. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com. Class B shares Your purchases of Class B shares are 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 the 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 12 Your Account in the charts below. In addition, Class B shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. Purchases of less than $250,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 Up-front commission to financial advisors is 4.00% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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 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 discount level, your current purchase will receive 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. Purchases of $250,000 to less than $500,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 Up-front commission to financial advisors is 2.50% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically four years after purchase. 13 Your Account Purchases of $500,000 to less than $1 million: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 Up-front commission to financial advisors is 1.75% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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. 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. In addition, Class C shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 A 1.00% annual commission is paid to your financial advisor and the distributor over the life of your investment out of your Fund assets. 14 Your Account PAYMENTS TO YOUR FINANCIAL ADVISOR - -------------------------------------------------------------------------------- Normally your financial advisor receives certain initial and ongoing payments based on your purchase and continued holding of shares of the Fund as described above under "Sales Charges." For specific details on those payments or any other payments that may be received, you should contact your financial advisor. 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 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. Shareholders of Columbia Acorn Funds that qualify to purchase Class A shares at net asset value may exchange their Class A shares for Class Z shares of another fund distributed by Columbia Funds Distributor, Inc. (see the Statement of Additional Information for a description of these situations). 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 adviser 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. 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 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. 15 Your Account - ------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's financial advisor 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. - ------------------------------------------------------------------------------------------------------------------------- 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 your 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 ($50 minimum) or percentage of your account on withdrawal plan 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 proceeds be electronically transferred to your funds transfer 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.
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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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. 16 Your Account The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Columbia Funds (other than the Fund) impose a redemption fee on the proceeds of 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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 under the Investment Company Act that permits it to pay its distributor ongoing 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, and your financial advisor may receive all or a portion of those fees attributable to your shares (see "Payments to Your Financial Advisor"). The annual service fee, as a percentage of the value of the shares, may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee is normally 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment and 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 you purchased your shares under. See "Your Account -- Sales Charge" for the conversion schedules applicable to Class B shares. 17 Your Account 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 adviser, 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 on days 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 value of 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 for a security are unavailable, or when the adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur 18 Your Account between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- 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 dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. 19 Your Account - -------------------------------------------------------------------------------- Distribution Options - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 the state where you live, distributions also may 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. 20 - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P. and its predecessor was named Wanger Asset Management, L.P. CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.89% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. 21 Managing the Fund PORTFOLIO MANAGER - -------------------------------------------------------------------------------- CWAM uses a team to assist the lead portfolio manager in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Ben Andrews Lead portfolio manager Ben Andrews has managed Columbia Acorn Select since March 2004. He is a vice president of Columbia Acorn Trust and has been part of the CWAM investment team since 1998, most recently as a senior technology analyst. His analytical experience includes covering a broad range of industries and special situations. Mr. Andrews is also the lead portfolio manager of Wanger Select, a mutual fund underlying variable insurance products. Prior to joining CWAM, Mr. Andrews was a senior analyst at Rothschild Investment Corporation. The SAI provides additional information about Mr. Andrews' compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. 22 Managing the Fund Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 23 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed mid-sized and larger companies that it believes are not as well known by financial analysts as the largest companies and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from these trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
GROWTH POTENTIAL FINANCIAL STRENGTH FUNDAMENTAL VALUE - -------------------------------------------------------------------------------------------------------------------------- o superior technology o low debt o reasonable stock price relative o innovative marketing o adequate working capital to growth potential and o managerial skill o conservative accounting practices financial strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an attractive potential would likely produce greater flexibility to pursue strategic company, it identifies a price that it superior performance that is objectives and is important to maintaining believes would also make the stock a good sustainable over time. a competitive advantage. value. - --------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). However, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 24 Other Investment Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 25 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's Class A, Class B and Class C shares fiscal years since inception, which run from January 1 to December 31, unless otherwise indicated. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - --------------------------------------------------------------------------------------------------------------------------------- Columbia Acorn Select - ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000(a) Class A Class A Class A Class A Class A - --------------------------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period ($) 18.01 13.93 15.17 14.12 13.47 - --------------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income (loss)(b) (0.16) (0.20) (0.16) (0.10) (0.01) Net realized and unrealized gain (loss) 3.42 4.37 (1.08) 1.18 0.86 - --------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.26 4.17 (1.24) 1.08 0.85 - --------------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income -- -- -- -- (0.01) From net realized gains (0.44) (0.09) -- (0.03) (0.19) - --------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.44) (0.09) -- (0.03) (0.20) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 20.83 18.01 13.93 15.17 14.12 - --------------------------------------------------------------------------------------------------------------------------------- Total Return (%)(c) 18.16(d) 29.95 (8.17)(d) 7.65(d) 6.32(e) - --------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses 1.47(f) 1.63(f) 1.70(f) 1.70 1.61(f)(g)(h) Net investment income (loss) (0.86)(f) (1.15)(f) (1.11)(f) (0.79) (0.62)(f)(g)(h) Reimbursement 0.02 -- 0.10 0.18 -- Portfolio turnover rate (%) 34 16 40 82 116 Net assets at end of period (000's) ($) 515,842 264,679 31,742 11,900 3,267 (a) Class A shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 0.76% and 0.23% respectively, were revised to reflect all class specific expenses in this period.
26 Financial Highlights - ---------------------------------------------------------------------------------------------------------------------------------- Columbia Acorn Select - ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000(a) Class B Class B Class B Class B Class B - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period ($) 17.64 13.73 15.05 14.10 13.47 - ---------------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(b) (0.31) (0.29) (0.25) (0.20) (0.01) Net realized and unrealized gain (loss) 3.34 4.29 (1.07) 1.18 0.84 - ---------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.03 4.00 (1.32) 0.98 0.83 - ---------------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income -- -- -- -- (0.01) From net realized gains (0.44) (0.09) -- (0.03) (0.19) - ---------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.44) (0.09) -- (0.03) (0.20) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 20.23 17.64 13.73 15.05 14.10 - ---------------------------------------------------------------------------------------------------------------------------------- Total Return (%)(c) 17.24(d) 29.14 (8.77)(d) 6.95(d) 6.17(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses 2.26(f) 2.28(f) 2.35(f) 2.35 2.26(f)(g)(h) Net investment loss (1.65)(f) (1.80)(f) (1.76)(f) (1.44) (1.27)(f)(g)(h) Reimbursement 0.02 -- 0.10 0.18 -- Portfolio turnover rate (%) 34 16 40 82 116(e) Net assets at end of period (000's) ($) 185,545 118,064 33,106 13,358 4,249 (a) Class B shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.41% and (0.42)% respectively, were revised to reflect all class specific expenses in this period.
27 Financial Highlights - ---------------------------------------------------------------------------------------------------------------------------------- Columbia Acorn Select - ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2004 2003 2002 2001 2000(a) Class C Class C Class C Class C Class C - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period ($) 17.64 13.73 15.05 14.10 13.47 - ---------------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment loss(b) (0.30) (0.30) (0.25) (0.20) (0.01) Net realized and unrealized gain (loss) 3.33 4.30 (1.07) 1.18 0.84 - ---------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.03 4.00 (1.32) 0.98 0.83 - ---------------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income -- -- -- -- (0.01) From net realized gains (0.44) (0.09) -- (0.03) (0.19) - ---------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.44) (0.09) -- (0.03) (0.20) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value -- End of period ($) 20.23 17.64 13.73 15.05 14.10 - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(%)(c) 17.24(d) 29.14 (8.77)(d) 6.95(d) 6.17(e) - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses 2.25(f) 2.28(f) 2.35(f) 2.35 2.26(f)(g)(h) Net investment loss (1.64)(f) (1.80)(f) (1.76)(f) (1.44) (1.27)(f)(g)(h) Reimbursement 0.02 -- 0.10 0.18 -- Portfolio turnover rate (%) 34 16 40 82 116(e) Net assets at end of period (000's) ($) 110,435 64,212 10,919 4,945 1,070 (a) Class C shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios or expenses and net investment loss to average net assets, previously reported as 1.41% and (0.42)% respectively, were revised to reflect all class specific expenses in this period.
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-------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 31 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly Liberty Acorn Trust): 811-01829 o Columbia Acorn Select (formerly Liberty Acorn Twenty) - -------------------------------------------------------------------------------- [LOGO] ColumbiaFunds A Member Of Columbia Management Group (C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.345.6611 www.columbiafunds.com - ------------------------------------------------------------------------------ Columbia Acorn International Select Prospectus, May 1, 2005 - ------------------------------------------------------------------------------ Class Z Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - ------------------------------------------------------------------------------ Investment Goal .......................................................... 2 Principal Investment Strategies .......................................... 2 Principal Investment Risks ............................................... 2 Performance History ...................................................... 4 Your Expenses ............................................................ 5 YOUR ACCOUNT 7 - ------------------------------------------------------------------------------ How to Buy Shares ........................................................ 7 Eligible Investors ....................................................... 8 Sales Charges ............................................................ 9 How to Exchange Shares ................................................... 10 How to Sell Shares ....................................................... 10 Fund Policy on Trading of Fund Shares and Redemption Fees ................ 11 Intermediary Compensation................................................. 13 Other Information About Your Account ..................................... 14 BOARD OF TRUSTEES 16 - ------------------------------------------------------------------------------ MANAGING THE FUND 17 - ------------------------------------------------------------------------------ Investment Adviser ....................................................... 17 Portfolio Managers ....................................................... 17 Legal Proceedings......................................................... 18 OTHER INVESTMENT STRATEGIES AND RISKS 19 - ------------------------------------------------------------------------------ The Information Edge ..................................................... 19 Long-Term Investing ...................................................... 19 Derivative Strategies .................................................... 20 Temporary Defensive Strategies ........................................... 20 FINANCIAL HIGHLIGHTS 21 - ------------------------------------------------------------------------------ Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information. Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn International Select seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn International Select generally invests in the stocks of medium- to larger-sized companies based in developed markets (for example, Japan, Canada and United Kingdom) outside the U.S. The Fund invests in at least three countries. The Fund is a diversified fund that takes advantage of its adviser's research and stock-picking capabilities to invest in a limited number of foreign companies (between 40-60), offering the potential to provide above-average growth over time. The Fund invests primarily in companies with market capitalizations of $2 to $25 billion at the time of initial purchase. The Fund believes that companies within this capitalization range, which are not as well known by financial analysts, may offer higher return potential than the stocks of companies with capitalizations above $25 billion. Columbia Acorn International Select typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give the company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. Columbia Acorn International Select is an international fund and, under normal circumstances, invests at least 80% of its net assets (plus any borrowings for investment purposes) in the stocks of foreign companies based in developed markets outside the U.S. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser'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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times the Fund may have a significant 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 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. Market timers. Because the Fund invests predominantly in foreign securities, the Fund may be particularly susceptible to market timers. Market timers generally attempt to take advantage of the way the Fund prices its shares by trading based on market information they expect will lead to a change in the Fund's net asset value on the next pricing day. Market timing activity may be disruptive to Fund management and, since a market timer's profits are effectively paid directly out of the Fund's assets, may negatively impact the investment returns of other shareholders. Although the Fund has adopted certain policies and methods intended to identify and discourage frequent trading based on this strategy, it cannot ensure that all such activity can be identified or terminated. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. An investment in the 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. 3 The Fund PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of a broad measure of market performance for one year, five years and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements. If these arrangements had not been in place, then performance would have been lower. Any expense reduction arrangements may be discontinued at any time. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class Z share performance for each completed calendar year since the Fund commenced operations. They include the effects of Fund expenses. Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five year and for life of the Fund periods. They include the effects of Fund expenses. The Fund's returns are compared to the Citigroup World ex-U.S. Cap Range $2-10 Billion Index (Citigroup Cap Range $2-10B). The Citigroup Cap Range $2-10B is Citigroup's two to ten billion U.S. dollar security market subset of its Broad Market Index. It represents a midcap developed market index, excluding the U.S. Unlike the Fund, an index is not an investment, does not incur fees, expenses or taxes, and is not professionally managed. -------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class Z)(1) - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 81.60% 2000 -13.35% 2001 -29.05% 2002 -14.89% 2003 41.79% 2004 24.14% For the periods shown in bar chart: Best quarter: 4th quarter 1999, +46.65% Worst quarter: 3rd quarter 2001, -22.80% After tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. 4 The Fund
- ----------------------------------------------------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004(1) - ----------------------------------------------------------------------------------------------------------------------------- Inception Life of Date 1 Year 5 Years the Fund Class Z (%) 11/23/98 Return Before Taxes 24.14 (1.63) 10.50 Return After Taxes on Distributions 24.23 (1.68) 10.44 Return After Taxes on Distributions and Sale of Fund Shares 15.95 (1.38) 9.21 - ----------------------------------------------------------------------------------------------------------------------------- Citigroup Cap Range $2-10B(2) (%) N/A 25.22 6.21 8.16 (1) The Fund's performance during 1999 was achieved in a period of unusual market conditions. (2) Performance information is from November 23, 1998.
YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions -------------------------------------------------------------------------- 5 The Fund - -------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - -------------------------------------------------------------------------------- Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) None - -------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) None - -------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) 2.00(2)(3) (1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent. (2) Charged only when selling or exchanging shares you have owned for 60 days or less. For more information, see "Fund Policy on Trading of Fund Shares and Redemption Fees." (3) There is a $7.50 charge for wiring sale proceeds to your bank. - -------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from Fund assets) - -------------------------------------------------------------------------------- Management fees(1)(2) (%) 0.94 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses(3) (%) 0.73 - -------------------------------------------------------------------------------- Total annual fund operating expenses(4) (%) 1.67 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rate: 0.94%. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rate set forth above. If the fee waiver had not been implemented as noted above, actual expenses of the Fund would be as follows: management fee, 0.95%; and total operating expenses, 1.68%. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this arrangement had not been in place, total annual fund operating expenses would have been 1.70%. (4) The Fund's adviser has voluntarily agreed to reimburse the Fund for any ordinary operating expenses (exclusive of distribution and service fees, interest, taxes and extraordinary expenses, if any) exceeding 1.45% of the average annual net assets for Class Z. This arrangement may be modified or terminated by either the Fund or the adviser on 30 days' notice. As a result, the actual total annual Fund operating expenses for Class Z shares would be 1.45%. - -------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - -------------------------------------------------------------------------------- 1 Year 3 Years 5 Years 10 Years $170 $533 $920 $2,006 6 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described below), when the Fund receives your purchase request in "good form," your shares will be bought at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with Columbia Funds Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. 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 or Class A of the Fund at no additional cost. To exchange by telephone, call 1-800-422-3737. Please see "How to Exchange Shares" for more information. - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing account) statement, or send a letter of instruction including the Fund name and account number with a check made payable to the Fund and mailed to Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By exchange You 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 or Class A shares 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 You may purchase shares of the Fund by electronically transferring money from your bank account to your funds transfer Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days to (existing account) 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 ($50 minimum) automatically from your bank account to your investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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 another fund into the same class of shares of the diversification Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611.
7 Your Account ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z Shares of the Funds generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements. Important Things to Consider When Deciding on a Class of Shares: Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in the Fund in connection with different pricing options for their programs. Investors should consider carefully any separate transaction and other fees charged by these programs in connection with investing in each available share class before selecting a share class. Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. Eligible Investors and their applicable investment minimums are as follows: No minimum initial investment o Any client of Bank of America Corporation or a subsidiary (for shares purchased through an asset management company, trust, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary); o Any retirement plan for which an intermediary or other entity provides services and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; o Investors purchasing through Columbia Management Group state tuition plans organized under Section 529 of the Internal Revenue Code; or o 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. $1,000 minimum initial investment o 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.; 8 Your Account o Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Funds Distributor, Inc.; o Any employee (or family member of an employee) of Bank of America Corporation or its subsidiaries; o Any investor participating in an account offered by an intermediary or other entity that provides services to such account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agents; or o Any insurance company, trust company, bank, endowment, investment company or foundation purchasing shares for its own account. 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 $50 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. SALES CHARGES - -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers one class of shares in this prospectus -- Class Z. The Fund also offers three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each other share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. 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. -------------------------------------------------------------------------- If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. 9 Your Account HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- Generally, you may exchange your 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 at no additional charge. However, if you exchange shares of Columbia Acorn International Select that you have owned 60 days or less for shares of a fund distributed by Columbia Funds Distributor, Inc. that does not have a redemption fee (including Columbia Acorn Fund, Columbia Acorn USA and Columbia Acorn Select), the Fund will charge you a redemption fee of 2% of the redemption proceeds. Exchanges between Columbia Acorn International and Columbia Acorn International Select (or a fund distributed by Columbia Funds Distributor, Inc. that has a redemption fee) will not be subject to the 2% redemption fee. You also may exchange your Class Z shares of any Fund for Class Z shares, or, if there are no Class Z shares, Class A shares of certain other funds distributed by Columbia Funds Distributor, Inc., at net asset value without a sales charge. 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 Funds may terminate your exchange privilege if the adviser in its discretion determines that your exchange activity may adversely impact its ability to manage the Funds. See "Fund Policy on Trading of Fund Shares and Redemption Fees" 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 - -------------------------------------------------------------------------------- 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, and (ii) 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 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. 10 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's financial advisor price, your financial advisor firm 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 by exchanging from the Fund into Class Z shares or Class A shares 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 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 ($50 minimum) or percentage of your account on a withdrawal plan monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. 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 proceeds be electronically transferred to your funds transfer 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.
FUND POLICY ON TRADING OF FUND SHARES AND REDEMPTION FEES - -------------------------------------------------------------------------------- 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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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. 11 Your Account The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, the Fund imposes 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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. The Funds will assess, subject to limited exceptions, a 2.00% redemption fee on the proceeds of Fund shares that are redeemed (either by selling shares or exchanging into another Columbia Fund) within 60 days of their purchase. The redemption fee is paid to the Fund. The redemption fee is imposed on Fund shares redeemed (including redemptions by exchange) within 60 days of purchase. In determining which shares are being redeemed, we generally apply a first-in, first-out approach. For Fund shares acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to assess the redemption fee. The redemption fee will not be imposed if you qualify for a waiver and the Fund has received proper notification, unless the waiver is automatic as noted below. We'll redeem any shares that are eligible for a waiver first. 12 Your Account A Fund shareholder won't pay an otherwise applicable redemption fee on any of the following transactions: o shares sold following the death or disability (as defined in the tax code) of the shareholder, including a registered joint owner o shares sold by or distributions from participant directed retirement plans, such as 401(k), 403(b), 457, Keogh, profit sharing, and money purchase pension accounts, where the Fund does not have access to information about the individual participant account activity, except where the Fund has received an indication that the plan administrator is able to assess the redemption fee to the appropriate accounts (automatic) o shares sold by certain investment funds, including those that Columbia Management Advisors or its affiliates may manage (automatic) o shares sold as part of an automatic rebalancing within an asset allocation program or by certain wrap programs where the program sponsor has provided assurances reasonably satisfactory to the Fund that the program is not designed to be a vehicle for market timing o shares sold by accounts maintained by a financial institution or intermediary where the Fund has received information reasonably satisfactory to the Fund indicating that the financial institution or intermediary is unable for administrative reasons to assess the redemption fee to underlying shareholders o shares sold by an account which has demonstrated a hardship, such as a medical emergency, as determined in the absolute discretion of the Fund o shares that were purchased by reinvested dividends (automatic) o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following retirement (or following attainment of age 591/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an individual retirement account (IRA) or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 591/2 The Fund also has the discretion to waive the 2.00% redemption fee if the Fund is in jeopardy of failing the 90% income test or losing its RIC qualification for tax purposes. As described above, certain intermediaries do not assess redemption fees to certain categories of redemptions that do not present significant market timing concerns (such as automatic withdrawal plan redemptions). In these situations, the Fund's ability to assess redemption fees is generally limited by the intermediary's policies and, accordingly, no redemption fees will be assessed on such redemptions. INTERMEDIARY COMPENSATION - -------------------------------------------------------------------------------- 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. 13 Your Account 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 adviser, 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 a Fund's Class Z shares is based on their 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 on days the NYSE is closed for trading. When you request a transaction, it will be processed at the net asset value 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 Fund 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 its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the value 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 these 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 for a security are unavailable, or when the adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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. 14 Your Account 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 Funds' 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 Class Z shares. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. Distribution Options The Fund distributes dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. -------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 also may be subject to state and local income taxes. 15 Your Account 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. The Fund's investments in foreign securities may be subject to foreign withholding taxes. You may be entitled to claim a credit or deduction with respect to foreign 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. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. 16 - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P. and its predecessor was named Wanger Asset Management, L.P. CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.95% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Columbia WAM uses a team to assist the lead portfolio managers in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Todd M. Narter Co-portfolio manager Mr. Narter is a vice president of Columbia Acorn International Select and has managed the Fund since September 2001. He has been a member of the international analytical team at CWAM since June 1997. Mr. Narter also is a vice president of Wanger Advisors Trust, and a co-portfolio manager of Wanger International Small Cap and Wanger International Select, two international mutual funds underlying variable insurance products. Prior to joining CWAM, Mr. Narter spent seven years working in Japan in the electronics industry, mainly as a product manager for Teradyne. The SAI provides additional information about Mr. Narter's compensation, other accounts he manages and his ownership of securities in the Fund. Christopher J. Olson Co-portfolio manager Mr. Olson is a vice president of Columbia Acorn International Select and has managed the Fund since September 2001. He has been a member of the international analytical team at CWAM since January, 2001. Mr. Olson also is a vice president of Wanger Advisors Trust, and a co-portfolio manager of Wanger International Small Cap and Wanger International Select, two international mutual funds underlying variable insurance products. Prior to joining CWAM, Mr. Olson was most recently a director and portfolio strategy analyst with UBS Asset Management/Brinson Partners. The SAI provides additional information about Mr. Olson's compensation, other accounts he manages and his ownership of securities in the Fund. 17 Managing the Fund LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 18 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed mid-sized and larger companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from those trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------------------------------------------------- o superior technology o low debt o reasonable stock price relative to o innovative marketing o adequate working capital growth potential and financial o managerial skill o conservative accounting practices strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an potential would likely produce greater flexibility to pursue strategic attractive company, it identifies a superior performance that is objectives and is important to maintaining price that it believes would also make sustainable over time. a competitive advantage. the stock a good value. - -------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). However, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 19 Other Investments Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 20 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last five fiscal years, which run from January 1 to December 31. Certain information in the table reflects the financial results for a single Class Z share. The total returns in the table represent the return 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 have been audited by for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - ------------------------------------------------------------------------------------------------------------------------------- Columbia Acorn International Select - -------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2004 2003 2002 2001 2000 Class Z Class Z Class Z Class Z Class Z - ------------------------------------------------------------------------------------------------------------------------------- Net asset value -- beginning of period ($) 14.58 10.29 12.09 17.15 19.93 - ------------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations ($) Net investment income (loss)(a) 0.04 0.06 0.03 (0.05) (0.11) Net realized and unrealized gain (loss) 3.47 4.24 (1.83) (4.92) (2.53) - ------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 3.51 4.30 (1.80) (4.97) (2.64) - ------------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.07) (0.01) -- (0.01) (0.04) From net realized gains -- -- -- (0.08) (0.10) - ------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.07) (0.01) -- (0.09) (0.14) - ------------------------------------------------------------------------------------------------------------------------------- Redemption Fees Redemption fees added to paid in capital --(a)(b) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Net asset value -- end of period ($) 18.02 14.58 10.29 12.09 17.15 - ------------------------------------------------------------------------------------------------------------------------------- Total return (%)(c) 24.14(d) 41.79(c) (14.89)(c) (29.05)(c) (13.35) - ------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(e) 1.45 1.45 1.45 1.45 1.33 Net investment income (loss)(e) 0.27 0.56 (0.26) (0.32) (0.42) Reimbursement 0.29 0.42 0.33 0.01 -- Portfolio turnover rate (%) 73 69 102 82 79 Net assets at end of period (000's) ($) 46 34 26 37 130 (a) Per share data was calculated using average shares outstanding during the period. (b) Rounds to less than $0.01 per share. (c) Total return at net asset value assuming all distributions reinvested. (d) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) The benefits derived from custody fees paid indirectly had no impact.
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-------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly Liberty Acorn Trust): 811-01829 o Columbia Acorn International Select (formerly named Liberty Acorn Foreign Forty) - ------------------------------------------------------------------------------ [LOGO] ColumbiaFunds A Member of Columbia Management Group (c)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com - -------------------------------------------------------------------------------- Columbia Acorn International Select Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class A, B and C Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - -------------------------------------------------------------------------------- Investment Goal ............................................................. 2 Principal Investment Strategies ............................................. 2 Principal Investment Risks .................................................. 2 Performance History ......................................................... 4 Your Expenses ............................................................... 5 YOUR ACCOUNT 7 - -------------------------------------------------------------------------------- How to Buy Shares ........................................................... 7 Sales Charges ............................................................... 8 Payments to Your Financial Advisor .......................................... 13 How to Exchange Shares ...................................................... 13 How to Sell Shares .......................................................... 14 Fund Policy on Trading of Fund Shares ....................................... 15 Distribution and Service Fees ............................................... 17 Other Information About Your Account ........................................ 18 BOARD OF TRUSTEES 21 - -------------------------------------------------------------------------------- MANAGING THE FUND 22 - -------------------------------------------------------------------------------- Investment Adviser .......................................................... 22 Portfolio Managers .......................................................... 22 Legal Proceedings ........................................................... 23 OTHER INVESTMENT STRATEGIES AND RISKS 24 - -------------------------------------------------------------------------------- The Information Edge ........................................................ 24 Long-Term Investing ......................................................... 24 Derivative Strategies ....................................................... 25 Temporary Defensive Strategies .............................................. 25 FINANCIAL HIGHLIGHTS 26 - -------------------------------------------------------------------------------- Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Acorn International Select seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Acorn International Select invests generally primarily in the stocks of medium- to larger-sized companies based in developed markets (for example, Japan, Canada and United Kingdom) outside the U.S. The Fund invests in at least three countries. The Fund is a diversified fund that takes advantage of its adviser's research and stockpicking capabilities to invest in a limited number of foreign companies (between 40-60), offering the potential to provide above-average growth over time. The Fund invests primarily in companies with market capitalizations of $2 billion to $25 billion, at the time of initial purchase. The Fund believes that companies within this capitalization range, which are not as well known by financial analysts, may offer higher return potential than the stocks of companies with capitalizations above $25 billion. Columbia Acorn International Select typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give the company a competitive advantage. o A stock price the Fund's investment adviser believes is reasonable relative to the assets and earning power of the company. Columbia Acorn International Select is an international fund and, under normal circumstances, invests at least 80% of its net assets in the stocks of foreign companies based in developed markets outside the U.S. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk means that the adviser's other 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 the Fund purchases equity securities, it is 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. 2 The Fund Sector risk may sometimes be present in the Fund's investments. 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 the Fund does not intend to focus on any particular sector, at times, the Fund may have a significant 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 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. Market timers. Because the Fund invests predominantly in foreign securities, the Fund may be particularly susceptible to market timers. Market timers generally attempt to take advantage of the way the Fund prices its shares by trading based on market information they expect will lead to a change in the Fund's net asset value on the next pricing day. Market timing activity may be disruptive to Fund management and, since a market timer's profits are effectively paid directly out of the Fund's assets, may negatively impact the investment returns of other shareholders. Although the Fund has adopted certain policies and methods intended to identify and discourage frequent trading based on this strategy, it cannot ensure that all such activity can be identified or terminated. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Smaller companies, including small- and medium-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. An investment in the 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. 3 The Fund PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of a broad measure of market performance for one year and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class A share performance for each completed calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower. Average Annual Total Returns are a measure of the Fund's average performance over the past one-year and for the life of the Fund. The table shows returns of each share class and includes the effects of both fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges"). The Fund's returns are compared to the Citigroup World ex-U.S. Cap Range $2-10 Billion Index (Citigroup Cap Range 2-10B). The Citigroup Cap Range $2-10B is Citigroup's two to ten billion U.S. dollar security market subset of its Broad Market Index. It represents a midcap developed market index, excluding the U.S. Unlike the Fund, an index is not an investment, does not incur fees, expenses or taxes, and is not professionally managed. -------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A)(1) - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 -29.17% 2002 -15.16% 2003 41.11% 2004 23.76% For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +19.55% Worst quarter: 3rd quarter 2001, -22.88% 4 The Fund After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. - -------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004(1) - --------------------------------------------------------------------------------
Inception Life of Date 1 Year the Fund Class A (%) 10/16/00 Return Before Taxes 16.64 (1.02) Return After Taxes on Distributions 16.77 (0.99) Return After Taxes on Distributions and Sale of Fund Shares 11.01 (0.82) - ---------------------------------------------------------------------------------------------------------------- Class B (%) 10/16/00 Return Before Taxes 17.95 (0.79) Return After Taxes on Distributions 18.12 (0.76) Return After Taxes on Distributions and Sale of Fund Shares 11.84 (0.62) - ---------------------------------------------------------------------------------------------------------------- Class C (%) 10/16/00 Return Before Taxes 21.91 (0.29) Return After Taxes on Distributions 22.09 (0.26) Return After Taxes on Distributions and Sale of Fund Shares 14.41 (0.20) - ---------------------------------------------------------------------------------------------------------------- Citigroup Cap Range $2-10B(2) (%) N/A 25.22 9.84 - ---------------------------------------------------------------------------------------------------------------- (1) Performance may reflect any voluntary waiver or reimbursement of Fund expenses by the adviser or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. (2) Performance information is from October 31, 2000.
YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions o Class B shares convert to Class A shares after eight years -------------------------------------------------------------------------- 5 The Fund - ---------------------------------------------------------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - ----------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 None None - ---------------------------------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 1.00(2) 5.00 1.00 - ---------------------------------------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(3)(,4) None(3),(4) None(3),(4) (1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. (2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (3) There is a $7.50 charge for wiring sale proceeds to your bank. (4) A redemption fee of 2.00% may be charged on shares that were owned for 60 days or less. For more information, see "Fund Policy on Trading of Fund Shares" below. - ---------------------------------------------------------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted directly from fund assets) - ---------------------------------------------------------------------------------------------------------------------------------- Class A Class B Class C Management fees(1)(2) (%) 0.94 0.94 0.94 - ---------------------------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25 0.85 1.00 - ---------------------------------------------------------------------------------------------------------------------------------- Other expenses(3) (%) 0.79 0.98 0.78 - ---------------------------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses(4) (%) 1.98 2.77 2.72 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) In accordance with the terms of the NYAG Settlement (as defined and discussed further under "Legal Proceedings"), the management fee has been restated to reflect a waiver by the adviser of a portion of the management fees for the Fund so that those fees are retained at the following rate: 0.94%. The fee waiver was effective as of February 10, 2005 but applied as if it had gone into effect on December 1, 2004. At a board meeting scheduled for March, the Board of Trustees will be asked to amend the advisory contract to reflect the reduced fee rate set forth above. If the fee waiver had not been implemented as noted above, the Fund's actual management fee would be 0.95% and total operating expenses would be 1.99%, 2.78%, and 2.73% for Class A, B, and C shares, respectively. (3) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. The Fund's adviser and/or affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. If this arrangement had not been in place, total annual fund operating expenses for Classes A, B and C would have been 2.01%, 2.80% and 2.75%, respectively. (4) The Fund's adviser has voluntarily agreed to reimburse the Fund for any ordinary operating expenses (exclusive of distribution and service fees, interest, taxes and extraordinary expenses, if any) exceeding 1.45% of the average annual net assets for Class A, Class B and Class C, respectively. This arrangement may be modified or terminated by either the Fund or its adviser on 30 days' notice. As a result, the actual total annual Fund operating expenses for Class A, B and C shares would be [1.80%, 2.45% and 2.45%], respectively. - ---------------------------------------------------------------------------------------------------------------------------------- Example Expenses for a $10,000 investment (your actual costs may be higher or lower) - ---------------------------------------------------------------------------------------------------------------------------------- Class 1 Year 3 Years 5 Years 10 Years Class A: $ 764 $ 1,167 $ 1,593 $ 2,776 - ---------------------------------------------------------------------------------------------------------------------------------- Class B: did not sell your shares $ 280 $ 865 $ 1,476 $ 2,938 sold all your shares at the end of the period $ 780 $ 1,165 $ 1,676 $ 2,938 - ---------------------------------------------------------------------------------------------------------------------------------- Class C: did not sell your shares $ 275 $ 850 $ 1,452 $ 3,078 sold all your shares at the end of the period $ 375 $ 850 $ 1,452 $ 3,078
6 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. -------------------------------------------------------------------------- INVESTMENT MINIMUMS Initial Investment................................................ $1,000 Subsequent Investments............................................ $ 50 Automatic Investment Plan*........................................ $ 50 Retirement Plans*................................................. $ 25 * 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. -------------------------------------------------------------------------- 7 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing 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 (and, in some cases, certain other classes) 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 You may purchase shares of the Fund by electronically transferring money from your bank account to your funds transfer Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days (existing account) 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 ($50 minimum) automatically from your bank account to investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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. There may be an additional sales charge if exchanging from a money market fund. Be sure to complete the appropriate section of the account application for this feature. - ----------------------------------------------------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by another fund into the same class of shares (and, diversification in some cases, certain other classes) of the Fund at no additional sales charge. To invest your dividends in the Fund, call 1-800-345-6611.
SALES CHARGES - -------------------------------------------------------------------------------- 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 reduced or waived, as described below and in the Statement of Additional Information. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class 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 also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. -------------------------------------------------------------------------- 8 Your Account 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. - -------------------------------------------------------------------------------- Class A Sales Charges - -------------------------------------------------------------------------------- % of offering price As a retained by % of the As a % of financial Amount of purchase offering price your 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 In addition to the initial sales charge paid to your financial advisor and distributor, a 0.25% annual commission is paid to your financial advisor over the life of your investment out of your Fund assets as a 12b-1 fee. The Fund's distributor may also pay additional compensation to financial advisors as an incentive for promoting the sale of shares of funds that the distributor distributes. 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 or 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 - -------------------------------------------------------------------------------- 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 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. 9 Your Account -------------------------------------------------------------------------- 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 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. A. What are the principal ways to obtain a breakpoint discount? There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds. Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price. Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. 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. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by the Fund. B. What accounts are eligible for breakpoint discounts? The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include: o Individual accounts o Joint accounts o Certain IRA accounts o Certain trusts o UTMA/UGMA accounts 10 Your Account For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depends on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? 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. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com. Class B shares Your purchases of Class B shares are 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 the 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. In addition, Class B shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. Purchases of less than $250,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 11 Your Account Up-front commission to financial advisors is 4.00% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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 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 receive 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. Purchases of $250,000 to less than $500,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 Up-front commission to financial advisors is 2.50% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically four years after purchase. Purchases of $500,000 to less than $1 million: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 Up-front commission to financial advisors is 1.75% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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 who does not participate in the program to one who does, the exchanged or transferred 12 Your Account 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 who does participate in the program into a fund or to a financial advisor who does not, 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. 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. In addition, Class C shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 A 1.00% annual commission is paid to your financial advisor and the distributor over the life of your investment out of your Fund assets. PAYMENTS TO YOUR FINANCIAL ADVISOR - -------------------------------------------------------------------------------- Normally your financial advisor receives certain initial and ongoing payments based on your purchase and continued holding of shares of the Fund as described above under "Sales Charges." For specific details on those payments or any other payments that may be received, you should contact your financial advisor. 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 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. Shareholders of Columbia Acorn Funds that qualify to purchase Class A shares at net asset value may exchange their Class A shares for Class Z shares of another fund distributed by Columbia Funds Distributor, Inc. (see the Statement of Additional Information for a description of these situations.) 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 adviser 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. Please have your account and taxpayer identification numbers available when calling. 13 Your Account 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 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. 14 Your Account - ---------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - ----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's financial advisor 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. - ---------------------------------------------------------------------------------------------------------------------------- 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 your 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 ($50 minimum) or percentage of your account on a withdrawal plan 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 proceeds be electronically transferred to your funds transfer 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.
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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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. 15 Your Account The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, the Fund imposes 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 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 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. The Funds will assess, subject to limited exceptions, a 2.00% redemption fee on the proceeds of Fund shares that are redeemed (either by selling shares or exchanging into another Columbia Fund) within 60 days of their purchase. The redemption fee is paid to the Fund. The redemption fee is imposed on Fund shares redeemed (including redemptions by exchange) within 60 days of purchase. In determining which shares are being redeemed, we generally apply a first-in, first-out approach. For Fund shares acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to assess the redemption fee. The redemption fee will not be imposed if you qualify for a waiver and the Fund has received proper notification, unless the waiver is automatic as noted below. We'll redeem any shares that are eligible for a waiver first. A Fund shareholder won't pay an otherwise applicable redemption fee on any of the following transactions: o shares sold following the death or disability (as defined in the tax code) of the shareholder, including a registered joint owner 16 Your Account o shares sold by or distributions from participant directed retirement plans, such as 401(k), 403(b), 457, Keogh, profit sharing, and money purchase pension accounts, where the Fund does not have access to information about the individual participant account activity, except where the Fund has received an indication that the plan administrator is able to assess the redemption fee to the appropriate accounts (automatic) o shares sold by certain investment funds, including those that Columbia Management Advisors or its affiliates may manage (automatic) o shares sold as part of an automatic rebalancing within an asset allocation program or by certain wrap programs where the program sponsor has provided assurances reasonably satisfactory to the Fund that the program is not designed to be a vehicle for market timing o shares sold by accounts maintained by a financial institution or intermediary where the Fund has received information reasonably satisfactory to the Fund indicating that the financial institution or intermediary maintaining the account is unable for administrative reasons to assess the redemption fee to underlying shareholders o shares sold by an account which has demonstrated a hardship, such as a medical emergency, as determined in the absolute discretion of the Fund o shares that were purchased by reinvested dividends (automatic) o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following retirement (or following attainment of age 591/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an individual retirement account (IRA) or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 591/2 The Fund also has the discretion to waive the 2.00% redemption fee if the Fund is in jeopardy of failing the 90% income test or losing its RIC qualification for tax purposes. As described above, certain intermediaries do not assess redemption fees to certain categories of redemptions that do not present significant market timing concerns (such as automatic withdrawal plan redemptions). In these situations, the Fund's ability to assess redemption fees is generally limited by the intermediary's policies and, accordingly, no redemption fees will be assessed on such redemptions. DISTRIBUTION AND SERVICE FEES - -------------------------------------------------------------------------------- Rule 12b-1 Plan The Fund has adopted a plan under Rule 12b-1 under the Investment Company Act that permits it to pay its distributor ongoing 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, and your financial advisor may receive all or a portion of those fees attributable to your shares (see "Payments to Your Financial Advisor"). The annual service fee, as a percentage of the value of the shares, is normally 0.25% for 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 Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment and 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 17 Your Account fee upon conversion. Conversion may occur three, four or eight years after purchase, depending on the program you purchased your shares under. See "Your Account -- Sales Charge" for the conversion schedules 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 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 adviser, 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 on days 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 value 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 these 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 18 Your Account which market quotations are available are valued each day at the current market value. However, where market quotations for a security are not available, or when the adviser believes that available market quotations are unreliable, the Fund may use other data to determine a fair value of the security. The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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 account fee of $10. This fee is deducted from the account in June each year. Approximately 60 days prior to the fee date, the Fund's transfer agent will send you written notification of the upcoming fee. If you add money to your account and bring the value above $1,000 prior to the fee date, the fee will not be deducted. 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. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. Distribution Options The Fund distributes dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. -------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- 19 Your Account - -------------------------------------------------------------------------------- Distribution Options - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 also may 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. The Fund's investments in foreign securities may be subject to foreign withholding taxes. You may be entitled to claim a credit or deduction with respect to foreign 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. Foreign Income Taxes The Fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If the Fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce the Fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by the Fund. 20 - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. 21 - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. ( CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is the Fund's investment adviser. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P. and its predecessor was named Wanger Asset Management, L.P. CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.95% of the Fund's average daily net assets. CWAM also received an administrative services fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Columbia WAM uses a team to assist the lead portfolio managers in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilize the management team's input and advice when making buy and sell determinations. Todd Narter Co-portfolio manager Mr. Narter is a vice president of Columbia Acorn International Select and has managed the Fund since September 2001. He has been a member of the international analytical team at CWAM since June 1997. Mr. Narter also is a vice president of Wanger Advisors Trust, and a co-portfolio manager of Wanger International Small Cap and Wanger International Select, two international mutual funds underlying variable insurance products. Prior to joining CWAM, Mr. Narter spent seven years working in Japan in the electronics industry, mainly as a product manager for Teradyne. The SAI provides additional information about Mr. Narter's compensation, other accounts he manages and his ownership of securities in the Fund. Chris Olson Co-portfolio manager Mr. Olson is a vice president of Columbia Acorn International Select and has managed the Fund since September 2001. He has been a member of the international analytical team at CWAM since January 2001. Mr. Olson also is a vice president of Wanger Advisors Trust, and a co-portfolio manager of Wanger International Small Cap and Wanger International Select, two international mutual funds underlying variable insurance products. Prior to joining CWAM, Mr. Olson was most recently a director and portfolio strategy analyst with UBS Asset Management/Brinson Partners. The SAI provides additional information about Mr. Olson's compensation, other accounts he manages and his ownership of securities in the Fund. 22 Managing the Fund LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 23 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- The Fund's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE - -------------------------------------------------------------------------------- The Fund generally invests in entrepreneurially managed mid-sized and larger companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of out-sourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from these trends. In making investments for the Fund, CWAM relies primarily on independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
Growth Potential Financial Strength Fundamental Value - ------------------------------------------------------------------------------------------------------------------------- o superior technology o low debt o reasonable stock price relative o innovative marketing o adequate working capital to growth potential and financial o managerial skill o conservative accounting practices strength o market niche o adequate profit margin o valuable assets o good earnings prospects o strong demand for product The realization of this growth A strong balance sheet gives management Once CWAM uncovers an attractive potential would likely produce greater flexibility to pursue strategic company, it identifies a price that it superior performance that is objectives and is important to maintaining believes would also make the stock a good sustainable over time. a competitive advantage. value. - -------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING - -------------------------------------------------------------------------------- CWAM's analysts continually screen companies and make contact with more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower taxes and transaction costs by investing with a long-term time horizon (at least two to five years). However, securities purchased on a long-term basis may be sold within 12 months after purchase due to changes in the circumstances of a particular company or industry, or changes in general market or economic conditions. 24 Oter Investments Strategies and Risks DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Fund may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 25 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's Class A, Class B and Class C shares fiscal years since inception which run from January 1 to December 31, unless otherwise indicated. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - ------------------------------------------------------------------------------------------------------------------------------ Columbia Acorn International Select - ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2004 2003 2002 2001 2000(a) Class A Class A Class A Class A Class A - ------------------------------------------------------------------------------------------------------------------------------ Net asset value -- Beginning of period ($) 14.45 10.24 12.07 17.15 17.71 - ------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations ($): Net investment loss(b) 0.00(c) 0.03 (0.01) (0.09) (0.03) Net realized and unrealized loss 3.43 4.18 (1.82) (4.90) (0.53) - ------------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 3.43 4.21 (1.83) (4.99) (0.56) - ------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders ($): From net investment income (0.03) -- -- (0.01) -- From net realized gains -- -- -- (0.08) -- - ------------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders (0.03) -- -- (0.09) -- - ------------------------------------------------------------------------------------------------------------------------------ Net asset value -- End of period ($) 17.85 14.45 10.24 12.07 17.15 - ------------------------------------------------------------------------------------------------------------------------------ Total return (%)(d) 23.76(e) 41.11(e) (15.16)(e) (29.17)(e) (3.16)(f) - ------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets (%): Expenses(f) 1.75 1.80 1.80 1.80 1.68(h)(i) Net investment loss(f) (0.03) 0.24 (0.09) (0.67) (1.18)(h)(i) Reimbursement 0.37 0.44 0.33 0.23 -- Portfolio turnover rate (%) 73 69 102 82 79 Net assets at end of period (000's)($) 4,357 2,557 2,612 2,861 3,172 (a) Class A shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the adviser not reimbursed a portion of expenses, total return would have been reduced. (e) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (f) Not annualized. (e) The benefits derived from custody fees paid indirectly had no impact. (h) Annualized. (i) The ratios of expenses and net investment loss to average net assets, previously reported as 1.29% and (0.79)% respectively, were revised to reflect all class specific expenses in this period.
26 Financial Highlights - ------------------------------------------------------------------------------------------------------------------------------ Columbia Acorn International Select - ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2004 2003 2002 2001 2000(a) Class B Class B Class B Class B Class B - ------------------------------------------------------------------------------------------------------------------------------ Net asset value -- Beginning of period ($) 14.12 10.08 11.96 17.13 17.71 - ------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations ($): Net investment loss(b) (0.10) (0.06) (0.08) (0.18) (0.05) Net realized and unrealized loss 3.34 4.10 (1.80) (4.90) (0.53) - ------------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 3.24 4.04 (1.88) (5.08) (0.58) - ------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders ($): From net investment income -- -- -- (0.01) -- From net realized gains -- -- -- (0.08) -- - ------------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders -- -- -- (0.09) -- - ------------------------------------------------------------------------------------------------------------------------------ Net asset value -- End of period ($) 17.36 14.12 10.08 11.96 17.13 - ------------------------------------------------------------------------------------------------------------------------------ Total return (%)(c) 22.95(d) 40.08(d) (15.72)(d) (29.73)(d) (3.27)(e) - ------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets (%): Expenses(f) 2.38 2.45 2.45 2.45 2.33(g)(h) Net investment loss(f) (0.66) (0.52) (0.74) (1.32) (1.83)(g)(h) Reimbursement 0.58 0.44 0.33 0.23 -- Portfolio turnover rate (%) 73 69 102 82 79 Net assets at end of period (000's) ($) 5,097 3,162 1,835 2,069 1,551 (a) Class B shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.94% and (1.44)% respectively, were revised to reflect all class specific expenses in this period.
27 Financial Highlights - ------------------------------------------------------------------------------------------------------------------------------ Columbia Acorn International Select - ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2004 2003 2002 2001 2000(a) Class C Class C Class C Class C Class C - ------------------------------------------------------------------------------------------------------------------------------ Net asset value -- Beginning of period ($) 14.14 10.09 11.97 17.14 17.71 Income from Investment Operations ($): Net investment loss(b) (0.11) (0.05) (0.08) (0.18) (0.05) Net realized and unrealized loss 3.35 4.10 (1.80) (4.90) (0.52) - ------------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 3.24 4.05 (1.88) (5.08) (0.57) - ------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders ($): From net investment income -- -- -- (0.01) -- From net realized gains -- -- -- (0.08) -- - ------------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders -- -- -- (0.09) -- - ------------------------------------------------------------------------------------------------------------------------------ Net asset value -- End of period ($) 17.38 14.14 10.09 11.97 17.14 - ------------------------------------------------------------------------------------------------------------------------------ Total return (%)(c) 22.91(d) 40.14(d) (15.71)(d) (29.71)(d) (3.22)(e) - ------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets (%): Expenses(f) 2.45 2.45 2.45 2.45 2.33(g)(h) Net investment loss(f) (0.73) (0.41) (0.74) (1.32) (1.83)(g)(h) Reimbursement 0.35 0.44 0.33 0.23 -- Portfolio turnover rate (%) 73 69 102 82 79 Net assets at end of period (000's)($) 2,543 3,691 2,915 3,885 3,399 (a) Class C shares were initially offered on October 16, 2000. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody fees paid indirectly had no impact. (g) Annualized. (h) The ratios of expenses and net investment loss to average net assets, previously reported as 1.94% and (1.44)% respectively, were revised to reflect all class specific expenses in this period.
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-------------------------------------------------------------------------------- 31 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments is available in the Fund's semiannual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly named Liberty Acorn Trust): 811-01829 o Columbia Acorn International Select (formerly named Liberty Acorn Foreign Forty) - -------------------------------------------------------------------------------- [LOGO] ColumbiaFunds A Member of Columbia Management Group (C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.345.6611 www.columbiafunds.com - -------------------------------------------------------------------------------- Columbia Thermostat Fund Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class Z Shares Advised by Columbia Wanger Asset Management, L.P. - -------------------------------------------------------------------------------- TABLE OF CONTENTS THE FUND 2 - -------------------------------------------------------------------------------- Investment Goal ............................................................. 2 Principal Investment Strategies.............................................. 2 Principal Investment Risks................................................... 8 Performance History.......................................................... 11 Your Expenses................................................................ 13 YOUR ACCOUNT 15 - -------------------------------------------------------------------------------- How to Buy Shares............................................................ 15 Eligible Investors........................................................... 16 Sales Charges................................................................ 17 How to Exchange Shares....................................................... 18 How to Sell Shares........................................................... 18 Fund Policy on Trading of Fund Shares........................................ 19 Intermediary Compensation.................................................... 20 Other Information About Your Account......................................... 21 BOARD OF TRUSTEES 24 - -------------------------------------------------------------------------------- MANAGING THE FUND 25 - -------------------------------------------------------------------------------- Investment Adviser........................................................... 25 Portfolio Managers........................................................... 25 Legal Proceedings............................................................ 26 OTHER INVESTMENT STRATEGIES AND RISKS 27 - -------------------------------------------------------------------------------- Derivative Strategies........................................................ 27 When-Issued Securities and Forward Commitments............................... 27 Short Sales.................................................................. 27 Asset-Backed Securities...................................................... 28 Temporary Defensive Strategies............................................... 29 FINANCIAL HIGHLIGHTS 30 - -------------------------------------------------------------------------------- APPENDIX A 31 - -------------------------------------------------------------------------------- Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information. Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Thermostat Fund seeks to provide long-term total return. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Thermostat Fund (Thermostat or the Fund) pursues its investment goal by investing in other mutual funds. As a "fund of funds," under normal circumstances, Thermostat allocates at least 95% of its net assets (Stock/Bond Assets) among a selected group of stock and bond mutual funds (Portfolio Funds) according to the current level of the Standard & Poor's 500 Stock Index (S&P 500) in relation to predetermined ranges set by the Fund's investment adviser. When the S&P 500 goes up, the Fund sells a portion of its stock funds and invests more in the bond funds; and when the S&P 500 goes down, the Fund increases its investment in the stock funds. Under normal circumstances, Thermostat may invest up to 5% of its net assets plus any cash received that day in cash, high quality short-term paper and government securities. Asset allocation funds generally move assets from stocks to bonds when the market goes up, and from bonds to stocks when the market goes down. Most asset allocation funds are run by sophisticated investment professionals who make subjective decisions based on economic and financial data and complex graphs of market behavior. By contrast, the day-to-day investment decisions for Thermostat will be made according to a single predetermined rule. The temperature in your house is run by a single rule; your thermostat turns on the furnace if your house is too cold or turns on the air conditioner if your house is too warm. This Fund works the same way, so it is named Columbia Thermostat Fund. Because Thermostat invests according to a pre-set program, there is no need for subjective day-to-day management. Although another successful asset allocation strategy might do better than Thermostat, Thermostat is designed for those who doubt the wisdom of trying to "time" the market and are unsure of the long-term trend of the stock market. Thermostat takes psychology out of investing; it avoids the temptation to buy more stocks because the stock market is currently going up or to sell stocks because the market is declining. Thermostat operates continuously and substantially automatically, subject to periodic review of the pre-set program by the Fund's adviser and its board of trustees. As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the structure and allocation ranges of the stock-bond allocation table and to make any changes considered appropriate. The Portfolio Funds are chosen by Thermostat's adviser to provide participation in the major sectors of the domestic stock and bond markets. If you believe that the stock market will tend to go up most of the time, then you should probably own a fully-invested stock fund and use a buy-and-hold strategy. Buy-and-hold was an excellent strategy in the 1982-1999 bull market. However, there have been long periods in the past when buy-and-hold was not the best strategy, such as 1930-1954 and 1969-1981, when the market fluctuated but did not make significant new highs. Thermostat may be a good investment choice for you if, for example, you believe that a remarkable bull market ended early in 2000 and that the market may not reach significant new highs for many years. 2 The Fund Thermostat invests the Stock/Bond Assets among the Portfolio Funds according to an asset allocation table. The current allocation table is set forth below: - -------------------------------------------------------------------------------- Stock/Bond Allocation Table - -------------------------------------------------------------------------------- How Thermostat will Invest the Stock/Bond Assets ------------------------------------------------- Level of the S&P 500 Stock Percentage Bond Percentage - -------------------------------------------------------------------------------- over 1600 0% 100% - -------------------------------------------------------------------------------- over 1550-1600 5 95 - -------------------------------------------------------------------------------- over 1500-1550 10 90 - -------------------------------------------------------------------------------- over 1450-1500 15 85 - -------------------------------------------------------------------------------- over 1400-1450 20 80 - -------------------------------------------------------------------------------- over 1350-1400 25 75 - -------------------------------------------------------------------------------- over 1300-1350 30 70 - -------------------------------------------------------------------------------- over 1250-1300 35 65 - -------------------------------------------------------------------------------- over 1200-1250 40 60 - -------------------------------------------------------------------------------- over 1150-1200 45 55 - -------------------------------------------------------------------------------- over 1100-1150 50 50 - -------------------------------------------------------------------------------- over 1050-1100 55 45 - -------------------------------------------------------------------------------- over 1000-1050 60 40 - -------------------------------------------------------------------------------- over 950-1000 65 35 - -------------------------------------------------------------------------------- over 900-950 70 30 - -------------------------------------------------------------------------------- over 850-900 75 25 - -------------------------------------------------------------------------------- over 800-850 80 20 - -------------------------------------------------------------------------------- over 750-800 85 15 - -------------------------------------------------------------------------------- over 700-750 90 10 - -------------------------------------------------------------------------------- over 650-700 95 5 - -------------------------------------------------------------------------------- 650 and under 100 0 When the S&P 500 moves into a new band on the table, the Fund will promptly rebalance the stock-bond mix to reflect the new S&P price level by redeeming shares of some Portfolio Funds and exchanging shares of other Portfolio Funds. The only exception will be a "31-day Rule"; in order to reduce taxable events, after the Fund has increased its percentage allocation to either stock funds or bond funds, it will not decrease that allocation for at least 31 days. Following a change in the fund's stock-bond index, if the S&P 500 remains within the same band for a while, normal market fluctuations will change the values of the fund's holdings of stock Portfolio Funds and bond Portfolio Funds. We will invest cash flows from sales (or redemptions) of Fund shares to bring the stock-bond mix back toward the allocation percentages for that S&P 500 band. For example, if the S&P is in the 901-950 band, and the value of the holdings of the stock Portfolio Funds has dropped to 68% of the value of the holdings of all Portfolio Funds, new cash would be invested in the stock Portfolio Funds (or cash for redemptions would come from the bond Portfolio Funds.) If the 31-day Rule is in effect, new cash flows will be invested at the stock-bond percentage allocation as of the latest rebalancing. 3 The Fund As an illustrative example, suppose the following market events occurred:
- --------------------------------------------------------------------------------------- How Thermostat will invest Date Level of the S&P 500 the Stock/Bond Assets - --------------------------------------------------------------------------------------- Nov. 1 We begin when the market is 1140 50% stocks, 50% bonds - --------------------------------------------------------------------------------------- Dec. 1 The S&P 500 goes to 1151 rebalance 45% stocks, 55% bonds - --------------------------------------------------------------------------------------- Dec. 6 The S&P 500 drops back to 1145 no reversal for 31 days - --------------------------------------------------------------------------------------- Jan. 2 The S&P 500 is at 1142 rebalance 50% stocks, 50% bonds - --------------------------------------------------------------------------------------- Jan. 20 The S&P 500 drops to 1099 rebalance 55% stocks, 45% bonds The market has made a continuation move by going through a second action level, not a reversal move, so the 31-day Rule does not apply in this case. - --------------------------------------------------------------------------------------- Jan. 30 The S&P 500 goes up to 1105 no reversal for 31 days - --------------------------------------------------------------------------------------- Feb. 20 The S&P 500 is at 1110 rebalance 50% stocks, 50% bonds
The following table shows the five stock Portfolio Funds and three bond Portfolio Funds that Thermostat currently uses in its fund-of-funds structure and the current allocation percentage for each Portfolio Fund within the stock or bond category. The allocation percentage within each category is achieved by rebalancing the investments within the category whenever the S&P 500 moves into a new band on the allocation table, subject to the 31-day Rule described above. Thermostat does not liquidate its investment in one Portfolio Fund in order to invest in another Portfolio Fund except in connection with a rebalancing due to a move of the S&P 500 into a new band. Until a subsequent rebalancing, Thermostat's investments in, and redemptions from, the stock Portfolio Funds or the bond Portfolio Funds are allocated among such Portfolio Funds in a manner that will reduce any deviation of the relative values of Thermostat's holdings of such funds from the allocation percentages shown below. - -------------------------------------------------------------------------------- Allocation of Stock/Bond Assets within Asset Classes - -------------------------------------------------------------------------------- Stock Funds Type of Fund Allocation - -------------------------------------------------------------------------------- Columbia Acorn Fund Small cap stock 20% - -------------------------------------------------------------------------------- Columbia Acorn Select Mid cap stock 15 - -------------------------------------------------------------------------------- Columbia Growth Stock Fund Large cap growth 25 - -------------------------------------------------------------------------------- Columbia Growth & Income Fund Large cap value 25 - -------------------------------------------------------------------------------- Columbia Mid Cap Value Fund Mid cap stock 15 - -------------------------------------------------------------------------------- Total 100% Bond Funds Type of Fund Allocation - -------------------------------------------------------------------------------- Columbia Federal Securities Fund U.S. government securities 30% - -------------------------------------------------------------------------------- Columbia Intermediate Bond Fund Intermediate-term bonds 50 - -------------------------------------------------------------------------------- Columbia High Yield Fund High-yield bonds 20 - -------------------------------------------------------------------------------- Total 100% As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the Portfolio Funds and the relative allocation percentages among the stock funds and among the bond funds and to make any changes considered appropriate. Thermostat is advised by Columbia Wanger Asset Management, L.P. (CWAM or the Adviser). Each of the Portfolio Funds is managed by CWAM or an affiliate of CWAM. The Fund will not pay any sales load on its purchases of shares of the Portfolio Funds. 4 The Fund CWAM has a supervisory committee that meets on an annual basis, or on an "emergency" basis if necessary, to review the structure, allocation percentages and Portfolio Funds of Thermostat and to make any changes considered appropriate. The committee typically addresses the following questions: Should the stock-bond allocation table be revised? (perhaps because the stock market has made a long-term move outside of the 650-1600 S&P 500 bands) Should there be a change in the Portfolio Funds in which Thermostat invests, or should there be a change in the percentage allocations among the stock funds or the bond funds? (perhaps because of a change of portfolio managers, change of investment style or reorganization of a Portfolio Fund) Any changes by the supervisory committee are expected to be infrequent. The S&P 500 is a broad market-weighted average of U.S. blue-chip company stock performance. The investment objectives and strategies of the current Portfolio Funds are described below: Columbia Acorn Fund, Class Z (Acorn Fund) Acorn Fund seeks to provide long-term growth of capital. Acorn Fund generally invests in the stocks of small- and medium-sized companies. The Fund generally invests in the stocks of companies with market capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that these smaller companies, which are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Acorn Fund typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give a company a competitive advantage. o A stock price the Fund's adviser believes is reasonable relative to the assets and earning power of the company. Acorn Fund invests the majority of its assets in U.S. companies, but also may invest up to 33% of its assets in companies outside the U.S. in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Acorn Select, Class Z (Acorn Select) Acorn Select seeks long-term growth of capital. Acorn Select generally invests in the stocks of U.S. companies. The Fund is a non-diversified fund that takes advantage of its adviser's research and stock-picking capabilities to invest in a limited number of companies (between 20-40) with market capitalizations under $20 billion at the time of initial purchase, offering the potential to provide above-average growth over time. The Fund believes that companies within this capitalization range are not as well known by financial analysts as the largest companies, and may offer higher return potential than the stocks of companies with capitalizations above $20 billion. 5 The Fund Acorn Select typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give a company a competitive advantage. o A stock price the Fund's adviser believes is reasonable relative to the assets and earning power of the company. Although Acorn Select does not buy securities with a short-term view, there is no restriction on the length of time the Fund must hold a security. To the extent the Fund buys and sells securities frequently, its transaction costs will be higher (which may adversely affect the Fund's performance) and it may realize additional capital gains. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Growth Stock Fund, Class Z (Growth Stock Fund) Growth Stock Fund seeks long-term growth. Growth Stock Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks, primarily of companies with large market capitalizations. Growth Stock Fund may invest in any market sector but emphasizes the technology, financial services, health care, and global consumer franchise sectors. The Growth Stock Fund may invest up to 25% of its assets in foreign stocks. To select investments for the Growth Stock Fund, the Fund's investment adviser considers companies that it believes will generate earnings growth over the long term regardless of the economic environment. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Growth & Income Fund, Class Z (Growth & Income Fund) Growth & Income Fund seeks long-term growth and income. Under normal market conditions, Growth & Income Fund invests at least 65% of its total assets in common stock of U.S. companies with equity market capitalizations at the time of purchase in excess of $3 billion. Up to 35% of the Fund's total assets may be invested in common stock of U.S. companies with equity market capitalizations at the time of purchase between $1 billion and $3 billion. Also, up to 10% of the Fund's total assets may be invested in a combination of (i) convertible bonds, (ii) corporate bonds that are rated investment grade and (iii) U.S. Government securities. When purchasing securities for the Fund, the Fund's investment adviser generally chooses securities of companies it believes are undervalued. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia MidCap Value Fund, Class Z (MidCap Value Fund) MidCap Value Fund seeks long-term growth. The Fund invests, under normal market conditions, primarily in middle capitalization stocks. These are stocks of mid-sized companies that have market capitalizations similar in size to those companies in the Russell Midcap(TM) Value Index. As of December 31, 2004, that index included companies with capitalizations between approximately $___ million and $__ billion. 6 The Fund Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Federal Securities Fund, Class Z (Federal Securities Fund) Federal Securities Fund seeks as high a level of current income and total return as is consistent with prudent risk. Under normal market conditions, Federal Securities Fund invests at least 80% of its total assets in U.S. government securities, including U.S. treasuries and securities of various U.S. government agencies. Agency securities include mortgage-backed securities, which represent interests in pools of mortgages. The Fund may also invest up to 20% of its assets in corporate bonds or mortgage- or asset-backed securities that are issued by a private entity. These securities must be rated investment grade by Moody's Investors Service, Inc. (Moody's), Standard & Poor's Corporation (S&P) and Fitch, Inc. (Fitch), an international rating agency. The Fund has wide flexibility to vary its allocation among different types of U.S. government securities and the securities of nongovernmental issuers based on the judgment of its adviser of which types of securities will outperform the others. In selecting investments for the Fund, the adviser considers a security's expected income together with its potential to rise or fall in price. Federal Securities Fund generally maintains a duration of greater than four and a half years and less than 10 years. As a result, the Fund's portfolio has market risks and an expected average life comparable to intermediate to long-term bonds. The Fund's adviser may vary the Fund's duration depending on its forecast of interest rates and market conditions (for example, when interest rates are expected to increase, the adviser may shorten the duration, and vice versa). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Intermediate Bond Fund, Class Z (Intermediate Bond Fund) Intermediate Bond Fund seeks its total return by pursuing current income and opportunities for capital appreciation. Under normal circumstances, the Intermediate Bond Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in bonds, including: o Debt securities issued by the U.S. government; these include U.S. treasury securities and agency securities. Agency securities include certain mortgage-backed securities, which represent interests in pools of mortgages, o Debt securities of corporations, and o Mortgage-backed and asset-backed securities issued by private (non-governmental) entities. Intermediate Bond Fund will invest at least 60% of its net assets in higher-quality debt securities that are at the time of purchase: o Rated at least A by S&P; o Rated at least A by Moody's; o Given a comparable rating by another nationally recognized rating agency; or o Unrated securities that the Fund's adviser believes to be of comparable quality. 7 The Fund Intermediate Bond Fund may invest up to 20% of its net assets in lower-rated debt securities. These securities are sometimes referred to as "junk bonds" and are at the time of purchase: o Rated below BBB by S&P; o Rated below Baa by Moody's; o Given a comparable rating by another nationally recognized rating agency; or o Unrated securities that the Fund's adviser believes to be of comparable quality. Normally, the Fund expects to maintain a dollar-weighted average effective maturity of three to ten years. The Fund seeks to achieve capital appreciation through purchasing bonds that increase in market value. In addition, to a limited extent, the Fund may seek capital appreciation by using hedging techniques such as futures and options. The manager of the Fund has wide flexibility to vary the allocation among different types of debt securities based on his judgment of which types of securities will outperform the others. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia High Yield Fund, Class Z (High Yield Fund) High Yield Fund seeks a high level of income, with capital appreciation as a secondary goal. High Yield Fund pursues its objective by investing in non-investment-grade corporate debt securities, commonly referred to as "junk" or "high-yield" bonds. Normally, the Fund will invest at least 80% of its assets in bonds rated Ba or B by Moody's or BB or B by S&P. No more than 10% of the Fund's assets will be invested in bonds rated Caa by Moody's or CCC by S&P, and no Fund assets will be invested in bonds below these grades. By focusing on higher quality junk bonds, the Fund seeks access to higher yielding bonds without assuming all the risk associated with the broader junk bond market. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. The value of an investment in the Fund is based primarily on the performance of the Portfolio Funds and the allocation of the Fund's assets among them. There are many circumstances (including additional risks that are not described here) that could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk. Management risk means that the adviser's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. The Fund does not have the ability to affect how the portfolio managers of the Portfolio Funds manage those funds. Market risk. 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. Interest rate risk. Since the Fund may invest in bond Portfolio Funds, it is subject to interest rate risk. This is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest 8 The Fund rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities. Issuer risk. Because a Portfolio Fund may invest in debt securities issued or supported by private entities, including corporate bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. Credit risk. Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds. Structure risk and prepayment risk. Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. Lower-rated debt securities. Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal. Medium-quality debt securities. Medium-quality debt securities, although considered investment grade, may have some speculative characteristics. Equity risk. Since the Fund may invest in equity Portfolio Funds, it is 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 9 The Fund 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. Value stocks. Value stocks are securities of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the adviser's opinion, undervalued. If the adviser's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the adviser has placed on it. Growth stocks. Because some of the Portfolio Funds invest in growth stocks, the Fund is subject to the risk that growth stocks may be out of favor with investors for an extended period of time. 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 other stocks. Growth stocks may not perform as well as value stocks or the stock market in general. Market trends. The Fund is also subject to the risk that the investment adviser's decisions regarding asset classes and Portfolio Funds will not anticipate market trends successfully. For example, weighting Portfolio Funds that invest in common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in Portfolio Funds that invest in bonds during a period of stock market appreciation may result in lower total return. Of course, the risks associated with investing in the Fund will vary depending upon how the assets are allocated among Portfolio Funds. Management has no control over the portfolio managers or investment decisions of the Portfolio Funds. However, decisions made by the Portfolio Funds' managers will have a significant effect on a Fund's performance. Affiliated fund risk. In managing Thermostat, the supervisory committee of CWAM will have authority to change the Portfolio Funds in which Thermostat invests or to change the percentage allocations among the stock funds or the bond funds. Since different Portfolio Funds pay different rates of management fees to CWAM or its affiliates, CWAM may have a conflict of interest selecting the Portfolio Funds or in determining the relative percentage allocations among Portfolio Funds. Sector risk. Sector risk may sometimes be present in the Portfolio Funds' investments. 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 the Fund does not intend to focus on any particular sector, at times, the Portfolio Funds may have a significant portion of their assets invested in a particular sector. Foreign securities. Foreign securities 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 a Portfolio 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. 10 The Fund Emerging markets. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. Their securities markets may be underdeveloped. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Smaller companies. Smaller companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. Portfolio turnover. The Fund may buy and sell shares of the Portfolio Funds frequently. This may result in more realized income and greater income taxes, and could increase the transaction costs of the underlying funds. An investment in the 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. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's performance by illustrating the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of broad measures of market performance for one year and for the life of the fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing the changes in the Fund's performance. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class Z share performance for each completed calendar year since the Fund commenced operations. They include the effects of Fund expenses. Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year and life of the Fund periods. They include the effects of Fund expenses. The Fund's average annual returns are compared to the S&P 500 Index, its benchmark with respect to equity securities and the Lehman U.S. Credit Intermediate Bond Index, the intermediate component of the Lehman U.S. Credit Index, its benchmark with respect to debt securities. The S&P 500 Index, the Fund's primary benchmark, is a broad market-weighted average of large U.S. blue-chip companies. The Lehman U.S. Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. -------------------------------------------------------------------------- 11 The Fund - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class Z) - -------------------------------------------------------------------------------- 2003 19.79% 2004 9.17% For period shown in bar chart: Best quarter: 2nd quarter 2003, 11.36% Worst quarter: 1st quarter 2003, -2.11% After tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
- ----------------------------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004 - ----------------------------------------------------------------------------------------------------- Inception Life of Date 1 Year Fund(1) Class Z (%) 9/25/02 Return Before Taxes 9.17 14.57 Return After Taxes on Distributions 8.32 13.99 Return After Taxes on Distributions and Sale of Fund Shares 6.02 12.21 - ----------------------------------------------------------------------------------------------------- S&P 500 Index (%) 10.88 20.98(1) - ----------------------------------------------------------------------------------------------------- Lehman U.S. Credit Intermediate Bond Index (%) 4.08 6.23(1) - ----------------------------------------------------------------------------------------------------- (1) Performance information is from September 25, 2002.
12 The Fund YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions --------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------- Shareholder Fees(1) (paid directly from your investment) - ----------------------------------------------------------------------------------------------------------------- Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) None - ----------------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) None - ----------------------------------------------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) None(2) (1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent. (2) There is a $7.50 charge for wiring sale proceeds to your bank.
13 The Fund - -------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted from Fund assets) - -------------------------------------------------------------------------------- Management fees(1) (%) 0.10 - -------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) None - -------------------------------------------------------------------------------- Other expenses(2) (%) 0.33 - -------------------------------------------------------------------------------- Total annual fund operating expenses (%) 0.43 - -------------------------------------------------------------------------------- Expense reimbursement /Waiver (%) (0.18) - -------------------------------------------------------------------------------- Net expense ratio(3) (%) 0.25 - -------------------------------------------------------------------------------- Expense ratio of Portfolio Funds (%) 0.86 - -------------------------------------------------------------------------------- Net expense ratio including expenses of Portfolio Funds(4) (%) 1.11 - -------------------------------------------------------------------------------- Gross expense ratio including expenses of Portfolio Funds (%) 1.29 (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. (3) The Fund's adviser and/or its affiliates have contractually agreed to waive a portion of "Other expenses" through [April 30, 2006]. In addition, the Fund's Adviser has contractually agreed to bear a portion of the Fund's expenses so that the Fund's ordinary operating expenses (excluding any distribution and service fees, interest and fees on borrowings and expenses associated with the Fund's investment in other investment companies) do not exceed 0.25% annually through April 30, 2005. The Adviser will have the right to recoup expense reimbursement payments made to the Fund through December 31, 2006. This will be accomplished by the payment of an expense reimbursement fee by the Fund to the Adviser computed and paid monthly, with a limitation that immediately after such payment the Fund's ordinary operating expenses (excluding any distribution and service fees, interest and fees on borrowings and expenses associated with the Fund's investment in other investment companies) will not exceed 0.25% annually. (4) Includes the fees and expenses incurred by the Fund directly and indirectly from the underlying Portfolio Funds in which the Fund invests. The ratios shown above are based on an asset allocation among Portfolio Funds as shown on page 4, based on the respective expense ratios of the Portfolio Funds for their respective last fiscal years, as adjusted to reflect any fee waiver for any Portfolio Fund in effect as of the end of its last fiscal year. Based on this allocation, the Fund's estimated indirect annual expenses would have been [0.94%]. Such expense ratios ranged from [0.80% to 1.15%]. The indirect expense ratio of the Fund may be higher or lower depending on the portion of the Fund's assets allocated to each Portfolio Fund from time to time. The assumed allocation of the Fund's net assets among the underlying Columbia Funds as shown on page 4 would have been as follows: Columbia Acorn Fund, 10%; Columbia Acorn Select, 7.5%; Columbia Growth Stock Fund, 12.5%; Columbia Growth & Income Fund, 12.5%; Columbia Mid Cap Value Fund, 7.5%; Columbia Federal Securities Fund, 15%; Columbia Intermediate Bond Fund, 25%; and Columbia High Yield Fund, 10%. - -------------------------------------------------------------------------------- Example Expenses(1) for a $10,000 investment (your actual costs may be higher or lower) - -------------------------------------------------------------------------------- 1 Year 3 Years 5 Years 10 Years $113 $391 $690 $1,541 (1) Includes the fees and expenses incurred by the Fund directly and indirectly from the underlying Portfolio Funds in which the Fund invests. The example expenses for the one year period reflect the contractual cap on expenses referred to in footnote (3), but this arrangement is not reflected in the example expenses for the second and third years of the three year period, the second through fifth years of the five year period, or the second through tenth years of the ten year period. 14 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- HOW TO BUY SHARES - -------------------------------------------------------------------------------- If you are an eligible investor (described below), when the Fund receives your purchase request in "good form," your shares will be bought at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with Columbia Funds Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. 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 or Class A of the Fund at no additional cost. To exchange by telephone, call 1-800-422-3737. Please see "How to Exchange Shares" for more information. - ---------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - ----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ---------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing account) statement, or send a letter of instruction including the 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 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 or Class A 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 You may purchase shares of the Fund by electronically transferring money from your bank account to your funds transfer Fund account by calling 1-800-422-3737. An electronic funds transfer may take up to two business days (existing account) 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 ($50 minimum) automatically from your bank account to investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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 another fund into the same class of shares of the diversification Fund at no additional sales charge. To invest your other dividends in the Fund, call 1-800-345-6611.
15 Your Account ELIGIBLE INVESTORS - -------------------------------------------------------------------------------- Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z Shares of the Funds generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements. Important Things to Consider When Deciding on a Class of Shares: - -------------------------------------------------------------------------------- Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in the Fund in connection with different pricing options for their programs. Investors should consider carefully any separate transaction and other fees charged by these programs in connection with investing in each available share class before selecting a share class. Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. Eligible Investors and their applicable investment minimums are as follows: No minimum initial investment o Any client of Bank of America Corporation or a subsidiary (for shares purchased through an asset management company, trust, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary); o Any retirement plan for which an intermediary or other entity provides services and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent; o Investors purchasing through Columbia Management Group state tuition plans organized under Section 529 of the Internal Revenue Code; or o 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. $1,000 minimum initial investment o 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.; 16 Your Account o Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Funds Distributor, Inc.; o Any employee (or family member of an employee) of Bank of America Corporation or its subsidiaries; o Any investor participating in an account offered by an intermediary or other entity that provides services to such account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agents; or o Any insurance company, trust company, bank, endowment, investment company or foundation purchasing shares for its own account. 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 $50 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. SALES CHARGES - -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers one class of shares in this prospectus -- Class Z. The Fund also offers three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each other share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. 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. -------------------------------------------------------------------------- If you purchase Class Z shares of the Fund through certain broker-dealers, banks or other intermediaries (intermediaries), they may charge a fee for their services. They may also place limits on your ability to use services the Fund offers. There are no sales charges or limitations if you purchase shares directly from the Fund, except as described in this prospectus. If an intermediary is an agent or designee of the Fund, orders are processed at the net asset value next calculated after the intermediary receives the order. The intermediary must segregate any orders it receives after the close of regular trading on the NYSE and transmit those orders separately for execution at the net asset value next determined. 17 Your Account HOW TO EXCHANGE SHARES - -------------------------------------------------------------------------------- You may exchange your 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 recognize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the adviser in its discretion determines that your exchange activity may 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 - -------------------------------------------------------------------------------- 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, and (ii) 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 1-800-799-6611 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 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. 18 Your Account - -------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - --------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's financial advisor 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 Class Z shares or Class A shares 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 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 ($50 minimum) or percentage of your account on a withdrawal plan monthly, quarterly or semiannual basis and have the proceeds sent to you if your account balance is at least $5,000. 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 proceeds be electronically transferred to your funds transfer 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.
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. 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 in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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. 19 Your Account The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Columbia Funds (other than the Fund) impose a redemption fee on the proceeds of 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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. INTERMEDIARY COMPENSATION - -------------------------------------------------------------------------------- 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. 20 Your Account In addition, the distributor, and/or the Fund's investment adviser, 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 a Fund's Class Z shares is based on their 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 on days the NYSE is closed for trading. When you request a transaction, it will be processed at the net asset value 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 Fund 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 its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the value of each security in its portfolio at the close of each trading day which will be that day's closing net asset value per share of the respective Portfolio Funds. The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. You can find the daily prices of some share classes for the Fund in most 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 Funds' 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 Class Z shares. 21 Your Account Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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. Distribution Options The Fund distributes dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. -------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o 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, 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 tax 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 also may 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. Income other than net capital gains received by the Fund from the Portfolio Funds (including dividends and distributions of short-term capital gains) will be distributed by the Fund (after deductions for expenses) and will be taxable to you as ordinary income, unless it is eligible to be treated as qualified dividend income. Because the Fund is an asset allocation fund and may realize taxable net short-term capital gains by selling shares of a Portfolio Fund in its portfolio with unrealized portfolio appreciation, investing in the Fund 22 Your Account rather than directly in the Portfolio Fund may result in accelerated tax liability to you since the Fund must distribute its gains in accordance with the Internal Revenue Code of 1986. Distributions of net capital gains received by the Fund from its Portfolio Funds, plus net long-term capital gains realized by the Fund from the purchase and sale of Portfolio Fund shares or other securities held by the Fund for more than one year, will be distributed by the Fund and will be taxable to you as long-term capital gains (even if you have held Fund shares for one year or less). If a shareholder who has received a capital gains distribution suffers a loss on the sale of his or her shares not more than six months after purchase, the loss will be treated as a long-term capital loss to the extent of the capital gains distribution received. Long-term capital gains, including distributions of net capital gains, are currently subject to a maximum federal tax rate of 15%. This rate is less than the maximum rate imposed on other types of taxable income. Capital gains also may be advantageous since, unlike ordinary income, they may be offset by capital losses. For purposes of determining the character of income received by the Fund when a Portfolio Fund distributes net capital gains to the Fund, the Fund will treat the distribution as long-term capital gain, even if the Fund has held shares of the Portfolio Fund for one year or less. Any loss incurred by the Fund on the sale of that Portfolio Fund's shares held for six months or less, however, will be treated as a long-term capital loss to the extent of the net capital gain distribution. High portfolio turnover may cause the Fund to realize short term capital gains which, if realized and distributed by the Fund, may be taxable to shareholders as ordinary income. 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. 23 - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. 24 - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is Thermostat's investment adviser and is responsible for the Fund's management, subject to oversight by the Fund's board of trustees. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P., and its predecessor was named Wanger Asset Management, L.P. CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.10% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. The Portfolio Funds are managed by CWAM and its affiliate Columbia Management Advisors, Inc., previously named Columbia Management Company (CMA). On April 1, 2003, Colonial Management Associates and Stein Roe & Farnham Incorporated and other affiliated investment adviser entities were merged with and into CMA. CMA assumed all of the business associated with each of the merged investment advisers. Like CWAM, CMA is owned by Columbia Management Group, Inc. CMA also may provide administrative and operational services to Thermostat. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- CWAM uses a supervisory committee to review on an infrequent basis the structure and allocation ranges of Thermostat and to make any changes considered appropriate. The members of the committee are Ralph Wanger and Charles P. McQuaid. Ralph Wanger, is a director and the former president and chief investment officer of CWAM and its predecessor and was the portfolio manager of Columbia Acorn Fund since its inception in 1970 through September 29, 2003. He is the former president of Columbia Acorn Trust and has been a member of Columbia Acorn Trust's Board of Trustees since 1970. He was a principal of Wanger Asset Management, L.P. and president of Wanger Asset Management, Ltd. from July 1992 until September 29, 2000. Mr. Wanger is the former president of Wanger Advisors Trust and currently serves as a trustee of Wanger Advisors Trust and a director of Wanger Investment Company PLC. The SAI provides additional information about Mr. Wanger's compensation, other accounts he manages and his ownership of securities in the Fund. Charles McQuaid, is president and a member of Columbia Acorn Trust's Board of Trustees. He has been president of CWAM since October 13, 2003, chief investment officer of CWAM since September 30, 2003, was the director of research at CWAM and its predecessor from July 1992 through December 2003, and was a principal of Wanger Asset Management, L.P. from July 1992 to September 29, 2000. Mr. McQuaid has been a member of Columbia Acorn Fund's management team since 1978, co-managed Columbia Acorn Fund from 1995 through September 29, 2003 and has been the Fund's lead portfolio manager since September 30, 2003. He served as CWAM's interim director of international research from October 2003 to December 15, 2004. Mr. McQuaid has been the president of Wanger Advisors Trust since September 30, 2003. The SAI provides additional information about Mr. McQuaid's compensation, other accounts he manages and his ownership of securities in the Fund. 25 Managing the Fund LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 26 Other Investment Strategies and Risks - -------------------------------------------------------------------------------- Thermostat's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Portfolio Funds may make and the risks associated with them. In seeking to achieve the investment goals, the Portfolio Funds may invest in various types of securities and engage in various investment techniques that are not their principal focus and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in Thermostat's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by Thermostat's shareholders is not required to modify or change Thermostat's investment goal or any of its investment strategies. DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Portfolio Funds may enter into a number of derivative strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Portfolio Funds may use these strategies to adjust their sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to a Portfolio Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS - -------------------------------------------------------------------------------- When-issued securities and forward commitments are securities that are purchased prior to the date they are actually issued or delivered. These securities involve the risk that they may fall in value by the time they are actually issued or that the other party may fail to honor the contract terms. SHORT SALES - -------------------------------------------------------------------------------- A Portfolio Fund's short sales are subject to special risks. A short sale by a Portfolio Fund of a security that it does not own in the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, a Portfolio Fund borrows the security from a third party. The Portfolio Fund is then obligated to return the security to the third party at a later date, and so the Portfolio Fund must purchase the security at the market price on such later date. If the price of the security has increased, then the Portfolio 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 a risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Portfolio Fund. 27 Other Investment Strategies and Risks 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. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause the Fund to earn a lower rate of return 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. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities. MORTGAGE-BACKED SECURITIES - -------------------------------------------------------------------------------- Mortgage-backed securities are securities that represent ownership interests in large, diversified pools of mortgage loans. Sponsors pool together mortgages of similar rates and terms and offer them as a security to investors. Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae, and Freddie Mac. 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. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause the Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities. Commercial mortgaged-backed securities are secured by loans to commercial properties such as office buildings, multi-family apartment buildings, and shopping centers. These loans usually contain prepayment penalties that provide protection from refinancing in a declining interest rate environment. Real estate mortgage investment conduits (REMICs) are multi-class securities that qualify for special tax treatment under the Internal Revenue Code. REMICs invest in certain mortgages that are secured principally by interests in real property such as single family homes. ZERO COUPON BONDS - -------------------------------------------------------------------------------- Zero coupon bonds do not pay interest in cash on a current basis, but instead accrue interest over the life of the bond. As a result, these securities are issued at a discount. The value of these securities may fluctuate more than the value of similar securities that pay interest periodically. Although these securities pay no interest to holders prior to maturity, interest accrued on these securities is reported as income to a Portfolio Fund and distributed to its shareholders. 28 Other Investment Strategies and Risks ILLIQUID INVESTMENTS - -------------------------------------------------------------------------------- A Portfolio Fund may invest up to 15% of its net assets in illiquid investments. An illiquid investment is a security or other position that cannot be disposed of quickly in the normal course of business. For example, some securities are not registered under U.S. securities laws and cannot be sold in public transactions because of Securities and Exchange Commission regulations (these are known as "restricted securities"). Under procedures adopted by a Portfolio's Fund's Board of Trustees, certain restricted securities may be deemed liquid and will not be counted toward this 15% limit. TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM or the advisers to the Portfolio Funds may determine that adverse market conditions make it desirable to temporarily suspend the Fund's or Portfolio Funds' respective normal investment activities. During such times, the Fund or Portfolio Funds may, but are not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund or Portfolio Funds from achieving their respective investment goals. 29 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's Class Z fiscal years since inception, which run from January 1 to December 31, unless otherwise indicated. Certain information in the table reflects the financial results for a single Class Z share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - ----------------------------------------------------------------------------------------- Columbia Thermostat Fund - -----------------------------------------------------------------------------------------
Inception September 25, 2002 through Class Z 2004 2003 December 31, 2002 - ----------------------------------------------------------------------------------------- Net Asset Value -- Beginning of Period ($) 12.31 10.41 10.00 - ----------------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income(a) 0.31 0.19 0.04 Net realized and unrealized gain 0.82 1.87 0.37 - ----------------------------------------------------------------------------------------- Total from Investment Operations 1.13 2.06 0.41 - ----------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.29) (0.16) -- From net realized gains (0.03) 0.00(b) -- - ----------------------------------------------------------------------------------------- Total distributions Declared to Shareholders (0.32) (0.16) -- - ----------------------------------------------------------------------------------------- Net Asset Value -- End of Period ($) 13.12 12.31 10.41 - ----------------------------------------------------------------------------------------- Total return(c)(d) (%) 9.17 19.79 4.10(e) - ----------------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f) 0.25(g) 0.38(g) 0.62(h)(i) Net investment income 2.48(g) 1.64(g) 1.41(h)(i) Reimbursement 0.21 0.88 19.94(h) Portfolio turnover rate (%) 67 61 11(e) Net assets at end of period (in millions) ($) 21 14 4 (a) Per share data was calculated using average shares outstanding during the period. Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the underlying investment companies in which the Fund invests. (b) Rounds to less than $0.01 per share. (c) Total return at net asset value assuming all distributions reinvested. (d) Had the Adviser and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (e) Not annualized. (f) Does not include expenses of the investment companies in which the Fund invests. (g) The benefits derived from custody fees paid indirectly had no impact. (h) Annualized. (i) In accordance with a requirement of the Securities and Exchange Commission, the ratios reflect total expenses prior to the reduction of custody fees for cash balances it maintains with the custodian ("custody fees paid indirectly"). The ratios of expenses to average daily net assets and net investment income to average daily net assets net of custody fees paid indirectly would have been 0.60% and 1.43%, respectively for the period ended December 31, 2002.
30 - -------------------------------------------------------------------------------- Appendix A - -------------------------------------------------------------------------------- The following after tax returns of the Portfolio Funds 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 Portfolio Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Average annual total returns are a measure of a Portfolio Fund's average performance over the past one-year, five-year and ten-year (or life of Fund) periods. They include the effects of Portfolio Fund expenses. The Portfolio Fund's returns are compared to an index selected by the Portfolio Funds' adviser. All third-party trademarks are the property of their owners. Unlike each Portfolio Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. It is not possible to invest directly in an index. -------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004 - -------------------------------------------------------------------------------------------------------------------
Inception Date 1 Year 5 Years 10 Years Columbia Acorn Fund, Class Z(1) (%) 6/10/70 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - ------------------------------------------------------------------------------------------------------------------- Russell 2500(R) Index (%) n/a (1) The Fund's Class Z share total annual fund operating expenses at December 31, 2004 were [0.80%]; Class Z and total net assets of the Fund were (in millions) [$7,065] and [$11,169], respectively. Inception Life of Date 1 Year 5 Years the Fund Columbia Acorn Select, Class Z(2) (%) 11/23/98 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - ------------------------------------------------------------------------------------------------------------------- S&P MidCap 400 Index (%) n/a (2) The Fund's Class Z share total annual fund operating expenses at December 31, 2004 (exclusive of any voluntary fee waiver) were [1.12%]; Class Z and total net assets of the Fund were (in millions) [$294] and [$741], respectively. Inception Date (3) 1 Year 5 Years 10 Years Columbia Growth & Income Fund, Class Z(4) (%) 2/7/01 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - ------------------------------------------------------------------------------------------------------------------- S&P 500 Index (%) n/a (3) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) 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 A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would be higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on July 1, 1992, and Class Z shares were initially offered on February 7, 2001. (4) The Fund's Class Z share total annual fund operating expenses at June 30, 2004 (exclusive of any voluntary fee waiver) were [1.15%]; Class Z and total net assets of the Fund were (in millions) [$384] and [$1,886], respectively.
31 Appendix A
Inception Date 1 Year 5 Years 10 Years Columbia Growth Stock Fund, Class Z(5) (%) 7/1/58 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - ---------------------------------------------------------------------------------------------------------------------- S&P 500 Index (%) n/a (5) The Fund's Class Z share total annual fund operating expenses at September 30, 2003 (exclusive of any voluntary fee waiver) were [1.00%]; Class Z and total net assets of the Fund were (in millions) [$384] and [$798], respectively. Inception Date (6) 1 Year 5 Years 10 Years Columbia MidCap Value Fund Class Z(7) (%) 2/8/01 Return Before Taxes (6) (6) Return After Taxes on Distributions (6) (6) Return After Taxes on Distributions and Sale of Fund Shares (6) (6) - ---------------------------------------------------------------------------------------------------------------------- S&P MidCap 400 Index (%) n/a (6) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) 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 A shares and Class Z shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the Class Z shares would have been higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on July 21, 1949 and Class Z shares were initially offered on February 8, 2001. (7) The Fund's Class Z share total annual fund operating expenses at September 30, 2004 were [1.00%]; Class Z and total net assets of the Fund were (in millions) [$549] and [$1,436], respectively. Inception Date (8) 1 Year 5 Years 10 Years Columbia Federal Securities Fund, Class Z(9) (%) 1/11/99 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - ---------------------------------------------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index (%) n/a (8) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) 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 A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on March 30, 1984, and Class Z shares were initially offered on January 11, 1999. (9) The Fund's Class Z share total annual fund operating expenses at August 31, 2004 were [1.00%]; Class Z and total net assets of the Fund were (in thousands) [$9,857] and (in millions) [$1,176], respectively. Inception Date 1 Year 5 Years 10 Years Columbia Intermediate Bond Fund, Class Z(10) (%) 12/5/78 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - ---------------------------------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index (%) n/a (10) The Fund's Class Z share total annual fund operating expenses at June 30, 2004 were [0.80%]; Class Z and total net assets of the Fund were (in millions) [$717] and [$966], respectively.
32 Appendix A
Inception Life of Date 1 Year 5 Years the Fund Columbia High Yield Fund, Class Z(11) (%) 10/1/93 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - ---------------------------------------------------------------------------------------------------------------------- Merrill Lynch U.S. High Yield, Cash Pay Index (%) n/a (12) (11) The Fund's Class Z share total annual fund operating expenses at August 31, 2004 were [0.82%]; Class Z and total net assets of the Fund were (in thousands) [$1,197] and [$1,584], respectively. (12) Performance information is from September 30, 1993.
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------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 35 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments will be published in the Fund's semiannual and annual reports to shareholders. The annual report will contain a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly named Liberty Acorn Trust): 811-01829 o Columbia Thermostat Fund - ------------------------------------------------------------------------------ [LOGO] Columbia Funds A Member of Columbia Management Group (c)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.345.6611 www.columbiafunds.com - -------------------------------------------------------------------------------- Columbia Thermostat Fund Prospectus, May 1, 2005 - -------------------------------------------------------------------------------- Class A, B and C Shares Advised by Columbia Wanger Asset Management, L.P. TABLE OF CONTENTS - -------------------------------------------------------------------------------- THE FUND 2 - -------------------------------------------------------------------------------- Investment Goal ............................................................. 2 Principal Investment Strategies ............................................. 2 Principal Investment Risks .................................................. 8 Performance History ......................................................... 12 Your Expenses ............................................................... 14 YOUR ACCOUNT 16 - -------------------------------------------------------------------------------- How to Buy Shares ........................................................... 16 Sales Charges ............................................................... 18 Payments to Your Financial Advisor .......................................... 22 How to Exchange Shares ...................................................... 23 How to Sell Shares .......................................................... 23 Fund Policy on Trading of Fund Shares ....................................... 24 Distribution and Service Fees ............................................... 25 Other Information About Your Account ........................................ 26 BOARD OF TRUSTEES 29 - -------------------------------------------------------------------------------- MANAGING THE FUND 30 - -------------------------------------------------------------------------------- Investment Adviser .......................................................... 30 Portfolio Managers .......................................................... 30 Legal Proceedings ........................................................... 31 OTHER INVESTMENT STRATEGIES AND RISKS 32 - -------------------------------------------------------------------------------- Derivative Strategies ....................................................... 32 When-Issued Securities and Forward Commitments .............................. 32 Short Sales ................................................................. 32 Asset-Backed Securities ..................................................... 32 Mortgage-Backed Securities .................................................. 33 Zero Coupon Bonds ........................................................... 33 Illiquid Investments ........................................................ 33 Temporary Defensive Strategies .............................................. 34 FINANCIAL HIGHLIGHTS 35 - -------------------------------------------------------------------------------- APPENDIX A 38 - -------------------------------------------------------------------------------- Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------------- Not FDIC May Lose Value Insured ----------------- No Bank Guarantee --------------------------- - -------------------------------------------------------------------------------- The Fund - -------------------------------------------------------------------------------- INVESTMENT GOAL - -------------------------------------------------------------------------------- Columbia Thermostat Fund seeks to provide long-term total return. PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Columbia Thermostat Fund (Thermostat or the Fund) pursues its investment goal by investing in other mutual funds. As a "fund of funds," under normal circumstances, Thermostat allocates at least 95% of its net assets (Stock/Bond Assets) among a selected group of stock and bond mutual funds (Portfolio Funds) according to the current level of the Standard & Poor's 500 Stock Index (S&P 500) in relation to predetermined ranges set by the Fund's investment adviser. When the S&P 500 goes up, the Fund sells a portion of its stock funds and invests more in the bond funds; and when the S&P 500 goes down, the Fund increases its investment in the stock funds. Under normal circumstances, Thermostat may invest up to 5% of its net assets plus any cash received that day in cash, high quality short-term paper and government securities. Asset allocation funds generally move assets from stocks to bonds when the market goes up, and from bonds to stocks when the market goes down. Most asset allocation funds are run by sophisticated investment professionals who make subjective decisions based on economic and financial data and complex graphs of market behavior. By contrast, the day-to-day investment decisions for Thermostat will be made according to a single predetermined rule. The temperature in your house is run by a single rule; your thermostat turns on the furnace if your house is too cold or turns on the air conditioner if your house is too warm. This Fund works the same way, so it is named Columbia Thermostat Fund. Because Thermostat invests according to a pre-set program, there is no need for subjective day-to-day management. Although another successful asset allocation strategy might do better than Thermostat, Thermostat is designed for those who doubt the wisdom of trying to "time" the market and are unsure of the long-term trend of the stock market. Thermostat takes psychology out of investing; it avoids the temptation to buy more stocks because the stock market is currently going up or to sell stocks because the market is declining. Thermostat operates continuously and substantially automatically, subject to periodic review of the pre-set program by the Fund's adviser and its board of trustees. As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the structure and allocation ranges of the stock-bond allocation table and to make any changes considered appropriate. The Portfolio Funds are chosen by Thermostat's adviser to provide participation in the major sectors of the domestic stock and bond markets. If you believe that the stock market will tend to go up most of the time, then you should probably own a fully-invested stock fund and use a buy-and-hold strategy. Buy-and-hold was an excellent strategy in the 1982-1999 bull market. However, there have been long periods in the past when buy-and-hold was not the best strategy, such as 1930-1954 and 1969-1981, when the market fluctuated but did not make significant new highs. Thermostat may be a good investment choice for you if, for example, you believe that a remarkable bull market ended early in 2000 and that the market may not reach significant new highs for many years. 2 The Fund Thermostat invests the Stock/Bond Assets among the Portfolio Funds according to an asset allocation table. The current allocation table is set forth below: - -------------------------------------------------------------------------------- Stock/Bond Allocation Table - -------------------------------------------------------------------------------- How Thermostat Will Invest the Stock/bond Assets --------------------------------------------------- Level of the S&P 500 Stock Percentage Bond Percentage over 1600 0% 100% - -------------------------------------------------------------------------------- over 1550-1600 5 95 - -------------------------------------------------------------------------------- over 1500-1550 10 90 - -------------------------------------------------------------------------------- over 1450-1500 15 85 - -------------------------------------------------------------------------------- over 1400-1450 20 80 - -------------------------------------------------------------------------------- over 1350-1400 25 75 - -------------------------------------------------------------------------------- over 1300-1350 30 70 - -------------------------------------------------------------------------------- over 1250-1300 35 65 - -------------------------------------------------------------------------------- over 1200-1250 40 60 - -------------------------------------------------------------------------------- over 1150-1200 45 55 - -------------------------------------------------------------------------------- over 1100-1150 50 50 - -------------------------------------------------------------------------------- over 1050-1100 55 45 - -------------------------------------------------------------------------------- over 1000-1050 60 40 - -------------------------------------------------------------------------------- over 950-1000 65 35 - -------------------------------------------------------------------------------- over 900-950 70 30 - -------------------------------------------------------------------------------- over 850-900 75 25 - -------------------------------------------------------------------------------- over 800-850 80 20 - -------------------------------------------------------------------------------- over 750-800 85 15 - -------------------------------------------------------------------------------- over 700-750 90 10 - -------------------------------------------------------------------------------- over 650-700 95 5 - -------------------------------------------------------------------------------- 650 and under 100 0 When the S&P 500 moves into a new band on the table, the Fund will promptly rebalance the stock-bond mix to reflect the new S&P price level by redeeming shares of some Portfolio Funds and purchasing shares of other Portfolio Funds. The only exception will be a "31-day Rule"; in order to reduce taxable events, after the Fund has increased its percentage allocation to either stock funds or bond funds, it will not decrease that allocation for at least 31 days. Following a change in the Fund's stock-bond mix, if the S&P 500 remains within the same band for a while, normal market fluctuations will change the values of the Fund's holdings of stock Portfolio Funds and bond Portfolio Funds. We will invest cash flows from sales (or redemptions) of Fund shares to bring the stock-bond mix back toward the allocation percentages for that S&P 500 band. For example, if the S&P is in the 901-950 band, and the value of the holdings of the stock Portfolio Funds has dropped to 68% of the value of the holdings of all Portfolio Funds, new cash would be invested in the stock Portfolio Funds (or cash for redemptions would come from the bond Portfolio Funds). If the 31-day Rule is in effect, new cash flows will be invested at the stock-bond percentage allocation as of the latest rebalancing. 3 The Fund As an illustrative example, suppose the following market events occurred:
How Thermostat will invest Date Level of the S&P 500 the Stock/Bond Assets - ------------------------------------------------------------------------------------------------------------------ Nov. 1 We begin when the market is 1140 50% stocks, 50% bonds - ------------------------------------------------------------------------------------------------------------------ Dec. 1 The S&P 500 goes to 1151 rebalance 45% stocks, 55% bonds - ------------------------------------------------------------------------------------------------------------------ Dec. 6 The S&P 500 drops back to 1145 no reversal for 31 days - ------------------------------------------------------------------------------------------------------------------ Jan. 2 The S&P 500 is at 1142 rebalance 50% stocks, 50% bonds - ------------------------------------------------------------------------------------------------------------------ Jan. 20 The S&P 500 drops to 1099 rebalance 55% stocks, 45% bonds The market has made a continuation move by going through a second action level, not a reversal move, so the 31-day Rule does not apply in this case. - ------------------------------------------------------------------------------------------------------------------ Jan. 30 The S&P 500 goes up to 1105 no reversal for 31 days - ------------------------------------------------------------------------------------------------------------------ Feb. 20 The S&P 500 is at 1110 rebalance 50% stocks, 50% bonds
The following table shows the five stock Portfolio Funds and three bond Portfolio Funds that Thermostat currently uses in its fund-of-funds structure and the current allocation percentage for each Portfolio Fund within the stock or bond category. The allocation percentage within each category is achieved by rebalancing the investments within the category whenever the S&P 500 moves into a new band on the allocation table, subject to the 31-day Rule described above. Thermostat does not liquidate its investment in one Portfolio Fund in order to invest in another Portfolio Fund except in connection with a rebalancing due to a move of the S&P 500 into a new band (or due to a change by the adviser's supervisory committee in the stock-bond allocation table, in the Portfolio Funds or in the relative allocation among Portfolio Funds). Until a subsequent rebalancing, Thermostat's investments in, and redemptions from, the stock Portfolio Funds or the bond Portfolio Funds are allocated among such Portfolio Funds in a manner that will reduce any deviation of the relative values of Thermostat's holdings of such funds from the allocation percentages shown below. - -------------------------------------------------------------------------------- Allocation of Stock/Bond Assets within Asset Classes - -------------------------------------------------------------------------------- Stock Funds Type of Fund Allocation - -------------------------------------------------------------------------------- Columbia Acorn Fund Small cap stock 20% - -------------------------------------------------------------------------------- Columbia Acorn Select Mid cap stock 15 - -------------------------------------------------------------------------------- Columbia Growth Stock Fund Large cap growth 25 - -------------------------------------------------------------------------------- Columbia Growth & Income Fund Large cap value 25 - -------------------------------------------------------------------------------- Columbia Mid Cap Value Fund Mid cap stock 15 - -------------------------------------------------------------------------------- Total 100% Bond Funds Type of Fund Allocation - -------------------------------------------------------------------------------- Columbia Federal Securities Fund U.S. government securities 30% - -------------------------------------------------------------------------------- Columbia Intermediate Bond Fund Intermediate-term bonds 50 - -------------------------------------------------------------------------------- Columbia High Yield Fund High-yield bonds 20 - -------------------------------------------------------------------------------- Total 100% As described below, the supervisory committee of Thermostat's investment adviser will have authority to review the Portfolio Funds and the relative allocation percentages among the stock funds and among the bond funds and to make any changes considered appropriate. Thermostat is advised by Columbia Wanger Asset Management, L.P. (CWAM or the Adviser). Each of the Portfolio Funds is managed by CWAM or an affiliate of CWAM. The Fund will not pay any sales load on its purchases of shares of the Portfolio Funds. 4 The Fund CWAM has a supervisory committee that meets on an annual basis, or on an "emergency" basis if necessary, to review the structure, allocation percentages and Portfolio Funds of Thermostat and to make any changes considered appropriate. The committee typically addresses the following questions: Should the stock-bond allocation table be revised? (perhaps because the stock market has made a long-term move outside of the 650-1600 S&P 500 bands) Should there be a change in the Portfolio Funds in which Thermostat invests, or should there be a change in the percentage allocations among the stock funds or the bond funds? (perhaps because of a change of portfolio managers, change of investment style or reorganization of a Portfolio Fund) Any changes by the supervisory committee are expected to be infrequent. The S&P 500 is a broad market-weighted average of U.S. blue-chip company stock performance. The investment objectives and strategies of the current Portfolio Funds are described below: Columbia Acorn Fund, Class Z (Acorn Fund) Acorn Fund seeks to provide long-term growth of capital. Acorn Fund generally invests in the stocks of small- and medium-sized companies. The Fund generally invests in the stocks of companies with market capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. The Fund believes that these smaller companies, which are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Acorn Fund typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give a company a competitive advantage. o A stock price the Fund's adviser believes is reasonable relative to the assets and earning power of the company. Acorn Fund invests the majority of its assets in U.S. companies, but also may invest up to 33% of its assets in companies outside the U.S. in developed markets (for example, Japan, Canada and United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Acorn Select, Class Z (Acorn Select) Acorn Select seeks long-term growth of capital. Acorn Select generally invests in the stocks of U.S. companies. The Fund is a non-diversified fund that takes advantage of its adviser's research and stock-picking capabilities to invest in a limited number of companies (between 20-40) with market capitalizations under $20 billion at the time of initial purchase, offering the potential to provide above-average growth over time. The Fund believes that companies within this capitalization range, which are not as well known by financial analysts as the largest companies, may offer higher return potential than the stocks of companies with capitalizations above $20 billion. 5 The Fund Acorn Select typically looks for companies with: o A strong business franchise that offers growth potential. o Products and services that give a company a competitive advantage. o A stock price the Fund's adviser believes is reasonable relative to the assets and earning power of the company. Although Acorn Select does not buy securities with a short-term view, there is no restriction on the length of time the Fund must hold a security. To the extent the Fund buys and sells securities frequently, its transaction costs will be higher (which may adversely affect the Fund's performance) and it may realize additional capital gains. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Growth Stock Fund, Class Z (Growth Stock Fund) Growth Stock Fund seeks long-term growth. Growth Stock Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in large capitalization stocks. These are stocks of companies that have market capitalizations similar in size to those companies in the Russell 1000 Growth Index. As of December 31, 2004, that index included companies with capitalizations between approximately $__ million and $__ billion. The Fund's investments are diversified among industries and market sectors including, but not limited to, technology, financial services, health care, and global consumer franchise sectors. The Fund may invest up to 25% of its assets in foreign stocks. To select investments for the Fund, the Fund's investment adviser considers companies that it believes will generate earnings growth over the long term regardless of the economic environment. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Growth & Income Fund, Class Z (Growth & Income Fund) Growth & Income Fund seeks long-term growth and income. Under normal market conditions, Growth & Income Fund invests at least 65% of its total assets in common stock of U.S. companies with equity market capitalizations at the time of purchase in excess of $3 billion. Up to 35% of the Fund's total assets may be invested in common stock of U.S. companies with equity market capitalizations at the time of purchase between $1 billion and $3 billion. Also, up to 10% of the Fund's total assets may be invested in a combination of (i) convertible bonds, (ii) corporate bonds that are rated investment grade and (iii) U.S. Government securities. When purchasing securities for the Fund, the Fund's investment adviser generally chooses securities of companies it believes are undervalued. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Mid Cap Value Fund, Class Z (Mid Cap Value Fund) Select Fund seeks long-term growth. 6 The Fund The Fund invests, under normal market conditions, primarily in middle capitalization stocks. These are stocks of mid-sized companies that have market capitalizations similar in size to those companies in the Russell Midcap(TM) Value Index. As of December 31, 2004, that index included companies with capitalizations between approximately $__ million and $__ billion. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Federal Securities Fund, Class Z (Federal Securities Fund) Federal Securities Fund seeks as high a level of current income and total return as is consistent with prudent risk. Under normal market conditions, Federal Securities Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S. government securities, including U.S. treasuries and securities of various U.S. government agencies. Agency securities include mortgage-backed securities, which represent interests in pools of mortgages. The Fund may also invest up to 20% of its assets in corporate bonds or mortgage or asset-backed securities that are issued by private entities. These securities must be rated investment grade by Moody's Investors Service, Inc. (Moody's), Standard & Poor's Corporation (S&P) or Fitch Ratings, Inc. (Fitch). The Fund has wide flexibility to vary its allocation among different types of U.S. government securities and the securities of non-governmental issuers based on the investment adviser's judgment of which types of securities will outperform the others. In selecting investments for the Fund, the adviser considers a security's expected income together with its potential to rise or fall in price. Federal Securities Fund generally maintains a duration of greater than three years and less than 10 years. As a result, the Fund's portfolio has market risks and an expected average life comparable to intermediate- to long-term bonds. The Fund's adviser may vary the Fund's duration depending on its forecast of interest rates and market conditions (for example, when interest rates are expected to increase, the adviser may shorten the duration, and vice versa). Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia Intermediate Bond Fund, Class Z (Intermediate Bond Fund) Intermediate Bond Fund seeks its total return by pursuing current income and opportunities for capital appreciation. Under normal circumstances, the Intermediate Bond Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in bonds, including: o Debt securities issued by the U.S. government; these include U.S. treasury securities and agency securities. Agency securities include certain mortgage-backed securities, which represent interests in pools of mortgages, o Debt securities of corporations, and o Mortgage-backed and asset-backed securities issued by private (non-governmental) entities. Intermediate Bond Fund will invest at least 60% of its net assets in higher-quality debt securities that are at the time of purchase: o Rated at least A by S&P; 7 The Fund o Rated at least A by Moody's; o Given a comparable rating by another nationally recognized rating agency; or o Unrated securities that the Fund's adviser believes to be of comparable quality. Intermediate Bond Fund may invest up to 20% of its net assets in lower-rated debt securities. These securities are sometimes referred to as "junk bonds" and are at the time of purchase: o Rated below BBB by S&P; o Rated below Baa by Moody's; o Given a comparable rating by another nationally recognized rating agency; or o Unrated securities that the Fund's adviser believes to be of comparable quality. Normally, the Fund expects to maintain a dollar-weighted average effective maturity of three to ten years. The Fund seeks to achieve capital appreciation through purchasing bonds that increase in market value. In addition, to a limited extent, the Fund may seek capital appreciation by using hedging techniques such as futures and options. The manager of the Fund has wide flexibility to vary the allocation among different types of debt securities based on his judgment of which types of securities will outperform the others. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." Columbia High Yield Fund, Class Z (High Yield Fund) High Yield Fund seeks a high level of income, with capital appreciation as a secondary goal. High Yield Fund pursues its objective by investing in non-investment-grade corporate debt securities, commonly referred to as "junk" or "high-yield" bonds. Normally, the Fund will invest at least 80% of its assets in bonds rated Ba or B by Moody's or BB or B by S&P. No more than 10% of the Fund's assets will be invested in bonds rated Caa by Moody's or CCC by S&P, and no Fund assets will be invested in bonds below these grades. By focusing on higher quality junk bonds, the Fund seeks access to higher yielding bonds without assuming all the risk associated with the broader junk bond market. Additional strategies that are not principal investment strategies and the risks associated with them are described below under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. The value of an investment in the Fund is based primarily on the performance of the Portfolio Funds and the allocation of the Fund's assets among them. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund. Management risk. Management risk means that the adviser's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. The Fund does not have the ability to affect how the portfolio managers of the Portfolio Funds manage those funds. 8 The Fund Market risk. 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. Interest rate risk. Since the Fund may invest in bond Portfolio Funds, it is subject to interest rate risk. This is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities. Issuer risk. Because a Portfolio Fund may invest in debt securities issued or supported by private entities, including corporate bonds and mortgage-backed and asset backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payment of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. Credit risk. Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds. Structure risk and prepayment risk. Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in mortgage-backed securities. Prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. Lower-rated debt securities. Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal. 9 The Fund Medium-quality debt securities. Medium-quality debt securities, although considered investment grade, may have some speculative characteristics. Equity risk. Since the Fund may invest in equity Portfolio Funds, it is 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. Value stocks. Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the adviser's opinion, undervalued. If the adviser's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the adviser has placed on it. Growth stocks. Because some of the Portfolio Funds invest in growth stocks, the Fund is subject to the risk that growth stocks may be out of favor with investors for an extended period of time. 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 other stocks. Growth stocks may not perform as well as value stocks or the stock market in general. Market trends. The Fund is also subject to the risk that the investment adviser's decisions regarding asset classes and Portfolio Funds will not anticipate market trends successfully. For example, weighting Portfolio Funds that invest in common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in Portfolio Funds that invest in bonds during a period of stock market appreciation may result in lower total return. Of course, the risks associated with investing in the Fund will vary depending upon how the assets are allocated among Portfolio Funds. Management has no control over the portfolio managers or investment decisions of the Portfolio Funds. However, decisions made by the Portfolio Funds' managers will have a significant effect on a Fund's performance. Affiliated fund risk. In managing Thermostat, the supervisory committee of CWAM will have authority to change the Portfolio Funds in which Thermostat invests or to change the percentage allocations among the stock funds or the bond funds. Since different Portfolio Funds pay different rates of management fees to CWAM or its affiliates, CWAM may have a conflict of interest selecting the Portfolio Funds or in determining the relative percentage allocations among Portfolio Funds. Sector risk. Sector risk may sometimes be present in the Portfolio Funds' investments. 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 the Fund does not intend to focus on any particular sector, at times the Portfolio Funds may have a large portion of their assets invested in a particular sector. Foreign securities. Foreign securities 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 a Portfolio 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 10 The Fund 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. Emerging markets. Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. Smaller companies. Smaller companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management group and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stock. The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. Portfolio turnover. The Fund may buy and sell shares of the Portfolio Funds frequently. This may result in more realized income and greater income taxes, and could increase the transaction costs of the underlying funds. An investment in the 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. 11 The Fund PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of broad measures of market performance for one year and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Calendar Year Total Returns show the Fund's Class A share performance for each completed calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower. Average Annual Total Returns are a measure of the Fund's average performance over the past one-year and for the life of the Fund. The table shows returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see section "Your Account--Sales Charges"). The Fund's returns are compared to the S&P 500 Index, its benchmark with respect to equity securities, and the Lehman U.S. Credit Intermediate Bond Index, its benchmark with respect to debt securities. The S&P 500 Index, the Fund's primary benchmark, is a broad market-weighted average of large U.S. blue-chip companies. The Lehman U.S. Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. -------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Calendar Year Total Returns (Class A)(1) - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 8.92% For the periods shown in bar chart: Best quarter: 4th quarter 2004, +5.75% Worst quarter: 2nd quarter 2004, -0.18% 12 The Fund After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
- ------------------------------------------------------------------------------------------------------------------ Average Annual Total Returns--for periods ended December 31, 2004 - ------------------------------------------------------------------------------------------------------------------ Inception Life of Date 1 Year the Fund Class A(%) 3/3/03 Return Before Taxes 2.65 13.57 Return After Taxes on Distributions 1.94 12.95 Return After Taxes on Distributions and Sale of Fund Shares 1.77 11.29 - ------------------------------------------------------------------------------------------------------------------ Class B(%) 3/3/03 Return Before Taxes 3.27 14.62 Return After Taxes on Distributions 2.75 14.24 Return After Taxes on Distributions and Sale of Fund Shares 2.16 12.32 - ------------------------------------------------------------------------------------------------------------------ Class C(%) 3/3/03 Return Before Taxes 7.13 16.46 Return After Taxes on Distributions 6.62 16.10 Return After Taxes on Distributions and Sale of Fund Shares 4.67 13.92 - ------------------------------------------------------------------------------------------------------------------ S&P 500 Index(1) (%) N/A 10.88 24.12 - ------------------------------------------------------------------------------------------------------------------ Lehman U.S. Credit Intermediate Bond Index(1) (%) N/A 4.08 4.82 (1) Performance information is from March 3, 2003.
13 The Fund YOUR EXPENSES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund. -------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor. Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time to time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operation expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions: o $10,000 initial investment o 5% total return for each year o Fund operating expenses remain the same o Reinvestment of all dividends and distributions o Class B shares convert to Class A shares after eight years -------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ Shareholder Fees(1) (paid directly from your investment) - ------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 5.75 None None - ------------------------------------------------------------------------------------------------------------------ Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 1.00(2) 5.00 1.00 - ------------------------------------------------------------------------------------------------------------------ Redemption fee (%) (as a percentage of amount redeemed, if applicable) (as a percentage of amount redeemed, if applicable) None(3) None(3) None(3) (1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to the transfer agent. (2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 18 months of purchase. (3) There is a $7.50 charge for wiring sale proceeds to your bank.
14 The Fund - ------------------------------------------------------------------------------------------------------------------- Annual Fund Operating Expenses (deducted from Fund assets) - -------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Management fees(1) (%) 0.10 0.10 0.10 - ------------------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.25* 0.85 1.00 - ------------------------------------------------------------------------------------------------------------------- Other expenses(2) (%) 0.35 0.40 0.38 - ------------------------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 0.70 1.35 1.48 - ------------------------------------------------------------------------------------------------------------------- Expense reimbursement/Waiver (%) (0.20) (0.25) (0.23) - ------------------------------------------------------------------------------------------------------------------- Net expense ratio(3) (%) 0.50 1.10 1.25 - ------------------------------------------------------------------------------------------------------------------- Expense ratio of Portfolio Funds (%) 0.86 0.86 0.86 - ------------------------------------------------------------------------------------------------------------------- Net expense ratio including expenses of Portfolio Funds(4) (%) 1.36 1.96 2.11 - ------------------------------------------------------------------------------------------------------------------- Gross expense ratio including expenses of Portfolio Funds (%) 1.56 2.21 2.34 * The Fund may pay distribution and service 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 0.10% for distribution services, and up to 0.25% for shareholder liaison services) but will limit such fees to an aggregate fee of not more than 0.25% during the current fiscal year. (1) In addition to the management fee, the Fund and the other funds of Columbia Acorn Trust (the "Trust") pay the adviser an administrative fee based on the average daily aggregate net assets of the Trust at the following annual rates: 0.05% of net assets up to $8 billion; 0.04% of the next $8 billion; and 0.03% of net assets in excess of $16 billion. Based on the Trust's average daily net assets as of December 31, 2004, the administrative fee would be at the annual rate of 0.048%, which rounds to 0.05% and is included in "Other expenses." (2) "Other expenses" have been restated to reflect current transfer agency fees. A transfer agency fee reduction for all funds managed by the adviser became effective on September 30, 2004. This fee reduction is expected to decrease the Fund's Annual Fund Operating Expenses. (3) The Fund's Adviser and/or its affiliates have contractually agreed to waive a portion of "Other expenses" through April 30, 2006. In addition, the Fund's Adviser has contractually agreed to bear a portion of the Fund's expenses so that the Fund's ordinary operating expenses (excluding any distribution and service fees, interest and fees on borrowings and expenses associated with the Fund's investment in other investment companies) do not exceed 0.25% annually through April 30, 2006. The Adviser will have the right to recoup expense reimbursement payments made to the Fund through December 31, 2006. This will be accomplished by the payment of an expense reimbursement fee by the Fund to the Adviser computed and paid monthly, with a limitation that immediately after such payment the Fund's ordinary operating expenses (excluding any distribution and service fees, interest and fees on borrowings and expenses associated with the Fund's investment in other investment companies) will not exceed 0.25% annually. (4) Includes the fees and expenses incurred by the Fund directly and indirectly from the underlying Portfolio Funds in which the Fund invests. The ratios shown above are based on an asset allocation among Portfolio Funds as shown on page 4, based on the respective expense ratios of the Portfolio Funds for their respective last fiscal years, as adjusted to reflect any fee waiver for any Portfolio Fund in effect as of the end of its last fiscal year. Based on this allocation, the Fund's estimated indirect annual expenses would have been [0.94%]. Such expense ratios ranged from [0.80% to 1.15]%. The indirect expense ratio of the Fund may be higher or lower depending on the portion of the Fund's assets allocated to each Portfolio Fund from time to time. The assumed allocation of the Fund's net assets among the underlying Columbia Funds as shown on page 4 would have been as follows: Columbia Acorn Fund, 10%; Columbia Acorn Select Fund, 7.5%; Columbia Growth Stock Fund, 12.5%; Columbia Growth & Income Fund, 12.5%; Columbia MidCap Value Fund, 7.5%; Columbia Federal Securities Fund, 15%; Columbia Intermediate Bond Fund, 25%; and Columbia High Yield Fund, 10%. - ------------------------------------------------------------------------------------------------------------------- Example Expenses for a $10,000 investment(1) (your actual costs may be higher or lower) - ------------------------------------------------------------------------------------------------------------------- Class 1 Year 3 Years 5 years 10 years Class A: $706 $1,021 $1,358 $2,309 - ------------------------------------------------------------------------------------------------------------------- Class B: did not sell your shares $199 $ 667 $1,162 $2,360 sold all your shares at the end of the period $699 $ 967 $1,362 $2,360 - ------------------------------------------------------------------------------------------------------------------- Class C: did not sell your shares $312 $ 801 $1,317 $2,732 sold all your shares at the end of the period $411 $ 801 $1,317 $2,732 (1) Includes the fees and expenses incurred by the Fund directly and indirectly from the underlying Portfolio Funds in which the Fund invests. The example expenses for the one-year period reflect the contractual cap on expenses referred to in footnote (3), but this arrangement is not reflected in the example expenses for the second and third years of the three-year period, the second through fifth years of the five year period, or the second through tenth years of the ten year period.
15 - -------------------------------------------------------------------------------- Your Account - -------------------------------------------------------------------------------- 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 the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The Fund reserves the right to refuse a purchase order for any reason, including if the Fund believes that doing so would be in the best interest of the Fund and its shareholders. 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. - -------------------------------------------------------------------------------- INVESTMENT MINIMUMS Initial Investment ...................................................... $1,000 Subsequent Investments .................................................. $50 Automatic Investment Plan* .............................................. $50 Retirement Plans* ....................................................... $25 * 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. Finally, pursuant to the Trust's Agreement and Declaration of Trust, the Fund reserves the right to redeem your shares if your account falls below the minimum investment requirements. - ------------------------------------------------------------------------------ 16 Your Account - ----------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for buying shares: - -----------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your Your financial advisor can help you establish your account and buy Fund shares on your behalf. To financial advisor 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 made payable to the Fund to Columbia Funds (new account) Services, Inc., P.O. Box 8081, Boston, MA 02266-8081. - ----------------------------------------------------------------------------------------------------------------------------- By check For existing accounts, fill out and return the additional investment stub included in your account (existing 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 (and, in some cases, certain other classes) 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 transferring money from your bank account to your transfer 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 ($50 minimum) from your bank account to your investment plan 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 exchanging $100 or more each month from another cost averaging fund for shares of the same class of the Fund at no additional cost. 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. There may be an additional sales charge if exchanging from a money market fund. Be sure to complete the appropriate section of the account application for this feature. - ----------------------------------------------------------------------------------------------------------------------------- By dividend You may automatically invest dividends distributed by another fund into the same class of shares (and, diversification in some cases, certain other classes) of the Fund at no additional sales charge. To invest your other dividends in the Fund, call 1-800-345-6611.
17 Your Account SALES CHARGES - -------------------------------------------------------------------------------- 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 reduced or waived, as described below and in the Statement of Additional Information. -------------------------------------------------------------------------- CHOOSING A SHARE CLASS The Fund offers three classes of shares in this prospectus--Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class 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 also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors. -------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------------------------------- Class A Sales Charges - --------------------------------------------------------------------------------------------------------
% of offering Sales Charges as % of: price net retained by offering amount your financial Amount of purchase price invested 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
The Fund's distributor may also pay additional compensation to financial advisors as a promotional incentive. 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 shares through a fee-based program. 18 Your Account In addition to the initial sales charge paid to your financial advisor and distributor, a 0.25% annual commission is paid to your financial advisor over the life of your investment out of your Fund assets as a 12b-1 fee. 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 - -------------------------------------------------------------------------------- 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 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 (CDSC) 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 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. A. What are the principal ways to obtain a breakpoint discount? There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds. Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price. Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. 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. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost 19 Your Account (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by the Fund. B. What accounts are eligible for breakpoint discounts? The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include: o Individual accounts o Joint accounts o Certain IRA accounts o Certain trusts o UTMA/UGMA accounts For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included. C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depends on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares. D. How can I obtain more information about breakpoint discounts? 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. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com. 20 Your Account Class B shares Your purchases of Class B shares are 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 the 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 on the following page. In addition, Class B shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. Purchases of less than $250,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 Up-front commission to financial advisors is 4.00% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receive 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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. Purchases of $250,000 to less than $500,000: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % 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 Up-front commission to financial advisors is 2.50% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically four years after purchase. 21 Your Account Purchases of $500,000 to less than $1 million: - -------------------------------------------------------------------------------- Class B Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through first year 3.00 - -------------------------------------------------------------------------------- Through second year 2.00 - -------------------------------------------------------------------------------- Through third year 1.00 Up-front commission to financial advisors is 1.75% and is paid by the distributor. From the 12b-1 annual fee of 0.85% paid out of your Fund assets, the distributor receives 0.60%, and your financial advisor is paid the remaining 0.25% as an ongoing commission. The conversion of Class B shares to Class A shares occurs automatically 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. 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. In addition, Class C shares bear ongoing service and distribution fees that are higher than those borne by Class A shares. - -------------------------------------------------------------------------------- Class C Sales Charges - -------------------------------------------------------------------------------- % deducted when Holding period after purchase shares are sold Through one year 1.00 - -------------------------------------------------------------------------------- Longer than one year 0.00 A 1.00% annual commission is paid to your financial advisor and the distributor over the life of your investment out of your Fund assets. PAYMENTS TO YOUR FINANCIAL ADVISOR - -------------------------------------------------------------------------------- Normally your financial advisor receives certain initial and ongoing payments based on your purchase and continued holding of shares of the Fund as described above under "Sales Charges." For specific details on those payments or any other payments that may be received, you should contact your financial advisor. 22 Your Account 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. Shareholders of Columbia Acorn Funds that qualify to purchase Class A shares at net asset value may exchange their Class A shares for Class Z shares of another fund distributed by Columbia Funds Distributor, Inc. (see the Statement of Additional Information for a description of these situations). 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 adviser 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. 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 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. 23 Your Account - -------------------------------------------------------------------------------------------------------------------------- Outlined below are the various options for selling shares: - --------------------------------------------------------------------------------------------------------------------------
Method Instructions Through your You may call your financial advisor to place your sell order. To receive the current trading day's financial advisor 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. - -------------------------------------------------------------------------------------------------------------------------- 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 ($50 minimum) amount or percentage of your account on a withdrawal plan 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 proceeds be electronically transferred to your funds transfer 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.
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. 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 any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will 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. 24 Your Account The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Columbia Funds (other than the Fund) impose a redemption fee on the proceeds of 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 are not subject to the two-round-trip limit. Purchases, redemptions and exchanges made by Columbia Thermostat Fund are also 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 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 under the Investment Company Act that permits it to pay its distributor ongoing 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, and your financial advisor may receive all or a portion of those fees attributable to your shares (see "Payments to Your Financial Advisor"). The annual service fee, as a percentage of the value of the shares, may equal up to 0.25% for Class A, Class B and Class C shares. The annual distribution fee is normally 0.10% for Class A shares and 0.75% for Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees reduce the return on your investment and 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 you purchased your shares. See "Your Account -- Sales Charge" for the conversion schedule applicable to Class B shares. 25 Your Account 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 adviser, 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 its 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 on days 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 value of each security in its portfolio at the close of each trading day. Because some of the Portfolio Funds hold securities that are traded on foreign exchanges, the value of the Portfolio Funds' 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 Portfolio Fund's adviser believes that subsequent events have made them unreliable, the Fund may use other data to determine a fair value of the securities. 26 Your Account The Fund has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service may decrease the opportunities to arbitrage. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security. 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 Funds' 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. Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions: - -------------------------------------------------------------------------------- Types of Distributions - -------------------------------------------------------------------------------- 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 on sales of securities held for a 12-month period or less. -------------------------------------------------------------------------- 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 dividends in June and December 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. If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund. - -------------------------------------------------------------------------------- Distribution Options - -------------------------------------------------------------------------------- Reinvest all distributions in additional shares of the 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): o send the check to your address of record o send the check to a third party address o transfer the money to your bank via electronic funds transfer 27 Your Account 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, 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 tax 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 also may 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. Income other than net capital gains received by the Fund from the Portfolio Funds (including dividends and distributions of short-term capital gains) will be distributed by the Fund (after deductions for expenses) and will be taxable to you as ordinary income, unless it is eligible to be treated as qualified dividend income. Because the Fund is an asset allocation fund and may realize taxable net short-term capital gains by selling shares of a Portfolio Fund in its portfolio with unrealized portfolio appreciation, investing in the Fund rather than directly in the Portfolio Fund may result in accelerated tax liability to you since the Fund must distribute its gains in accordance with the Internal Revenue Code of 1986. Distributions of net capital gains received by the Fund from its Portfolio Funds, plus net long-term capital gains realized by the Fund from the purchase and sale of Portfolio Fund shares or other securities held by the Fund for more than one year, will be distributed by the Fund and will be taxable to you as long-term capital gains (even if you have held Fund shares for one year or less). If a shareholder who has received a capital gains distribution suffers a loss on the sale of his or her shares not more than six months after purchase, the loss will be treated as a long-term capital loss to the extent of the capital gains distribution received. Long-term capital gains, including distributions of net capital gains, are currently subject to a maximum federal tax rate of 15%. This rate is less than the maximum rate imposed on other types of taxable income. Capital gains also may be advantageous since, unlike ordinary income, they may be offset by capital losses. For purposes of determining the character of income received by the Fund when a Portfolio Fund distributes net capital gains to the Fund, the Fund will treat the distribution as long-term capital gain, even if the Fund has held shares of the Portfolio Fund for one year or less. Any loss incurred by the Fund on the sale of that Portfolio Fund's shares held for six months or less, however, will be treated as a long-term capital loss to the extent of the net capital gain distribution. High portfolio turnover may cause the Fund to realize short term capital gains which, if realized and distributed by the Fund, may be taxable to shareholders as ordinary income. 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. 28 - -------------------------------------------------------------------------------- Board of Trustees - -------------------------------------------------------------------------------- The Fund is governed by its board of trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions and academia to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves a Fund until its termination or until the Trustee's retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Columbia Acorn Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. For more detailed information on the board of trustees, please refer to the Statement of Additional Information. 29 - -------------------------------------------------------------------------------- Managing the Fund - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Columbia Wanger Asset Management, L.P. (CWAM), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, is Thermostat's investment adviser and is responsible for the Fund's management, subject to oversight by the Fund's board of trustees. CWAM and its predecessor have managed mutual funds, including the Fund, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. CWAM was previously named Liberty Wanger Asset Management, L.P., and its predecessor was named Wanger Asset Management, L.P. CWAM is a wholly owned subsidiary of Columbia Management Group, Inc., which in turn is a wholly owned subsidiary of Fleet National Bank, which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM's advisory fee for managing the Fund in 2004 was 0.10% of the Fund's average daily net assets. CWAM also received an administrative fee from the Fund in 2004 of 0.05% of the Fund's average daily net assets. The Portfolio Funds are managed by CWAM and its affiliate Columbia Management Advisors, Inc., previously named Columbia Management Company (CMA). On April 1, 2003, Colonial Management Associates and Stein Roe & Farnham Incorporated and other affiliated investment adviser entities were merged with and into CMA. CMA assumed all of the business associated with each of the merged investment advisers. Like CWAM, CMA is owned by Columbia Management Group, Inc. CMA also may provide administrative and operational services to Thermostat. PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- CWAM uses a supervisory committee to review on an infrequent basis the structure and allocation ranges of Thermostat and to make any changes considered appropriate. The members of the committee are Ralph Wanger and Charles P. McQuaid. Ralph Wanger, is a director and the former president and chief investment officer of CWAM and its predecessor, and was the portfolio manager of Columbia Acorn Fund since its inception in 1970 through September 29, 2003. He is the former president of Columbia Acorn Trust and has been a member of Columbia Acorn Trust's Board of Trustees since 1970. He was a principal of Wanger Asset Management, L.P. and president of Wanger Asset Management, Ltd. from July 1992 until September 29, 2000. Mr. Wanger is the former president of Wanger Advisors Trust and currently serves as a trustee of Wanger Advisors Trust and a director of Wanger Investment Company PLC. The SAI provides additional information about Mr. Wanger's compensation, other accounts he manages and his ownership of securities in the Fund. Charles P. McQuaid, is president and a member of Columbia Acorn Trust's Board of Trustees. He has been president of CWAM since October 13, 2003, chief investment officer of CWAM since September 30, 2003, was the director of research at CWAM and its predecessor from July 1992 through December 2003, and was a principal of Wanger Asset Management, L.P. from July 1992 to September 29, 2000. Mr. McQuaid has been a member of Columbia Acorn Fund's management team since 1978, co-managed Columbia Acorn Fund from 1995 through September 29, 2003 and has been the Fund's lead portfolio manager since September 30, 3003. He served as CWAM's interim director of international research from October 2003 to December 15, 2004. Mr. McQuaid has been the president of Wanger Advisors Trust since September 30, 2003. The SAI provides additional information about Mr. McQuaid's compensation, other accounts he manages and his ownership of securities in the Fund. 30 Managing the Fund LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. 31 - -------------------------------------------------------------------------------- Other Investment Strategies and Risks - -------------------------------------------------------------------------------- Thermostat's principal investment strategies and associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Portfolio Funds may make and the risks associated with them. In seeking to achieve their investment goals, the Portfolio Funds may invest in various types of securities and engage in various investment techniques that are not their principal focus and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in Thermostat's Statement of Additional Information, which you may obtain free of charge (see back cover). The adviser may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by Thermostat's shareholders is not required to modify or change Thermostat's investment goal or any of its investment strategies. DERIVATIVE STRATEGIES - -------------------------------------------------------------------------------- The Portfolio Funds may enter into a number of hedging strategies, including those that employ futures and options, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Portfolio Funds may use these strategies to adjust their sensitivity to changes in interest rates or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is a risk that the other party to the transaction may fail to honor its contract terms, causing a loss to a Portfolio Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS - -------------------------------------------------------------------------------- When-issued securities and forward commitments are securities that are purchased prior to the date they are actually issued or delivered. These securities involve the risk that they may fall in value by the time they are actually issued or that the other party may fail to honor the contract terms. SHORT SALES - -------------------------------------------------------------------------------- A Portfolio Fund's short sales are subject to special risks. A short sale by a Portfolio Fund of a security that it does not own in the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, a Portfolio Fund borrows the security from a third party. The Portfolio Fund is then obligated to return the security to the third party at a later date, and so the Portfolio Fund must purchase the security at the market price on such later date. If the price of the security has increased, then the Portfolio 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 Portfolio Fund. 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. A 32 Other Investment Strategies and Risks decline in interest rates may lead to a faster rate of repayment on asset-backed securities and therefore, cause a Portfolio 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. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities. MORTGAGE-BACKED SECURITIES - -------------------------------------------------------------------------------- Mortgage-backed securities are securities that represent ownership interests in large, diversified pools of mortgage loans. Sponsors pool together mortgages of similar rates and terms and offer them as a security to investors. Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae, and Freddie Mac. 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. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause the Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities. Commercial mortgaged-backed securities are secured by loans to commercial properties such as office buildings, multi-family apartment buildings, and shopping centers. These loans usually contain prepayment penalties that provide protection from refinancing in a declining interest rate environment. Real estate mortgage investment conduits (REMICs) are multi-class securities that qualify for special tax treatment under the Internal Revenue Code. REMICs invest in certain mortgages that are secured principally by interests in real property such as single family homes. ZERO COUPON BONDS - -------------------------------------------------------------------------------- Zero coupon bonds do not pay interest in cash on a current basis, but instead accrue interest over the life of the bond. As a result, these securities are issued at a discount. The value of these securities may fluctuate more than the value of similar securities that pay interest periodically. Although these securities pay no interest to holders prior to maturity, interest accrued on these securities is reported as income to a Portfolio Fund and distributed to its shareholders. ILLIQUID INVESTMENTS - -------------------------------------------------------------------------------- A Portfolio Fund may invest up to 15% of its net assets in illiquid investments. An illiquid investment is a security or other position that cannot be disposed of quickly in the normal course of business. For example, some securities are not registered under U.S. securities laws and cannot be sold in public transactions because of Securities and Exchange Commission regulations (these are known as "restricted securities"). Under procedures adopted by a Portfolio Fund's Board of Trustees, certain restricted securities may be deemed liquid and will not be counted toward this 15% limit. 33 Other Investments Strategies and Risks TEMPORARY DEFENSIVE STRATEGIES - -------------------------------------------------------------------------------- At times, CWAM or the advisers to the Portfolio Funds may determine that adverse market conditions make it desirable to temporarily suspend the Fund's or Portfolio Funds' respective normal investment activities. During such times, the Fund or Portfolio funds may, but are not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund or Portfolio Funds from achieving their respective investment goals. 34 - -------------------------------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's Class A, Class B and Class C shares fiscal years since inception which run from January 1 to December 31, unless otherwise indicated. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return 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 have been audited for the year ended December 31, 2004 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 years ended December 31, 2000, 2001, 2002 and 2003 is included in the Fund's financial statements that have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling the Fund's distributor at 1-800-426-3750. - -------------------------------------------------------------------------------- Columbia Thermostat Fund - -------------------------------------------------------------------------------- Inception March 3, 2003 through 2004 December 31, 2003 Class A Class A Net asset value -- Beginning of period ($) 12.30 10.10 - -------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income(a) 0.28 0.18 Net realized and unrealized gain 0.81 2.15 - -------------------------------------------------------------------------------- Total from Investment Operations 1.09 2.33 - -------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.25) (0.13) From net realized gains (0.03) (0.00)(b) - -------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.28) (0.13) - -------------------------------------------------------------------------------- Net asset value -- End of period ($) 13.11 12.30 - -------------------------------------------------------------------------------- Total return (%)(d) 8.92 23.10(e) - -------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f)(g) 0.50 0.57(h) Net investment income(g) 2.23 1.86(h) Reimbursement 0.33 0.66(h) Portfolio turnover rate (%) 67 61 Net assets at end of period (000's) ($) 77,092 42,271 (a) Per share data was calculated using average shares outstanding during the period. Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the underlying investment companies in which the Fund invests. (b) Represents less than $0.01 per share. (c) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (d) Total return at net asset value assuming all distributions reinvested and no initial sales charge as contingent deferred sales charge. (e) Not annualized. (f) Does not include expenses of the investment companies in which the Fund invests. (g) The benefits derived from custody fees paid indirectly had no impact. (h) Annualized. 35 Financial Highlights - -------------------------------------------------------------------------------- Columbia Thermostat Fund - -------------------------------------------------------------------------------- Inception March 3, 2003 through 2004 December 31, 2003 Class B Class B Net asset value -- Beginning of period ($) 12.32 10.10 Income from Investment Operations ($): - -------------------------------------------------------------------------------- Net investment income(a) 0.19 0.10 Net realized and unrealized gain 0.83 2.16 - -------------------------------------------------------------------------------- Total from Investment Operations 1.02 2.26 - -------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.17) (0.04) From net realized gains (0.03) (0.00)(b) - -------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.20) (0.04) - -------------------------------------------------------------------------------- Net asset value -- End of period ($) 13.14 12.32 - -------------------------------------------------------------------------------- Total return (%)(d) 8.27 22.38(e) - -------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f)(g) 1.18 1.32(h) Net investment income(g) 1.55 1.06(h) Reimbursement 0.29 0.66(h) Portfolio turnover rate (%) 67(c) 61 Net assets at end of period (000's) ($) 78,040 51,501 (a) Per share data was calculated using average shares outstanding during the period. Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the underlying investment companies in which the Fund invests. (b) Represents less than $0.01. (c) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (d) Total return at net asset value assuming all distributions reinvested and no initial sales charge as contingent deferred sales charge. (e) Not annualized. (f) Does not include expenses of the investment companies in which the Fund invests. (g) The benefits derived from custody fees paid indirectly had no impact. (h) Annualized. 36 Financial Highlights - -------------------------------------------------------------------------------- Columbia Thermostat Fund - -------------------------------------------------------------------------------- Inception March 3, 2003 through 2004 December 31, 2003 Class C Class C Net asset value -- Beginning of period ($) $ 12.32 10.10 - -------------------------------------------------------------------------------- Income from Investment Operations ($): Net investment income(a) 0.19 0.11 Net realized and unrealized gain 0.81 2.15 - -------------------------------------------------------------------------------- Total from Investment Operations 1.00 2.26 - -------------------------------------------------------------------------------- Less Distributions Declared to Shareholders ($): From net investment income (0.16) (0.04) From net realized gains (0.03) (0.00)(b) - -------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.19) (0.04) - -------------------------------------------------------------------------------- Net asset value -- End of period ($) 13.13 12.32 - -------------------------------------------------------------------------------- Total return (%)(d) 8.13 22.38(e) - -------------------------------------------------------------------------------- Ratios to Average Net Assets (%): Expenses(f)(g) 1.25 1.32(h) Net investment income(g) 1.48 1.10(h) Reimbursement 0.26 0.66(h) Portfolio turnover rate (%) 67(c) 61 Net assets at end of period (000's) ($) 31,161 20,087 (a) Per share data was calculated using average shares outstanding during the period. Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the underlying investment companies in which the Fund invests. (b) Represents less than $0.01. (c) Had the Advisor and/or Transfer Agent not reimbursed a portion of expenses, total return would have been reduced. (d) Total return at net asset value assuming all distributions reinvested and no initial sales charge as contingent deferred sales charge. (e) Not annualized. (f) Does not include expenses of the investment companies in which the Fund invests. (g) The benefits derived from custody fees paid indirectly had no impact. (h) Annualized. 37 - -------------------------------------------------------------------------------- Appendix A - -------------------------------------------------------------------------------- The following after tax returns of the Portfolio Funds 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 Portfolio Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. -------------------------------------------------------------------------- UNDERSTANDING PERFORMANCE Average annual total returns are a measure of a Portfolio Fund's average performance over the past one-year, five-year and ten-year periods. They include the effects of Portfolio Fund expenses. The Portfolio Fund's returns are compared to an index selected by the Portfolio Funds' adviser. All third-party trademarks are the property of their owners. Unlike each Portfolio Fund, indices are not investments, do not incur fees, expenses or taxes, and are not professionally managed. It is not possible to invest directly in an index. -------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Average Annual Total Returns -- for periods ended December 31, 2004 - ---------------------------------------------------------------------------------------------------------------------------
Inception Date 1 Year 5 Years 10 Years Columbia Acorn Fund, Class Z(1) (%) 6/10/70 Return Before Taxes - --------------------------------------------------------------------------------------------------------------------------- Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - --------------------------------------------------------------------------------------------------------------------------- Russell 2500(R) Index (%) n/a (1) The Fund's Class Z share total annual fund operating expenses at December 31, 2004 were [0.80%]; Class Z and total net assets of the Fund were (in millions) [$7,065] and [$11,169], respectively. Inception Life of Date 1 Year 5 Years the Fund Columbia Acorn Select, Class Z(2)(%) 11/23/98 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - --------------------------------------------------------------------------------------------------------------------------- S&P MidCap 400 Index (%) n/a (2) The Fund's Class Z share total annual fund operating expenses at December 31, 2004 (exclusive of any voluntary fee waiver) were [1.12%]; Class Z and total net assets of the Fund were (in millions) [$294] and [$741], respectively.
38 Appendix A
Inception Date(3) 1 Year 5 Years 10 Years Columbia Growth & Income Fund, Class Z(4) (%) 2/7/01 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - --------------------------------------------------------------------------------------------------------------------------- S&P 500 Index (%) n/a (3) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) 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 A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would be higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on July 1, 1992, and Class Z shares were initially offered on February 7, 2001. (4) The Fund's Class Z share total annual fund operating expenses at June 30, 2004 (exclusive of any voluntary fee waiver) were [1.15%]; Class Z and total net assets of the Fund were (in millions) [$384] and[ $1,886], respectively. Inception Date 1 Year 5 Years 10 Years Columbia Growth Stock Fund, Class Z(5) (%) 7/1/58 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - --------------------------------------------------------------------------------------------------------------------------- S&P 500 Index (%) n/a (5) The Fund's Class Z share total annual fund operating expenses at September 30, 2004 (exclusive of any voluntary fee waiver) were [1.00%]; Class Z and total net assets of the Fund were (in millions) [$384] and [$798], respectively. Inception Date(6) 1 Year 5 Years 10 Years Columbia MidCap Value Fund Class Z(7) (%) 2/8/01 Return Before Taxes (6) (6) Return After Taxes on Distributions (6) (6) Return After Taxes on Distributions and Sale of Fund Shares (6) (6) - --------------------------------------------------------------------------------------------------------------------------- S&P MidCap 400 Index (%) n/a (6) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) 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 A shares and Class Z shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the Class Z shares would have been higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on July 21, 1949 and Class Z shares were initially offered on February 8, 2001. (7) The Fund's Class Z share total annual fund operating expenses at September 30, 2004 were [1.00%]; Class Z and total net assets of the Fund were (in millions) [$549] and [$1,436], respectively.
39 Appendix A
Inception Date(8) 1 Year 5 Years 10 Years Columbia Federal Securities Fund, Class Z(9) (%) 1/11/99 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - --------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index (%) n/a (8) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) 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 A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to service fees. Class A shares were initially offered on March 30, 1984, and Class Z shares were initially offered on January 11, 1999. (9) The Fund's Class Z share total annual fund operating expenses at August 31, 2004 were [1.00%]; Class Z and total net assets of the Fund were (in thousands) [$9,857] and (in millions) [$1,176], respectively. Inception Date 1 Year 5 Years 10 Years Columbia Intermediate Bond Fund, Class Z(10) (%) 12/5/78 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - --------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index (%) n/a (10) The Fund's Class Z share total annual fund operating expenses at June 30, 2004 were [0.80%]; Class Z and total net assets of the Fund were (in millions) [$717] and [$966], respectively. Inception Life of Date 1 Year 5 Years the Fund Columbia High Yield Fund(11) (%) 10/1/93 Return Before Taxes Return After Taxes on Distributions Return After Taxes on Distributions and Sale of Fund Shares - --------------------------------------------------------------------------------------------------------------------------- Merrill Lynch U.S. High Yield, Cash Pay Index (%) n/a (11) The Fund's Class Z share total annual fund operating expenses at August 31, 2004 were [0.82%]; Class Z and total net assets of the Fund were (in thousands) [$1,197] and [$1,584], respectively. (12) Performance information is from September 30, 1993.
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------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 43 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Additional information about the Fund's investments will be published in the Fund's semiannual and annual reports to shareholders. The annual report will contain a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at: Columbia Funds Distributor, Inc. One Financial Center Boston, MA 02111-2621 1-800-426-3750 www.columbiafunds.com Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission internet site at www.sec.gov. You can review and copy information about the Fund by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the: Public Reference Room Securities and Exchange Commission Washington, DC 20549-0102 Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090. Investment Company Act file number: Columbia Acorn Trust (formerly named Liberty Acorn Trust): 811-01829 o Columbia Thermostat Fund - -------------------------------------------------------------------------------- [Logo] ColumbiaFunds A Member of Columbia Management Group (C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.345.6611 www.columbiafunds.com COLUMBIA ACORN TRUST Statement of Additional Information May 1, 2005 This Statement of Additional Information ("SAI") contains information which may be useful to investors but which is not included in the Prospectuses of Columbia Acorn Trust, formerly named Liberty Acorn Trust ("Columbia Acorn" or "Trust"). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the Trust dated May 1, 2005. This SAI should be read together with a Prospectus and the Trust's most recent Annual Report dated December 31, 2004. Investors may obtain a free copy of a Prospectus and Annual Report from Columbia Funds Distributor, Inc. ("CFD"), One Financial Center, Boston, MA 02111-2621, by calling 1-800-426-3750 or by visiting the Trust's website at www.columbiafunds.com. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in the Fund's December 31, 2004 Annual Report are incorporated in this SAI by reference. Definitions...................................................................2 Organization and History......................................................2 Investment Policies...........................................................2 Portfolio Turnover...........................................................15 Additional Information Concerning Certain Investment Practices...............15 Taxes - General..............................................................28 Management of the Trust......................................................32 CFD's Charges and Expenses...................................................48 Legal Proceedings............................................................56 Code of Ethics...............................................................57 Anti-Money Laundering Compliance.............................................57 Proxy Voting Policies and Fund Proxy Voting Record...........................57 Disclosure of Portfolio Information..........................................58 Custodian....................................................................59 Independent Registered Public Accounting Firm................................59 Determination of Net Asset Value.............................................59 How to Buy Shares............................................................60 Special Purchase Programs/Investor Services..................................62 Programs for Reducing or Eliminating Sales Charges...........................64 How to Sell Shares...........................................................66 How to Exchange Shares.......................................................67 Distributions................................................................68 Suspension of Redemptions....................................................68 Shareholder Liability........................................................68 Shareholder Meetings.........................................................68 Performance Measures and Information.........................................69 Appendix I - Description of Bond Ratings.....................................72 Appendix II - Proxy Voting Policy and Procedures.............................74 [JOB CODE] 1 COLUMBIA ACORN TRUST Statement of Additional Information May 1, 2005 DEFINITIONS "Trust" Columbia Acorn Trust "Funds" Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn Select, Columbia Acorn International Select and Columbia Thermostat Fund "Portfolio Funds" Funds in which Columbia Thermostat Fund may invest, including Columbia Acorn Fund, Columbia Acorn Select, Columbia Growth Stock Fund, Columbia Growth & Income Fund, Columbia Mid Cap Value Fund, Columbia Federal Securities Fund, Columbia Intermediate Bond Fund and Columbia High Yield Fund "Adviser" or "Columbia WAM" Columbia Wanger Asset Management, L.P., the Funds' investment adviser and administrator "CFD" Columbia Funds Distributor, Inc., the Funds' distributor "CFS" Columbia Funds Services, Inc., the Funds' shareholder services and transfer agent "CDSC" Contingent Deferred Sales Charge "FSF" Financial Service Firm "Application" Investment Account Application ORGANIZATION AND HISTORY The Trust is a Massachusetts business trust organized on April 21, 1992 as successor to The Acorn Fund, Inc., which became the Acorn Fund series of the Trust. Prior to October 13, 2003, the Trust was named Liberty Acorn Trust, and prior to September 29, 2000 it was named Acorn Investment Trust. The Funds are series of the Trust, and each Fund is an open-end, management investment company. Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn International Select and Columbia Thermostat Fund are diversified investment companies and Columbia Acorn Select is a non-diversified investment company. Each Fund offers four classes of shares - Classes A, B, C and Z shares. On September 29, 2000, the Funds (other than Columbia Thermostat Fund) also changed their names to Liberty Acorn Fund, Liberty Acorn International, Liberty Acorn USA, Liberty Acorn Twenty and Liberty Acorn Foreign Forty. Effective October 13, 2003 the Funds (except Columbia Thermostat Fund) and the Trust changed their names to their current names. The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of each 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 of the Trust. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. INVESTMENT POLICIES Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn Select and Columbia Acorn International Select invest with the objective of long-term growth of capital, and Columbia Thermostat Fund invests with the objective of long-term total return. The Funds are not designed for investors seeking primarily income rather than capital appreciation. The Funds are not, alone or together, a balanced investment program, and there can be no assurance that any of the Funds will achieve its investment objective. Columbia Thermostat Fund is a fund of funds that invests in shares of certain portfolios (the "Portfolio Funds") of Columbia Acorn Trust, Columbia-Stein Roe Funds Investment Trust, Columbia Funds Trust III, Columbia Funds Trust VI, Columbia-Stein Roe Funds Income Trust and Columbia High Yield Fund, Inc. (the "Underlying Trusts"), all of which are managed by the Adviser or an affiliate of the Adviser. Columbia Thermostat Fund may invest in the following Portfolio Funds: Columbia Acorn Fund, Columbia Acorn Select, Columbia Growth Stock Fund, Columbia Growth & Income Fund, Columbia Mid Cap Value Fund, Columbia Federal Securities Fund, Columbia Intermediate Bond Fund and Columbia High Yield Fund. 2 Columbia Acorn Fund seeks to invest in growth stocks that are selling at a reasonable price. Columbia Acorn Fund may invest more in value stocks when such stocks are cheaper, and may invest more in growth stocks when growth stocks are cheaper. On average, Columbia Acorn Fund invests somewhere in between a growth fund and a value fund. FUNDAMENTAL INVESTMENT POLICIES The Funds are subject to the following fundamental investment policies, which may not be changed without the affirmative vote of a majority of that Fund's outstanding voting securities. The Investment Company Act of 1940 ("1940 Act") provides that a "vote of a majority of the outstanding voting securities" of a Fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The Portfolio Funds in which Columbia Thermostat Fund invests may, but need not, have the same investment policies as Columbia Thermostat Fund. Columbia Acorn Fund will not: 1. Invest more than 5% of its assets (valued at time of investment) in securities of any one issuer, except in government obligations; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry; 4. Invest more than 5% of its assets (valued at time of investment) in securities of issuers with less than three years' operation (including predecessors); 5. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the fund's assets at the time of borrowing, and (b) in connection with transactions in options and in securities index futures [the fund will not purchase additional securities when its borrowings, less amounts receivable on sales of portfolio securities, exceed 5% of total assets]; 6. Pledge, mortgage or hypothecate its assets, except in connection with permitted borrowings; 7. Underwrite the distribution of securities of other issuers; however the fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the fund could be regarded as an underwriter as defined by that act with respect to such resale; but the fund will limit its total investment in restricted securities and in other securities for which there is no ready market to not more than 10% of its total assets at the time of acquisition; 8. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 9. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 10. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 11. Sell securities short or maintain a short position, except short sales against-the-box; 12. Participate in a joint or on a joint or several basis in any trading account in securities; 13. Invest in companies for the purpose of management or the exercise of control; 14. Issue any senior security except to the extent permitted under the Investment Company Act of 1940; 15. Make loans, but this restriction shall not prevent the Fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value 3 at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan). Columbia Acorn International will not: 1. With respect to 75% of the value of the fund's total assets, invest more than 5% of its total assets (valued at time of investment) in securities of a single issuer, except securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities; 2. Acquire securities of any one issuer that at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry; 4. Make loans, but this restriction shall not prevent the fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 5. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures. The fund will not purchase additional securities when its borrowings, less amounts receivable on sales of portfolio securities, exceed 5% of total assets; 6. Underwrite the distribution of securities of other issuers; however the fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the fund could be regarded as an underwriter as defined by that act with respect to such resale; but the fund will limit its total investment in restricted securities and in other securities for which there is no ready market, including repurchase agreements maturing in more than seven days, to not more than 15% of its total assets at the time of acquisition; 7. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises that invest in real estate or interests in real estate; 8. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 9. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 10. Sell securities short or maintain a short position, except short sales against-the-box; 11. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. Columbia Acorn USA will not: 1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at time of investment) in securities of a single issuer, except securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry, except that this restriction does not apply to investments in U.S. government securities; 4 4. Make loans, but this restriction shall not prevent the Fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 5. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the Fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures; 6. Underwrite the distribution of securities of other issuers; however, the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 7. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 8. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) foreign currency contracts; 9. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 10. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. Neither Columbia Acorn Select nor Columbia Acorn International Select will: 1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at the time of investment) in securities is of a single issuer, except securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities [this restriction applies only to Columbia Acorn International Select]; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. With respect to 50% of the value of the Fund's total assets, purchase the securities of any issuer (other than cash items and U.S. government securities and securities of other investment companies) if such purchase would cause the Fund's holdings of that issuer to exceed 5% of the Fund's total assets [this restriction applies only to Columbia Acorn Select]; 4. Invest more than 25% of its total assets in a single issuer (other than U.S. government securities); 5. Invest more than 25% of its total assets in the securities of companies in a single industry (excluding U.S. government securities); 6. Make loans, but this restriction shall not prevent the Fund from (a) investing in debt securities, (b) investing in repurchase agreements, or (c) lending its portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 7. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the Fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures; 8. Underwrite the distribution of securities of other issuers; however, the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 9. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 5 10. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) foreign currency contracts; 11. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 12. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. Columbia Thermostat Fund will: 1. Concentrate its investments in shares of other mutual funds. In addition, Columbia Thermostat Fund will not: 1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at time of investment) in securities of a single issuer, except shares of Portfolio Funds and securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities; 2. Make loans, but this restriction shall not prevent the Fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 3. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the Fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures; 4. Underwrite the distribution of securities of other issuers; however, the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 5. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 6. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 7. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 8. Sell securities short or maintain a short position, except short sales against-the-box; 9. Invest in companies for the purpose of management or the exercise of control; 10. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. OTHER INVESTMENT POLICIES As non-fundamental investment policies which may be changed without a shareholder vote, each Fund may not: a. Under normal circumstances, invest less than 65% of its net assets in the securities of foreign companies based in developed markets outside the U.S. [this restriction applies only to Columbia Acorn International Select]; b. Under normal circumstances, invest less than 80% of its net assets (plus any borrowings for investment purposes) in domestic securities [this restriction applies only to Columbia Acorn USA, which will notify shareholders at least 60 days prior to any change in this policy]; 6 c. Acquire securities of other registered investment companies except in compliance with the Investment Company Act of 1940; d. Invest more than 33% of its total assets (valued at time of investment) in securities of foreign issuers [this restriction applies only to Columbia Acorn Fund]; e. Invest more than 25% of its total assets in the securities of foreign issuers [this restriction applies only to Columbia Acorn Select]; f. Invest more than 10% of its total assets (valued at the time of investment) in securities of foreign issuers, not including securities represented by American Depository Receipts [this restriction applies only to Columbia Acorn USA]; g. Invest more than 15% of its total assets in domestic securities, under normal market conditions [this restriction applies only to Columbia Acorn International Select]; h. Invest in companies for the purpose of management or the exercise of control; i. Pledge, mortgage or hypothecate its assets, except as may be necessary in connection with permitted borrowings or in connection with short sales, options, futures and options on futures; j. Invest more than 10% of its total assets (valued at the time of investment) in restricted securities [this restriction applies only to Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA and Columbia Thermostat Fund which will continue to be subject to restriction (k) relating to investments in illiquid securities]; k. Invest more than 15% of its net assets (valued at time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days; l. Make short sales of securities unless the Fund owns at least an equal amount of such securities, or owns securities that are convertible or exchangeable, without payment of further consideration, into at least an equal amount of such securities; and m. Acquire securities of other registered open-end investment companies or registered unit investment trusts in reliance on Sections (12)(d)(1)(F) or (G) of the Investment Company Act of 1940 [this restriction applies only to Columbia Acorn Fund and Columbia Acorn Select]. Notwithstanding the foregoing investment restrictions, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn Select and Columbia Acorn International Select may purchase securities pursuant to the exercise of subscription rights, provided that, in the case of Columbia Acorn International, Columbia Acorn USA or Columbia Acorn International Select such purchase will not result in the Fund's ceasing to be a diversified investment company. Japanese and European corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in a Fund's interest in the issuing company being diluted. The market for such rights is not well developed in all cases and, accordingly, a Fund may not always realize full value on the sale of rights. The exception applies in cases where the limits set forth in the investment restrictions would otherwise be exceeded by exercising rights or would have already been exceeded as a result of fluctuations in the market value of Columbia Acorn International's portfolio securities with the result that the Fund would be forced either to sell securities at a time when it might not otherwise have done so, or to forego exercising its rights. A Fund's purchase of investment company securities results in the bearing of expenses such that shareholders would indirectly bear a proportionate share of the operating expenses of such investment company, including advisory fees. Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security. INVESTMENT RESTRICTIONS OF PORTFOLIO FUNDS OF COLUMBIA THERMOSTAT FUND The investment restrictions of each of the Portfolio Funds in which Columbia Thermostat Fund may invest are listed below. 7 Columbia Acorn Fund - see investment restrictions listed above Columbia Acorn Select - see investment restrictions listed above Columbia Growth Stock Fund Fundamental Investment Policies Columbia Growth Stock Fund may not: 1. with respect to 75% of its total assets, invest more than 5% of its total assets, taken at market value at the time of a particular purchase, in the securities of a single issuer, except for securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or repurchase agreements for such securities, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 2. acquire more than 10%, taken at the time of a particular purchase, of the outstanding voting securities of any one issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 3. act as an underwriter of securities, except insofar as it may be deemed an underwriter for purposes of the Securities Act of 1933 on disposition of securities acquired subject to legal or contractual restrictions on resale, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 4. purchase or sell real estate (although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate or interests therein), commodities, or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 5. make loans, although it may (a) lend portfolio securities and participate in an interfund lending program with other affiliated funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans); (b) purchase money market instruments and enter into repurchase agreements; and (c) acquire publicly distributed or privately placed debt securities; 6. borrow except from banks, other affiliated funds and other entities to the extent permitted by the Investment Company Act of 1940; 7. invest in a security if more than 25% of its total assets (taken at market value at the time of a particular purchase) would be invested in the securities of issuers in any particular industry, except that this restriction does not apply to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; or 8. issue any senior security except to the extent permitted under the Investment Company Act of 1940. Non-Fundamental Investment Policies None of the following restrictions shall prevent Columbia Growth Stock Fund from investing all or substantially all of its assets in another investment company having the same investment objective and substantially the same investment policies as the Fund. Columbia Growth Stock Fund may not: a. invest in any of the following: (i) interests in oil, gas, or other mineral leases or exploration or development programs (except readily marketable securities, including but not limited to master limited partnership interests, that may represent indirect interests in oil, gas, or other mineral exploration or development programs); (ii) puts, calls, straddles, spreads, or any combination thereof (except that it may enter into transactions in options, futures, and options on futures); (iii) shares of other open-end investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; and (iv) limited partnerships in real estate unless they are readily marketable; 8 b. invest in companies for the purpose of exercising control or management; c. purchase more than 3% of the stock of another investment company or purchase stock of other investment companies equal to more than 5% of its total assets (valued at time of purchase) in the case of any one other investment company and 10% of such assets (valued at time of purchase) in the case of all other investment companies in the aggregate; any such purchases are to be made in the open market where no profit to a sponsor or dealer results from the purchase, other than the customary broker's commission, except for securities acquired as part of a merger, consolidation or acquisition of assets; d. invest more than 5% of its net assets (valued at time of purchase) in warrants, nor more than 2% of its net assets in warrants that are not listed on the New York or American Stock Exchange; e. write an option on a security unless the option is issued by the Options Clearing Corporation, an exchange, or similar entity; f. invest more than 25% of its total assets (valued at time of purchase) in securities of foreign issuers (other than securities represented by American Depositary Receipts (ADRs) or securities guaranteed by a U.S. person); g. purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions; h. purchase securities on margin (except for use of short-term credits as are necessary for the clearance of transactions), or sell securities short unless (i) it owns or has the right to obtain securities equivalent in kind and amount to those sold short at no added cost or (ii) the securities sold are "when issued" or "when distributed" securities which it expects to receive in a recapitalization, reorganization, or other exchange for securities it contemporaneously owns or has the right to obtain and provided that transactions in options, futures, and options on futures are not treated as short sales; i. invest more than 5% of its total assets (taken at market value at the time of a particular investment) in restricted securities, other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933; j. invest more than 15% of its net assets (taken at market value at the time of a particular investment) in illiquid securities, including repurchase agreements maturing in more than seven days; or k. acquire securities of other registered open-end investment companies or registered unit investment trusts in reliance on section 12(d)(1)(F) or (G) of the Investment Company Act of 1940. Columbia Growth & Income Fund Fundamental Investment Policies Columbia Growth & Income Fund may: 1. Borrow from banks, other affiliated funds and other entities to the extent permitted by applicable law, provided that the Fund's borrowings shall not exceed 33 1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law; 2. Only own real estate acquired as the result of owning securities; the value of such real estate may not exceed 5% of total assets; 3. Purchase and sell futures contracts and related options so long as the total initial margin and premiums on the contracts do not exceed 5% of its total assets; 4. Not issue senior securities except as provided in paragraph 1 above and to the extent permitted by the 1940 Act. 5. Underwrite securities issued by others only when disposing of portfolio securities; 6. Make loans (a) through lending of securities, (b) through the purchase of debt instruments or similar evidences of indebtedness typically sold privately to financial institutions, (c) through an interfund lending program with other affiliated 9 funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans) and (d) through repurchase agreements; and 7. Not concentrate more than 25% of its total assets in any one industry or, with respect to 75% of total assets, purchase any security (other than obligations of the U.S. government and cash items including receivables) if as a result more than 5% of its total assets would then be invested in securities of a single issuer, or purchase voting securities of an issuer if, as a result of such purchase, the Fund would own more than 10% of the outstanding voting shares of such issuer. Non-Fundamental Investment Policies As non-fundamental investment policies which may be changed without a shareholder vote, Columbia Growth & Income Fund may not: 1. Purchase securities on margin, but the Fund may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions; 2. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; 3. Purchase or sell commodity contracts if the total initial margin and premiums on the contracts exceeds 5% of its total assets; 4. Invest more than 15% of its net assets in illiquid assets; and 5. Invest more than 10% in American Depository Receipts. 6. Acquire securities of other registered open-end investment companies or registered unit investment trusts in reliance on section 12(d)(1)(F) or (G) of the Investment Company Act of 1940. Notwithstanding the investment policies and restrictions of Columbia Growth & Income Fund, the Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment objective, policies and restrictions as the Fund. Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, the issuer is the entity whose revenues support the security. Columbia Mid Cap Value Fund Fundamental Investment Policies Columbia Mid Cap Value Fund may: 1. Borrow from banks, other affiliated funds and other entities to the extent permitted by applicable law, provided that the Fund's borrowings shall not exceed 33 1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law; 2. Only own real estate acquired as the result of owning securities and not more than 5% of total assets; 3. Purchase and sell futures contracts and related options so long as the total initial margin and premiums on the contracts do not exceed 5% of its total assets; 4. Not issue senior securities except as provided in paragraph 1 above and to the extent permitted by the 1940 Act; 5. Underwrite securities issued by others only when disposing of portfolio securities; 6. Make loans (a) through lending of securities, (b) through the purchase of debt instruments or similar evidences of indebtedness typically sold privately to financial institutions, (c) through an interfund lending program with other affiliated funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans) and (d) through repurchase agreements; and 10 7. Not concentrate more than 25% of its total assets in any one industry or with respect to 75% of total assets purchase any security (other than obligations of the U.S. government and cash items including receivables) if as a result more than 5% of its total assets would then be invested in securities of a single issuer, or purchase voting securities of an issuer if, as a result of such purchase the Fund would own more than 10% of the outstanding voting shares of such issuer. Non-Fundamental Investment Policies As non-fundamental investment policies which may be changed without a shareholder vote, Columbia Mid Cap Value Fund may not: 1. Purchase securities on margin, but it may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions; 2. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; and 3. Invest more than 15% of its net assets in illiquid assets. 4. Acquire securities of other registered open-end investment companies or registered unit investment trusts in reliance on section 12(d)(1)(F) or (G) of the Investment Company Act of 1940. Notwithstanding its investment policies and restrictions, Columbia Mid Cap Value Fund may invest substantially all of its investable assets in another investment company that has substantially the same investment goal, policies and restrictions as the Fund. Columbia Federal Securities Fund Fundamental Investment Policies Columbia Federal Securities Fund may: 1. Borrow from banks, other affiliated funds and other entities to the extent permitted by applicable law, provided that the Fund's borrowings shall not exceed 33 1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law; 2. Only own real estate acquired as the result of owning securities; and not more than 5% of total assets; 3. Purchase and sell futures contracts and related options so long as the total initial margin and premiums on the contracts do not exceed 5% of its total assets; 4. Not issue senior securities except as provided in paragraph 1 above and to the extent permitted by the [1940] Act; 5. Underwrite securities issues by other only when disposing of portfolio securities; 6. Make loans (a) through lending of securities, (b) through the purchase of debt instruments or similar evidences of indebtedness typically sold privately to financial institutions, (c) through an interfund lending program with other affiliated funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans) and (d) through repurchase agreements; and 7. Not concentrate more than 25% of its total assets in any one industry, or with respect to 75% of total assets purchase any security (other than obligations of the U.S. government and cash items including receivables) if as a result more than 5% of its total assets would then be invested in securities of a single issuer, or purchase voting securities of an issuer if, as a result of such purchase, the Fund would own more than 10% of the outstanding voting shares of such issuer. 11 Non-Fundamental Investment Policies As non-fundamental investment policies which may be changed without a shareholder vote, Columbia Federal Securities Fund may not: 1. Purchase securities on margin, but it may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions; and 2. Invest more than 15% of its net assets in illiquid assets. 3. Acquire securities of other registered open-end investment companies or registered unit investment trusts in reliance on section 12(d)(1)(F) or (G) of the Investment Company Act of 1940. Columbia Intermediate Bond Fund Fundamental Investment Policies As fundamental investment policies, Columbia Intermediate Bond Fund may not: 1. invest in a security if, as a result of such investment, more than 25% of its total assets (taken at market value at the time of such investment) would be invested in the securities of issuers in any particular industry, except that this restriction does not apply to (i) repurchase agreements, or (ii) securities of issuers in the financial services industry, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 2. invest in a security if, with respect to 75% of its assets, as a result of such investment, more than 5% of its total assets (taken at market value at the time of such investment) would be invested in the securities of any one issuer, except that this restriction does not apply to U.S. Government Securities or repurchase agreements for such securities and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 3. invest in a security if, as a result of such investment, it would hold more than 10% (taken at the time of such investment) of the outstanding voting securities of any one issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; 4. purchase or sell real estate (although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein); 5. purchase or sell commodities or commodities contracts or oil, gas or mineral programs, except that it may enter into (i) futures and options on futures and (ii) forward contracts; 6. make loans, although it may (a) lend portfolio securities and participate in an interfund lending program with other Stein Roe Funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans); (b) purchase money market instruments and enter into repurchase agreements; and (c) acquire publicly distributed or privately placed debt securities; 7. borrow except from banks, other affiliated funds and other entities to the extent permitted by the 1940 Act; 8. act as an underwriter of securities, except insofar as it may be deemed to be an "underwriter" for purposes of the Securities Act of 1933 on disposition of securities acquired subject to legal or contractual restrictions on resale, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; or 9. issue any senior security except to the extent permitted under the 1940 Act. 12 Non-Fundamental Investment Policies As non-fundamental investment policies which may be changed without a shareholder vote, Columbia Intermediate Bond Fund may not: (A) invest for the purpose of exercising control or management; (B) purchase more than 3% of the stock of another investment company or purchase stock of other investment companies equal to more than 5% of its total assets (valued at time of purchase) in the case of any one other investment company and 10% of such assets (valued at time of purchase) in the case of all other investment companies in the aggregate; any such purchases are to be made in the open market where no profit to a sponsor or dealer results from the purchase, other than the customary broker's commission, except for securities acquired as part of a merger, consolidation or acquisition of assets; (1) (C) purchase portfolio securities from, or sell portfolio securities to, any of the officers and directors or trustees of the Trust or of its investment adviser; (D) purchase shares of other open-end investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; (E) invest more than 5% of its net assets (valued at time of investment) in warrants, no more than 2% of its net assets in warrants which are not listed on the New York or American Stock Exchange; (F) purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions; (G) write an option on a security unless the option is issued by the Options Clearing Corporation, an exchange, or similar entity; (H) invest in limited partnerships in real estate unless they are readily marketable; (I) sell securities short unless (i) it owns or has the right to obtain securities equivalent in kind and amount to those sold short at no added cost or (ii) the securities sold are "when issued" or "when distributed" securities which it expects to receive in a recapitalization, reorganization, or other exchange for securities it contemporaneously owns or has the right to obtain and provided that transactions in options, futures, and options on futures are not treated as short sales; (J) invest more than 15% of its total assets (taken at market value at the time of a particular investment) in restricted securities, other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933; (K) invest more than 15% of its net assets (taken at market value at the time of a particular investment) in illiquid securities, including repurchase agreements maturing in more than seven days; (L) purchase securities on margin, except for use of short-term credit necessary for clearance of purchases and sales of portfolio securities, but it may make margin deposits in connection with transactions in options, futures, and options on futures. (1) The Fund has been informed that the staff of the Securities and Exchange commission takes the position that the issuers of certain collateralized mortgage obligations and certain other collateralized assets are investment companies and that subsidiaries of foreign banks may be investment companies for purposes of Section 12(d)(1) of the 1940 Act, which limits the ability of one investment company to invest in another investment company. Accordingly, the Fund intends to operate within the applicable limitations under Section 12(d)(1)(A) of the 1940 Act. 13 Columbia High Yield Fund Fundamental Investment Policies Columbia High Yield Fund may not: 1. Buy or sell commodities or commodity futures contracts. 2. Concentrate investments in any industry. However, it may (a) invest up to 25 percent of the value of its total assets in any one industry, (b) invest up to 100 percent of the value of its total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and (c) invest for defensive purposes up to 80 percent of the value of its total assets in CDs and bankers' acceptances with maturities not greater than one year. CDs and bankers' acceptances will be limited to domestic banks which have total assets in excess of $1 billion and are subject to regulatory supervision by the U.S. Government or state governments. Commitments to purchase securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities on a "when-issued" basis may not exceed 20 percent of the total assets of the Fund. Emphasis on investments in securities of a particular industry will be shifted whenever [Columbia Management Advisors, Inc. ("CMA")] determines that such action is desirable for investment reasons. The Board of Directors will periodically review these decisions of [CMA]. 3. Buy or sell real estate. However, the Fund may purchase or hold readily marketable securities issued by companies, such as real estate investment trusts, that operate in real estate or interests therein, and participation interests in pools of real estate mortgage loans. 4. Make loans to other persons (except by purchase of short-term commercial paper, bonds, debentures, or other debt securities constituting part of an issue). The Fund may lend portfolio securities to broker-dealers or other institutional investors if, as a result thereof, the aggregate value of all securities loaned does not exceed 33 1/3 percent of its total assets. 5. Purchase the securities of any issuer if the purchase, at the time thereof, would cause more than 10 percent of the outstanding voting securities of that issuer to be held in the Fund. 6. Purchase the securities of any issuer if the purchase, at the time thereof, would cause more than 5 percent of the value of its total assets at market value to be invested in the securities of that issuer (other than obligations of the U.S. Government and its instrumentalities), with reference to 75 percent of the assets of the Fund. 7. Purchase or retain securities of an issuer if those officers or directors of the Fund or [CMA] who individually own more than 1/2 of 1 percent of the outstanding securities of that issuer together own more than 5 percent of such securities. 8. Issue senior securities, bonds, or debentures. 9. Underwrite securities of other issuers, except the Fund may acquire portfolio securities in circumstances where, if the securities are later publicly offered or sold by the Fund, it might be deemed to be an underwriter for purposes of the Securities Act of 1933. 10. Borrow money except as a temporary measure for extraordinary or emergency purposes. Its borrowings may not exceed 5 percent of the gross assets of the Fund valued at the lesser of cost or market value, nor may it pledge, mortgage, or hypothecate assets valued at market to an extent greater than 10 percent of the gross assets valued at cost of the Fund. 11. Invest in the securities of any company if the purchase, at the time thereof, would cause more than 5 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 continuous operation. 12. Invest in companies to exercise control or management. 13. Buy any securities or other property on margin, except for short-term credits necessary for clearing transactions and except that margin payments and other deposits in connection with transactions in options, futures, and forward contracts shall not be deemed to constitute purchasing securities on margin. 14 14. Engage in short sales of securities except to the extent that it owns other securities convertible into an equivalent amount of such securities. These short sales may only be made to protect a profit in or to attempt to minimize a loss with respect to convertible securities. In any event, no more than 10 percent of the Fund's net assets valued at market may, at any time, be held as collateral for such sales. 15. Invest directly in oil, gas, or other mineral development or exploration programs or leases; although, the Fund may own securities of companies engaged in those businesses. Non-Fundamental Investment Policies Columbia High Yield Fund may not: 1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid. PORTFOLIO TURNOVER Portfolio turnover information is included in the Prospectuses under "Financial Highlights." High portfolio turnover in a Fund's portfolio may cause a Fund to realize capital gains which, if realized and distributed by the Fund, may be taxable to shareholders as ordinary income. High portfolio turnover in a Fund's portfolio may also result in correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Fund. Under normal conditions, the portfolio turnover rates of Columbia Acorn Fund and Columbia Acorn USA are expected to be below about 50%, and of Columbia Acorn International, Columbia Acorn International Select and Columbia Acorn Select are likely to be below 75%, 100% and 125%, respectively. Although under normal market conditions the portfolio turnover rate of Columbia Thermostat Fund is expected to be below 100%, it could exceed 100%. ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT PRACTICES In this section the term "Fund" refers to a Fund or a Portfolio Fund except where otherwise indicated. Additional information concerning certain of the Funds' investments and investment practices is set forth below. Common Stocks Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn Select and Columbia Acorn International Select will invest mostly in common stocks, which represent an equity interest (ownership) in a corporation. Columbia Thermostat Fund invests in shares of Portfolio Funds, some of which invest in common stocks. This ownership interest often gives a Fund or Portfolio Fund the right to vote on measures affecting a company's organization and operations. The Funds and some Portfolio Funds also invest in other types of equity securities, including preferred stocks and securities convertible into common stocks. Some of the Portfolio Funds also invest in fixed-income securities. Over time, common stocks have historically provided superior long-term capital growth potential. However, stock prices may decline over short or even extended periods. Stock markets tend to move in cycles, with periods of rising stock prices and periods of falling stock prices. As a result, the Funds should be considered long-term investments, designed to provide the best results when held for several years or more. The Funds may not be suitable investments if you have a short-term investment horizon or are unwilling to accept fluctuations in share price, including significant declines over a given period. Under normal conditions, the common stock investments of the Funds other than Columbia Thermostat Fund (as a percent of total assets) are allocated as follows: - -------------------------------------------------------------------------------- U.S. Foreign Companies Companies - ----------------------------------- ------------ -------------- Fund Maximum Maximum - ----------------------------------- ------------ -------------- Columbia Acorn Fund no limit up to 33% Columbia Acorn International up to 25% no limit Columbia Acorn USA no limit up to 10% Columbia Acorn Select no limit up to 25% Columbia Acorn International Select up to 15% no limit - -------------------------------------------------------------------------------- Columbia Acorn Select usually limits its investments in foreign companies to those whose operations are primarily in the U.S. Columbia Acorn International Select usually limits its investments in U.S. companies to those whose operations are primarily overseas. 15 See also the discussion of foreign securities below. Columbia Thermostat Fund invests in Portfolio Funds that may have their own geographic limits. Diversification Diversification is a means of reducing risk by investing in a broad range of stocks or other securities. Because Columbia Acorn Select is non-diversified, it has the ability to take larger positions in a smaller number of issuers. The appreciation or depreciation of a single stock may have a greater impact on the NAV of a non-diversified fund, because it is likely to have a greater percentage of its assets invested in that stock. As a result, the share price of Columbia Acorn Select can be expected to fluctuate more than that of broadly diversified funds investing in similar securities. Because it is non-diversified, Columbia Acorn Select is not subject to the limitations under the 1940 Act in the percentage of its assets that it may invest in any one issuer. The Fund, however, intends to comply with the diversification standards for regulated investment companies under Subchapter M of the Internal Revenue Code (summarized above under "Investment Policies"). Foreign Securities The Funds and some Portfolio Funds 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 currency fluctuation, 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 Funds, will be held by the Funds' custodian or by a sub-custodian or depository. As noted above, under normal market conditions, each Fund may invest in foreign securities (as a percentage of total assets) as set forth below: - -------------------------------------------------------------------------------- Foreign Companies - -------------------------------------------- ----------------------------- Fund Maximum - -------------------------------------------- ----------------------------- Columbia Acorn Fund up to 33% Columbia Acorn International no limit Columbia Acorn USA up to 10% Columbia Acorn Select up to 25% Columbia Acorn International Select no limit - -------------------------------------------------------------------------------- Columbia Acorn International Select invests primarily in developed countries but may invest up to 15% of its total assets in securities of companies with broad international interests that are either domiciled in the United States or are domiciled in countries considered "emerging markets" if the operations of those companies are located primarily in developed overseas markets. The Funds use the terms "developed markets" and "emerging markets" as those terms are defined by the International Financial Corporation, a member of the World Bank Group ("IFC"). "Emerging markets" include markets designated "frontier markets" by the IFC. Columbia Thermostat Fund invests in Portfolio Funds that may have their own geographic limits. Columbia Acorn Select usually limits its investments in foreign companies to those whose operations are primarily in the U.S. The Funds and some Portfolio Funds may invest in securities of foreign issuers directly or in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or other securities representing underlying shares of foreign issuers. Positions in these securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. ADRs are receipts typically issued by an American bank or trust company evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement. GDRs trade in both domestic and foreign markets. Generally ADRs, in registered form, are designed for use in the U.S. securities markets, and EDRs, in bearer form, are designed for use in European securities markets. The Funds and some Portfolio Funds may invest in both "sponsored" and "unsponsored" depositary receipts. In a sponsored depositary receipt, 16 the issuer typically pays some or all of the expenses of the depository and agrees to provide its regular shareholder communications to depositary receipt holders. An unsponsored depositary receipt is created independently of the issuer of the underlying security, and the receipt holders generally pay the expenses of the depository and do not have an undertaking from the issuer of the underlying security to furnish shareholder communications. Therefore, in the case of an unsponsored depositary receipt, a Fund is likely to bear its proportionate share of the expenses of the depository and it may have greater difficulty in receiving shareholder communications than it would have with a sponsored depositary receipt. None of the Columbia Acorn Funds expects to invest 5% or more of its total assets in unsponsored depositary receipts. The investment performance of a Fund that invests in securities of foreign issuers is affected by the strength or weakness of the U.S. dollar against the currencies of the foreign markets in which its securities trade or in which they are denominated. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen-denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen-denominated stock will fall. (See discussion of transaction hedging and portfolio hedging under "Currency Exchange Transactions.") Currency Exchange Transactions The Funds and some Portfolio Funds may enter into currency exchange transactions. A currency exchange transaction may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers, are not exchange-traded, and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which a Fund may invest and serve as hedges against possible variations in the exchange rate between these currencies. The Funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions, except to the extent described below under "Synthetic Foreign Money Market Positions." Transaction hedging is the purchase or sale of a forward contract with respect to specific payables or receivables of a fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to a portfolio security position denominated or quoted in a particular currency. A Fund may engage in portfolio hedging with respect to the currency of a particular country in amounts approximating actual or anticipated positions in securities denominated in that currency. When a Fund owns or anticipates owning securities in countries whose currencies are linked, the Adviser may aggregate such positions as to the currency hedged. If a Fund enters into a forward contract hedging an anticipated purchase of portfolio securities, assets of that Fund having a value at least as great as the Fund's commitment under such forward contract will be segregated on the books of the Fund while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a Fund may either sell the portfolio security related to the contract and make delivery of the currency, or it may retain the security and either acquire the currency on the spot market or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract with the same currency trader obligating it to purchase on the same maturity date the same amount of the currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of a forward contract. Accordingly, it may be necessary for a Fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency that the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if its market value exceeds the amount of currency that Fund is obligated to deliver. If a Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between a Fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, a Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the Fund of unrealized profits or force the Fund to cover its commitments for purchase or sale of currency, if any, at the current market price. 17 Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for a Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to a Fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the contract period, and prevailing market conditions. Since currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved. Synthetic Foreign Money Market Positions. The Funds may invest in money market instruments denominated in foreign currencies. In addition to, or in lieu of, such direct investment, the Funds may construct a synthetic foreign money market position by (a) purchasing a money market instrument denominated in one currency (generally U.S. dollars) and (b) concurrently entering into a forward contract to deliver a corresponding amount of that currency in exchange for a different currency on a future date and at a specified rate of exchange. For example, a synthetic money market position in Japanese yen could be constructed by purchasing a U.S. dollar money market instrument, and entering concurrently into a forward contract to deliver a corresponding amount of U.S. dollars in exchange for Japanese yen on a specified date and at a specified rate of exchange. Because of the availability of a variety of highly liquid short-term U.S. dollar money market instruments, a synthetic money market position utilizing such U.S. dollar instruments may offer greater liquidity than direct investment in foreign money market instruments. The results of a direct investment in a foreign currency and a concurrent construction of a synthetic position in such foreign currency, in terms of both income yield and gain or loss from changes in currency exchange rates, in general should be similar, but would not be identical because the components of the alternative investments would not be identical. Except to the extent a synthetic foreign money market position consists of a money market instrument denominated in a foreign currency, the synthetic foreign money market position shall not be deemed a "foreign security" for purposes of the Funds' investment limits. OTC Derivatives. The Funds may buy and sell over-the-counter ("OTC") derivatives. Unlike exchange-traded derivatives, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC derivatives (derivatives not traded on exchanges) generally are established through negotiation with the other party to the contract. Although this type of arrangement allows a Fund greater flexibility to tailor an instrument to its needs, OTC derivatives generally involve greater credit risk than exchange-traded derivatives, which are guaranteed by the clearing organization of the exchanges where they are traded. Each Fund (not including the Portfolio Funds) will limit its investments so that no more than 5% of its total assets will be placed at risk in the use of OTC derivatives. See "Illiquid and Restricted Securities" below for more information on the risks associated with investing in OTC derivatives. Risks Associated with Options. There are several risks associated with transactions in options. For example, there are significant differences between the securities markets, the currency markets, and the options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. If a Fund were unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If a Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, a Fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. As the writer of a covered call option on a foreign currency, a Fund foregoes, during the option's life, the opportunity to profit from currency appreciation. If trading were suspended in an option purchased or written by a Fund, the Fund would not be able to close out the option. If restrictions on exercise were imposed, the Fund might be unable to exercise the option. Futures Contracts and Options on Futures Contracts. The Funds may use interest rate futures contracts and index futures contracts. An interest rate or index futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a financial instrument or the cash value of an index 1 at a specified price and time. A public market exists in - ------------------- (1) A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of a securities index is a function of the value of certain specified securities, no physical delivery of those securities is made. 18 futures contracts covering a number of indexes (including, but not limited to: the Standard & Poor's 500 Index; the Value Line Composite Index; the Russell 2000 Index; and the New York Stock Exchange Composite Index) as well as financial instruments (including, but not limited to: U.S. Treasury bonds; U.S. Treasury notes; Eurodollar certificates of deposit; and foreign currencies). Other index and financial instrument futures contracts are available and it is expected that additional futures contracts will be developed and traded. The Funds may purchase and write call and put futures options. Futures options possess many of the same characteristics as options on securities and indexes (discussed above). A futures option gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. To the extent required by regulatory authorities having jurisdiction over the Funds, the Funds will limit their use of futures contracts and futures options to hedging transactions. For example, a Fund might use futures contracts to hedge against fluctuations in the general level of stock prices, anticipated changes in interest rates, or currency fluctuations that might adversely affect either the value of the Fund's securities or the price of the securities that the Fund intends to purchase. The Fund's hedging may include sales of futures contracts as an offset against the effect of expected declines in stock prices or currency exchange rates or increases in interest rates and purchases of futures contracts as an offset against the effect of expected increases in stock prices or currency exchange rates or declines in interest rates. Although other techniques could be used to reduce the Funds' exposure to stock price, interest rate, and currency fluctuations, the Funds may be able to hedge their exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. The success of any hedging technique depends on Columbia WAM's ability to correctly predict changes in the level and direction of stock prices, interest rates, currency exchange rates, and other factors. Should those predictions be incorrect, a Fund's return might have been better had hedging not been attempted; however, in the absence of the ability to hedge, Columbia WAM might have taken portfolio actions in anticipation of the same market movements with similar investment results but, presumably, at greater transaction costs. When a purchase or sale of a futures contract is made by a Fund, that Fund is required to deposit with its custodian or broker a specified amount of cash or U.S. government securities or other securities acceptable to the broker ("initial margin"). The margin required for a futures contract is generally set by the exchange on which the contract is traded; however, the margin requirement may be modified during the term of the contract, and the Fund's broker may require margin deposits in excess of the minimum required by the exchange. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract, which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The Funds expect to earn interest income on their initial margin deposits. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking-to-market." Variation margin paid or received by a Fund does not represent a borrowing or loan by the Fund but is instead settlement between that Fund and the broker of the amount one would owe the other if the futures contract had expired at the close of the previous day. In computing daily net asset value ("NAV"), the Funds will mark-to-market their open futures positions. The Funds are also required to deposit and maintain margin with respect to put and call options on futures contracts they write. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Funds. Although some futures contracts call for making or taking delivery of the underlying securities, usually these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting sale price is more than the original purchase price, the Fund engaging in the transaction realizes a capital gain, or if it is less, the Fund realizes a capital loss. Conversely, if an offsetting purchase price is less than the original sale price, the Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. The transaction costs must also be included in these calculations. Risks Associated with Futures. There are several risks associated with the use of futures contracts and futures options as hedging techniques. A purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in the portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as: variations in speculative market demand for futures, futures 19 options, and the related securities, including technical influences in futures and futures options trading and differences between the Funds' investments being hedged and the securities underlying the standard contracts available for trading. For example, in the case of index futures contracts, the composition of the index, including the issuers and the weighting of each issue, may differ from the composition of a Fund's portfolio, and, in the case of interest rate futures contracts, the interest rate levels, maturities, and creditworthiness of the issues underlying the futures contract may differ from the financial instruments held in a Fund's portfolio. A decision as to whether, when, and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected stock price or interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Stock index futures contracts are not normally subject to such daily price change limitations. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or futures option position. The Fund would be exposed to possible loss on the position during the interval of inability to close, and would continue to be required to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. Limitations on Options and Futures. A Fund (excluding the Portfolio Funds) will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the initial margin deposits for futures contracts held by that Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," 2 would exceed 5% of the Fund's total assets. When purchasing a futures contract or writing a put option on a futures contract, a Fund must maintain with its custodian or broker readily-marketable securities having a fair market value (including any margin) at least equal to the market value of such contract. When writing a call option on a futures contract, a Fund similarly will maintain with its custodian or broker readily-marketable securities having a fair market value (including any margin) at least equal to the amount by which such option is in-the-money until the option expires or is closed out by the Fund. A Fund may not maintain open short positions in futures contracts, call options written on futures contracts, or call options written on indexes if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the portfolio and the positions. For this purpose, to the extent a Fund has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio. The CFTC requires the registration of "commodity pool operators," defined as any person engaged in a business which is of the nature of a company, syndicate or a similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities or property for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market. The CFTC has adopted Rule 4.5, which provides an exclusion from the definition of commodity pool operator for any registered investment company which meets the requirements of the Rule. Rule 4.5 requires, among other things, that an investment company and its principals or employees wishing to avoid commodity pool operator status claim the exclusion provided in Rule 4.5 by filing a notice of eligibility with both the CFTC and the National Futures Association. Rule 4.5 does not propose any limitations on investment companies with regard to the use of futures or options on futures. Before engaging in transactions involving futures contracts, the funds will file such notices and meet the requirements of Rule 4.5, or such other requirements as the CFTC or its staff may from time to time issue, in order to render registration as a commodity pool operator unnecessary. - ------------------ (2) A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. 20 Swap Agreements, Caps, Floors and Collars. A swap agreement is generally individually negotiated and structured to include exposure to one or more of a variety of different types of investments or market factors. Depending on its structure, a swap agreement may increase or decrease a Fund's exposure to changes in the value of an index of securities in which the Fund might invest, the value of a particular security or group of securities, or foreign currency values. Swap agreements can take many different forms and are known by a variety of names. A Fund may enter into any form of swap agreement if the Adviser determines it is consistent with that Fund's investment objective and policies, but each Fund (excluding the Portfolio Funds) will limit its use of swap agreements so that no more than 5% of its total assets will be invested in such agreements. A swap agreement tends to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agrees to exchange payments in dollars at a fixed rate for payments in a foreign currency the amount of which is determined by movements of a foreign securities index, the swap agreement would tend to increase that Fund's exposure to foreign stock market movements and foreign currencies. Depending on how it is used, a swap agreement may increase or decrease the overall volatility of a Fund's investments and its NAV. The performance of a swap agreement is determined by the change in the specific currency, market index, security, or other factors that determine the amounts of payments due to and from a Fund. If a swap agreement calls for payments by a Fund, the Fund must be prepared to make such payments when due. If the counterparty's creditworthiness declines, the value of a swap agreement would be likely to decline, potentially resulting in a loss. The Adviser expects to be able to eliminate a Fund's exposure under any swap agreement either by assignment or by other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. Some Portfolio Funds may purchase caps, floors and collars. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling the cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination of a cap and floor that preserves a certain return within a predetermined range of interest rates or values. A Fund will segregate assets to cover its current obligations under a swap agreement, cap, floor or collar. If a Fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of the Fund's accumulated obligations under the swap agreement over the accumulated amount the Fund is entitled to receive under the agreement. If a Fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of the Fund's accumulated obligations under the agreement. Short Sales Against the Box Each Fund may make short sales of securities if, at all times when a short position is open, the Fund owns an equal amount of such securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issue as, and equal in amount to, the securities sold short. This technique is called selling short "against the box." Although permitted by its investment restrictions, the Funds do not currently intend to sell securities short. In a short sale against the box, a Fund does not deliver from its portfolio the securities sold and does not receive immediately the proceeds from the short sale. Instead, the Fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers those securities, on behalf of the Fund, to the purchaser of the securities. The broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to the broker-dealer the securities sold short. In addition, the Fund is required to pay to the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to the broker-dealer the securities sold short, the Fund must deposit and continuously maintain in a separate account with its custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration. The Fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the Fund receives the proceeds of the sale. Because the Fund ordinarily will want to continue to hold securities in its portfolio that are sold short, the Fund will normally close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. Short sales may protect a Fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in the portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend upon the amount of securities sold short relative to the 21 amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. The Funds will incur transaction costs in connection with short sales. In addition to enabling the Funds to hedge against market risk, a short sale may afford a Fund an opportunity to earn additional current income to the extent the Fund is able to enter into an arrangement with the broker-dealer through which the short sale is executed to receive income with respect to the proceeds of the short sale during the period the Fund's short position remains open. Debt Securities The Funds and some Portfolio Funds may invest in debt securities, including lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's Corporation, a division of The McGraw-Hill Companies ("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly called "junk bonds"), and securities that are not rated. There are no restrictions as to the ratings of debt securities acquired by the Funds or the portion of a Fund's assets that may be invested in debt securities in a particular ratings category, except that Columbia Acorn International may not invest more than 20% of its assets in securities rated below investment grade or considered by the Adviser to be of comparable credit quality. Neither Columbia Acorn Fund nor Columbia Acorn International expects to invest more than 5% of its net assets in such securities during the current fiscal year. None of Columbia Acorn USA, Columbia Acorn Select and Columbia Acorn International Select intends to invest more than 20% of its total assets in debt securities nor more than 5% of its total assets in securities rated at or lower than the lowest investment grade. Columbia Thermostat Fund may invest up to 100% of its total assets in Portfolio Funds that invest in debt securities, including lower-rated securities, and securities that are not rated. Securities rated BBB or Baa are considered to be medium grade and to have speculative characteristics. Lower-rated debt securities are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Investment in medium- or lower-quality debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt the market for such securities and adversely affect the value of such securities. In addition, lower-quality bonds are less sensitive to interest rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, the junk bond market may be severely disrupted, and issuers of such bonds may experience difficulty in servicing their principal and interest payment obligations. Medium- and lower-quality debt securities may be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and a Fund may have greater difficulty selling its portfolio securities. The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. A more complete description of the characteristics of bonds in each ratings category is included in Appendix I to this SAI. Illiquid and Restricted Securities The Funds (excluding the Portfolio Funds) may not invest in illiquid securities, if as a result they would comprise more than 15% of the value of the net assets of the Fund. The limit on illiquid securities for each Portfolio Fund is 15%. An illiquid security generally is one that cannot be sold in the ordinary course of business within seven days at substantially the value assigned to it in calculations of a Fund's net asset value. Repurchase agreements maturing in more than seven days, OTC derivatives and restricted securities are generally illiquid; other types of investments may also be illiquid from time to time. If, through the appreciation of illiquid securities or the depreciation of liquid securities, a Fund should be in a position where more than 15% of the value of its net assets are invested in illiquid assets, that Fund will take appropriate steps to protect liquidity. Illiquid securities are valued at a fair value determined in good faith by the Board of Trustees or its delegate. Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where registration is required, a Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities are valued at a fair value determined in good faith by the Board of Trustees or its delegate. Neither Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA nor Columbia Thermostat Fund will invest more than 10% of its total assets (valued at the time of investment) in restricted securities. 22 Notwithstanding the above, a Fund may purchase securities that have been privately placed but that are eligible for purchase and sale under Rule 144A under the 1933 Act. That rule permits certain qualified institutional buyers, such as the Funds, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Adviser, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to each Fund's restriction of investing no more than 15% of its assets in illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making that determination, the Adviser will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, the Adviser could consider (1) the frequency of trades and quotes, (2) the number of dealers and potential purchasers, (3) the dealer undertakings to make a market, and (4) the nature of the security and of market place 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 would be monitored and if, as a result of changed conditions, it were determined that a Rule 144A security was no longer liquid, a Fund's holding of the security would be reviewed to determine what, if any, steps were required to assure that the Fund did not invest more than the specified percentage of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of a Fund's assets invested in illiquid securities if qualified institutional buyers were unwilling to purchase such securities. Repurchase Agreements A repurchase agreement involves a transaction in which a Fund or Portfolio Fund purchases a security from a bank or recognized securities dealer and simultaneously commits to resell that security to the bank or dealer at an agreed-upon price, date, and market rate of interest unrelated to the coupon rate or maturity of the purchased security. Although repurchase agreements carry certain risks not associated with direct investments in securities, a Fund will enter into repurchase agreements only with banks and dealers that the Adviser believes present minimal credit risks in accordance with guidelines approved by the Board of Trustees. The Adviser will review and monitor the creditworthiness of such institutions, and will consider the capitalization of the institution, the Adviser's prior dealings with the institution, any rating of the institution's senior long-term debt by independent rating agencies, and other relevant factors. A Fund will invest in a repurchase agreement only if it is collateralized at all times in an amount at least equal to the repurchase price plus accrued interest. To the extent that the proceeds from any sale of such collateral upon a default in the obligation to repurchase were less than the repurchase price, the Fund would suffer a loss. If the financial institution that is party to the repurchase agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or other liquidation proceedings, there may be restrictions on the Fund's ability to sell the collateral and the Fund could suffer a loss. However, with respect to financial institutions whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy Code, each Fund intends to comply with provisions under such Code that would allow it immediately to resell such collateral. When-Issued and Delayed Delivery Securities; Reverse Repurchase Agreements The Funds and Portfolio Funds may purchase securities on a when-issued or delayed delivery basis. Although the payment and interest terms of these securities are established at the time a Fund enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. A Fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before the settlement date if the Adviser deems it advisable for investment reasons. A Fund may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed delivery basis. A Fund may enter into reverse repurchase agreements with banks and securities dealers. A reverse repurchase agreement is a repurchase agreement in which the Fund is the seller of, rather than the investor in, securities and agrees to repurchase them at an agreed-upon time and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of securities because it avoids certain market risks and transaction costs. At the time a Fund enters into a binding obligation to purchase securities on a when-issued basis or enters into a reverse repurchase agreement, assets of the Fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by a Fund, may increase NAV fluctuation. The Funds have no present intention of investing in reverse repurchase agreements. Zero Coupon Securities Some of the Portfolio Funds 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 23 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 Portfolio 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. Step Coupon Bonds Some of the Portfolio Funds may invest in debt securities that 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 issuer, these securities may be subject to more volatility risk than fixed rate debt securities. Tender Option Bonds Some of the Portfolio Funds may invest in 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 that is substantially higher than prevailing short-term tax-exempt rates and that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, who grants the security holder the option, at periodic intervals, to tender the security to it and receive the face value thereof. As consideration for providing the option, the third party 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 Portfolio Fund's 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 Some Portfolio Funds 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 Some Portfolio Funds may invest in 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 deposits 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 businesses to finance short-term needs (including those 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 some Portfolio Funds would be allowed to invest in directly. Securities Loans The Funds may make secured loans of their portfolio securities amounting to not more than the percentage of their total assets specified in "Investment Policies", 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. 24 Mortgage Dollar Rolls Some Portfolio Funds may invest in mortgage dollar rolls. In a mortgage dollar roll, the Portfolio Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Portfolio 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 Portfolio Fund from the transaction. Mortgage-Backed Securities Some of the Portfolio Funds may invest in mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs). Mortgage-backed securities 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 Portfolio 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 Portfolio 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 A Portfolio 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, a Portfolio Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy. Asset-Backed Securities Some Portfolio Funds may invest in 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 Portfolio 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. Municipal Lease Obligations Some of the Portfolio Funds may invest in 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. 25 Participation Interests Some Portfolio Funds 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. Some Portfolio Funds 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 Portfolio Fund in connection with the arrangement. The Portfolio 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 regular federal income tax. Stand-by Commitments When a Portfolio 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 Portfolio 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 Portfolio Fund, although it could sell the underlying municipal obligation to a third party at any time. Some Portfolio Funds expect that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Portfolio 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 Portfolio Fund's total assets calculated immediately after each stand-by commitment is acquired. The Portfolio 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. Inverse Floaters Some Portfolio Funds may invest in 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. Variable and Floating Rate Obligations Some of the Portfolio Funds may invest in variable and floating rate securities. 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 flating 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. If a variable or floating rate instrument is not rated, the Portfolio Funds' Adviser must determine that such instrument is comparable to rated instruments eligible for purchase by the Portfolio Fund 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 the Portfolio Fund, 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 26 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. Real Estate Investment Trusts ("REITs") Some Portfolio Funds may invest in REITs. REITs are pooled investment vehicles that invest primarily in real estate, such as shopping centers, malls, multi-family housing, or commercial property, or real-estate related loans such as mortgages. Investing in REITs involves unique risks and may be affected by changes in the value of the underlying property owned by the REIT or affected by the quality of the credit extended. REITs are significantly affected by the market for real estate and are subject to many of the same risks associated with direct ownership in real estate. Furthermore, REITs are dependent upon management skills and subject to heavy cash flow dependency. Convertible Securities and Warrants Some Portfolio Funds may purchase convertible securities and warrants. Convertible debentures are interest-bearing debt securities, typically unsecured, that represent an obligation of the corporation providing the owner with claims to the corporation's earnings and assets before common and preferred stock owners, generally on par with unsecured creditors. If unsecured, claims of convertible debenture owners would be inferior to claims of secured debt holders. Convertible preferred stocks are securities that represent an ownership interest in a corporation providing the owner with claims to the corporation's earnings and assets before common stock owners, but after bond owners. Investments by a Portfolio Fund in convertible debentures or convertible preferred stock would be a substitute for an investment in the underlying common stock, primarily either in circumstances where only the convertible security is available in quantities necessary to satisfy the Portfolio Fund's investment needs (for example, in the case of a new issuance of convertible securities) or where, because of financial market conditions, the conversion price of the convertible security is comparable to the price of the underlying common stock, in which case a preferred position with respect to the corporation's earnings and assets may be preferable to holding common stock. Warrants are options to buy a stated number of underlying securities at a specified price any time during the life of the warrants. The securities underlying these warrants will be the same types of securities that a Portfolio Fund will invest in to achieve its investment objective of capital appreciation. The purchaser of a warrant expects the market price of the underlying security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus resulting in a profit. If the warrant expires unexercised (because the market price of the warrant never exceeds the warrant purchase price plus the exercise price of the warrant before the expiration date of the warrant), the purchaser will suffer a loss equal to the purchase price of the warrant. To the extent the Portfolio Fund known as Columbia High Yield Fund acquires common stock through exercise of conversion rights or warrants or acceptance of exchange or similar offers, the common stock will not be retained in the portfolio. Orderly disposition of these equity securities will be made consistent with management's judgment as to the best obtainable price. Senior Loans Senior Loans generally are arranged through private negotiations between a borrower and the lenders represented in each case by one or more agents of the several lenders. Senior Loans in which some Portfolio Funds may purchase interests generally pay interest at rates that are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally Prime Rate, LIBOR, the CD rate or other base lending rates used by commercial lenders. The Senior Loans in the Portfolio Funds' investment portfolios will at all times have a dollar-weighted average time until next interest rate redetermination of 180 days or less. Because of prepayment provisions, the actual remaining maturity of Senior Loans may vary substantially from the stated maturity of such loans. Structured Notes Some Portfolio Funds may invest in structured notes, including "total rate of return swaps" with rates of return determined by reference to the total rate of return on one or more loans referenced in such notes. The rate of return on the structured note may be determined by applying a multiplier to the rate of total return on the referenced loan or loans. Application of a multiplier is comparable to the use of financial leverage, which is a speculative technique. Leverage magnifies the potential for gain and the risk of loss, because a relatively small decline in the value of a referenced note could result in a relatively large loss in the value of structured note. Structured notes are treated as Senior Loans. Temporary Strategies The Funds have the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, the Adviser may employ a temporary defensive investment strategy if it determines such a strategy to be 27 warranted. Pursuant to such a defensive strategy, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of domestic issuers (or, in the case of Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn International Select and Columbia Thermostat Fund, those of foreign issuers), and most or all of the Fund's investments may be made in the United States and denominated in U.S. dollars. It is impossible to predict whether, when, or for how long a Fund might employ defensive strategies. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and may invest any portion of its assets in money market instruments. Line of Credit Columbia Acorn maintains a line of credit with a group of banks in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowing may be preferable to liquidation of portfolio securities. Any borrowings under that line of credit by the Funds would be subject to each Fund's restrictions on borrowing under "Investment Policies" above. TAXES - GENERAL 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. Although it may be one of several series in a single trust, each Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended ("Code"). Each Fund has elected 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," a Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain 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 market 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 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. In general, for purposes of the 90% gross income requirement described in (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, the American Jobs Creation Act of 2004 (the "2004 Act"), provides that for taxable years of a regulated investment company beginning after October 22, 2004, 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (ii) that derives less than 90% of its income from the qualifying income described in (a) above) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of (c) above, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. As a regulated investment company that is accorded special tax treatment, each 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 on the form of dividends and in accordance with the timing requirements imposed by the Code. A Fund's foreign-source income, if any, may be subject to foreign withholding taxes. If a Fund were to fail to qualify as a "regulated investment company" in any taxable year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and Fund distributions (including any distributions of net tax-exempt income and net long-term capital gains) would generally be taxable as ordinary income to the shareholders, except to the extent they were 28 treated as "qualified dividend income," as described below. In addition, a Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company. If a 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 a Fund in January of a year generally is deemed for federal income tax purposes 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. Each 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. Income dividends paid by a Fund to its shareholders will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends, however, may be 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. Dividends paid by Columbia Acorn International and Columbia Acorn International Select are generally not eligible for the dividends received deduction for corporate shareholders because little or none of those Funds' income consists of dividends paid by United States corporations. A portion of the dividends paid by Columbia Acorn Fund, Columbia Acorn USA, Columbia Acorn Select and Columbia Thermostat Fund is generally eligible for the dividends-received deduction. Capital gain distributions paid from the Funds are never eligible for this deduction. Return of Capital Distributions. If a 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 the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such 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. Fund Distributions. Distributions from a 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 net 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. All income and capital gains received by Columbia Thermostat Fund from a Portfolio Fund that it owns will be distributed by the Fund (after deductions from the Fund's allowable losses and expenses) and will be taxable to shareholders as described above. Because Columbia Thermostat Fund is actively managed, it may realize taxable net short-term capital gains by selling shares of a Portfolio Fund it owns with unrealized appreciation or capital losses which might be disallowed under wash sale rules or recharacterized. Accordingly, investing in Columbia Thermostat Fund rather than directly investing in the Portfolio Funds may result in accumulated tax liability to a shareholder since the Fund must distribute its net realized gains in accordance with those rules. 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 the shareholder paid). Distributions are taxable whether received in cash or in Fund shares. 29 U.S. Government Securities. Many states grant tax-free status to dividends paid to a Fund's shareholders 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 a Fund. 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 121-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 181-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 passive foreign investment company. In general, distributions of investment income properly designated by a 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. 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. 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 will be treated as long-term capital gain if the shares have been held for more than one year. If held for a shorter period, 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 disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss not already disallowed as provided in the preceding sentence 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 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, the shareholder will likely have to 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 those regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult your tax advisor. Backup Withholding. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to a Fund that the shareholder is a United States person and is not subject to the withholding. That number and certification may be provided by either a Form W-9 or the share purchase 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. This backup withholding rate will be 31% for amounts paid after December 31, 2010. Hedging Transactions. If a 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, 30 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. Each 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. Options and Futures. If a Fund exercises a call or put option that it holds, the premium paid for the option is added to the cost basis of the security purchased (call) or deducted from the proceeds of the security sold (put). For cash settlement options and futures options exercised by a Fund, the difference between the cash received at exercise and the premium paid is a capital gain or loss. If a call or put option written by a Fund is exercised, the premium is included in the proceeds of the sale of the underlying security (call) or reduces the cost basis of the security purchased (put). For cash settlement options and futures options written by a Fund, the difference between the cash paid at exercise and the premium received is a capital gain or loss. Entry into a closing purchase transaction will result in capital gain or loss. If an option written by a Fund is in-the-money at the time it was written and the security covering the option was held for more than the long-term holding period prior to the writing of the option, any loss realized as a result of a closing purchase transaction will be long-term. The holding period of the securities covering an in-the-money option will not include the period of time the option is outstanding. If a Fund writes an equity call option3 other than a "qualified covered call option," as defined in the Internal Revenue Code, any loss on such option transaction, to the extent it does not exceed the unrealized gains on the securities covering the option, may be subject to deferral until the securities covering the option have been sold. A futures contract held until delivery results in capital gain or loss equal to the difference between the price at which the futures contract was entered into and the settlement price on the earlier of delivery notice date or expiration date. If a Fund delivers securities under a futures contract, the Fund also realizes a capital gain or loss on those securities. For federal income tax purposes, a Fund generally is required to recognize for each taxable year its net unrealized gains and losses as of the end of the year on futures, futures options and non-equity options positions held ("year-end mark-to-market"). Generally, any gain or loss recognized with respect to such positions (either by year-end mark-to-market or by actual closing of the positions) is considered to be 60% long-term and 40% short-term, without regard to the holding periods of the contracts. However, in the case of positions classified as part of a "mixed straddle," the recognition of losses on certain positions (including options, futures and options on futures, the related securities and certain successor positions thereto) may be deferred to a later taxable year. Sale of futures contracts or writing of call options (or futures call options) or purchase of put options (or futures put options) that are intended to hedge against a change in the value of securities held by a Fund may affect the holding period of the hedged securities. If a Fund were to enter into a short index future, short index futures option or short index option position and the Fund's portfolio were deemed to "mimic" the performance of the index underlying such contract, the option or futures contract position and the Fund's stock positions may be deemed to be positions in a mixed straddle, subject to the above-mentioned loss deferral rules. The Internal Revenue Code imposes constructive sale treatment for federal income tax purposes on certain hedging strategies with respect to appreciated securities. Under these rules taxpayers will recognize gain, but not loss, with respect to securities if they enter into short sales or "offsetting notional principal contracts" (as defined by the Code) with respect to, or futures or "forward contracts" (as defined by the Code) with respect to, the same or substantially identical property, or if they enter into such transactions and then acquire the same or substantially identical property. The Secretary of the Treasury is authorized to promulgate regulations that will treat as constructive sales certain transactions that have substantially the same effect as short sales, offsetting notional principal contracts, and futures or forward contracts to deliver the same or substantially similar property. - ------------------ (3) An equity option is defined to mean any option to buy or sell stock, and any other option the value of which is determined by reference to an index of stocks of the type that is ineligible to be traded on a commodity futures exchange (e.g., an option contract on a sub-index based on the price of nine hotel-casino stocks). The definition of equity option excludes options on broad-based stock indexes (such as the Standard & Poor's 500 index). 31 In order for a Fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of the Fund's gross income for a taxable year must be derived from qualifying income, i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts). Any net gain realized from futures (or futures options) contracts will be considered gain from the sale of securities and therefore be qualifying income for purposes of the 90% requirement. Each Fund intends to distribute to shareholders annually any capital gains that have been recognized for federal income tax purposes (including year-end mark-to-market gains) on options and futures transactions, together with gains on other Fund investments, to the extent such gains exceed recognized capital losses and any net capital loss carryovers of the Fund. Shareholders will be advised of the nature of such capital gain distributions. Securities Issued at a Discount. A 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 (including 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. Foreign Currency-Denominated Securities and Related Hedging Transactions. A 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. This may produce a difference between the Fund's book income and its taxable income possibly accelerating distributions or converting distributions of book income and gains to returns at capital for book purposes. 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 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 Adviser will consider the value of the benefit to a typical shareholder, the cost to a 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. Each of Columbia Acorn International and Columbia Acorn International Select intends to meet the requirements of the Code to "pass through" to its shareholders foreign income taxes paid, but there can be no assurance that it will be able to do so. Each shareholder will be notified within 60 days after the close of each taxable year of Columbia Acorn International or Columbia Acorn International Select, if the foreign taxes paid by the Fund will "pass through" for that year, and, if so, the amount of each shareholder's pro rata share (by country) of (i) the foreign taxes paid, and (ii) the Fund's gross income from foreign sources. Shareholders who are not liable for federal income taxes, including retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. Columbia Acorn Fund, Columbia Acorn USA, Columbia Acorn Select and Columbia Thermostat Fund do not expect to be able to "pass through" foreign tax credits. Investment by a Fund in certain "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons. MANAGEMENT OF THE TRUST Each of the Adviser, CFS and CFD is a subsidiary of Columbia Management Group, Inc., which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. The investment portfolios ("Columbia Funds") managed by subsidiaries of Columbia Management Group ("CMG") are diversified by asset classes, with approximately 50 percent in equity, 30 percent in 32 fixed income, and 20 percent in money market funds. CMG is located at 100 Federal Street, Boston, MA 02110. Bank of America Corporation, which trades on the New York Stock Exchange under the symbol "BAC", is located at 100 North Tryon Street, Charlotte, NC 28255. Trustees and Officers. The Board of Trustees has overall management responsibility for the Funds. Each Trustee serves a term of unlimited duration, provided that a majority of Trustees always has been elected by shareholders. However, it is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. The retirement age for Trustees is 75. The Trustees appoint their own successors, provided that at least two-thirds of the Trustees, after such appointment, have been elected by shareholders. Shareholders may remove a Trustee, with or without cause, upon the vote of two-thirds of the Trust's outstanding shares at any meeting called for that purpose. A Trustee may be removed with or without cause upon the vote of a majority of the Trustees. With respect to Columbia Thermostat Fund, certain of the officers of the Trust also serve as officers of the Underlying Trusts. In addition, the Adviser serves as investment adviser to certain of the Portfolio Funds. Conflicts may arise as those persons seek to fulfill their fiduciary responsibilities at both levels. The names of the Trustees and officers of Columbia Acorn, the date each was first elected or appointed to office, their principal business occupations during at least the last five years and other directorships they hold, are shown below. Each Trustee serves in such capacity for each of the six series of Columbia Acorn. Mr. Wanger also serves as a Trustee for each of the four series of the Wanger Advisors Trust.
Name, Position(s) Year First Number of with Columbia Acorn Elected or Principal Occupation(s) Portfolios in Fund and Age at Appointed during Complex Overseenr Other January 1, 2005 to Office* Past Five Years by Trustee/Officer Directorships --------------- --------- --------------- ------------------ ------------- Trustees who are not interested persons of Columbia Acorn: Margaret Eisen, 51, 2002 Chief Investment Officer, EAM 6 Antigenics, Inc. Trustee International LLC since 2003; (biotechnology and drugs); formerly managing director, Global Financial Group DeGuardiola Advisors; formerly (venture capital fund of managing director, North American funds); Lehman Equities at General Motors Asset Brothers/First Trust Income Management; prior thereto, director of Opportunity Fund (high-yield Worldwide Pension Investments for closed-end fund). DuPont Asset Management. Jerome Kahn, Jr., 70, 1987 Portfolio manager and stock analyst, 6 None. Trustee (investment adviser), former president, William Harris Investors, Inc. Steven N. Kaplan, 45, 1999 Neubauer Family Professor of 6 Morningstar, Inc. (provider Trustee Entrepreneurship and Finance, Graduate of independent investment School of Business, University of research) Chicago. David C. Kleinman, 69, 1972 Adjunct professor of strategic 6 Sonic Foundry, Inc. Trustee management, University of Chicago (software); Irex Corp. Graduate School of Business; (insulation contracting) Business consultant. Allan B. Muchin, 69, 1998 Chairman emeritus, Katten Muchin Zavis 6 Alberto-Culver Company Trustee Rosenman (law firm). (toiletries).
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Name, Position(s) Year First Number of with Columbia Acorn Elected or Principal Occupation(s) Portfolios in Fund and Age at Appointed during Complex Overseenr Other January 1, 2005 to Office* Past Five Years by Trustee/Officer Directorships --------------- --------- --------------- ------------------ ------------- Robert E. Nason, 68, 1998 Consultant and private investor since 6 None. Trustee and Chairman 1998; from 1990-1998, executive partner and chief executive officer, member of the executive committee of Grant Thornton, LLP (public accounting firm) and member of the policy board of Grant Thornton International. John A. Wing, 69, 2002 Frank Wakely Gunsaulus Professor of 6 AmerUs Life Holdings (life Trustee Law and Finance, and chairman of the insurance); LDF, Inc. and Center for the Study of Law and Labe Federal Bank (banking); Financial Markets, Illinois Institute Margo Caribe, Inc. (farming). of Technology; prior thereto, chairman of the board and chief executive officer of ABN-AMRO Incorporated, formerly The Chicago Corporation, and chief executive officer of Market Liquidity Network, LLC. Trustees who are interested persons of Columbia Acorn: Charles P. McQuaid, 51 1992 President, Columbia WAM since October 10 None. Trustee and President (1) 2003; Chief Investment Officer, Columbia WAM since September 2003; Portfolio manager since 1995 and director of research since July 1992 through December 2003, Columbia WAM; interim director of international research, Columbia WAM from October 2003 to December 2004; principal, Wanger Asset Management, L.P. ("WAM") from July 1995 to September 2000; president, Wanger Advisors Trust. Ralph Wanger, 70, 1970 Founder, former president, chief 10 Wanger Advisors Trust (4 Trustee (1) investment officer and portfolio portfolios). manager, Columbia WAM 1992-2003; former president of the Trust from April 1992 through September 2003; former president, Wanger Advisors Trust 1994 through September 2003; since September 2003, adviser to Columbia WAM; principal, WAM from July 1992 until September 2000; president, WAM Ltd. from July 1992 to September 2000; former president, Wanger Advisors Trust; director, Wanger Investment Company plc.
34
Name, Position(s) Year First Number of with Columbia Acorn Elected or Principal Occupation(s) Portfolios in Fund and Age at Appointed during Complex Overseenr Other January 1, 2005 to Office* Past Five Years by Trustee/Officer Directorships --------------- --------- --------------- ------------------ ------------- Officers of Columbia Acorn: J. Kevin Connaughton, 40, 2001 Treasurer of the Columbia Funds since 10 None Assistant Treasurer December 2000 (formerly controller and chief accounting officer of the Columbia Funds from February 1998 to October 2000); prior thereto, vice president of Colonial Management Associates from February 1998 to October 2000. Michael G. Clarke, 34 2004 Chief Accounting Officer of the 10 None Assistant Treasurer Columbia Funds since October 2004 (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 Columbia Funds from February 2001 to June 2002; Assistant Treasurer of the Columbia Funds from August 1999 to February 2001; prior thereto, Audit Manager, Deloitte & Touche LLP). P. Zachary Egan, 36, 2003 Director of international research, 6 None Vice President Columbia WAM, since December 2004; analyst and portfolio manager, Columbia WAM since 1999; prior thereto, a research fellow with the Robert Bosch Foundation. Kenneth A. Kalina, 45, 1995 Chief Compliance Officer, Columbia WAM 10 None Assistant Treasurer since May 2004; treasurer and chief financial officer, Columbia WAM since April 2000; assistant treasurer, Wanger Advisors Trust; fund controller, Columbia WAM since September 1995; director, New Americas Small Cap Fund. Bruce H. Lauer, 47, 1995 Chief operating officer, Columbia WAM 10 None Vice President, Secretary since April 1995; principal,4 WAM from and Treasurer January 2000 to September 2000; vice president, treasurer and secretary, Wanger Advisors Trust; director, Wanger Investment Company plc and New Americas Small Cap Fund. Robert A. Mohn, 43, 1997 Director of domestic reearch, Columbia 10 None Vice President WAM, since March 2004; analyst and portfolio manager, Columbia WAM since August 1992; principal, WAM from 1995 to September 2000; vice president, Wanger Advisors Trust
35
Name, Position(s) Year First Number of with Columbia Acorn Elected or Principal Occupation(s) Portfolios in Fund and Age at Appointed during Complex Overseenr Other January 1, 2005 to Office* Past Five Years by Trustee/Officer Directorships --------------- --------- --------------- ------------------ ------------- Louis J. Mendes, 40 2003 Analyst and portfolio manager, 6 None Vice President Columbia WAM since 2001; prior thereto, analyst and portfolio manager, Merrill Lynch Todd Narter, 40 2001 Analyst and portfolio manager, 10 None Vice President Columbia WAM since June 1997; vice president, Wanger Advisors Trust Christopher Olson, 40, 2001 Analyst and portfolio manager, 10 None Vice President Columbia WAM since January 2001; vice president, Wanger Advisors Trust; prior to 2001, director and portfolio strategy analyst with UBS Asset Management/Brinson Partners Ben Andrews, 39, 2004 Analyst and portfolio manager of 10 None Vice President Columbia WAM since 1998; prior thereto senior analyst at Rothschild Investment Corporation Vincent P. Pietropaolo, 2001 Assistant general counsel, Bank of 10 None 39, America (and its predecessors) since Assistant Secretary December 1999. Robert Scales, 52, 2004 Deputy Counsel, Grant Thornton LLP 10 None Chief Compliance Officer, 2002-2004; prior thereto, Associate Senior Vice President and general counsel, UBS PaineWebber. General Counsel
* Dates prior to April 1992 correspond to the date first elected or appointed as a director or officer of The Acorn Fund Inc., the Trust's predecessor. (1) Trustee who is an "interested person" of the Trust and of Columbia WAM, as defined in the 1940 Act, because he is an officer of the Trust and/or because he is an employee or other affiliated person of Columbia WAM. The address for the trustees and officers of the Trust is Columbia Wanger Asset Management, L.P., 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. The following table sets forth the total compensation (including any amounts deferred, as described below) paid by the Trust during the fiscal year ended December 31, 2004 to each of the Trustees of the Trust:
Compensation Table - --------------------------------------------------------------------------------------------------------- Total Compensation from the Aggregate Compensation from Columbia Funds Complex Paid Name of Trustee the Funds to Trustees(3) - -------------------------------------------- ------------------------------ ----------------------------- Trustees who are not interested persons of Columbia Acorn: Margaret Eisen [$______] [$______] Leo A. Guthart (1)(2) [$______] [$______] Jerome Kahn, Jr. [$______] [$______]
36
Compensation Table - --------------------------------------------------------------------------------------------------------- Total Compensation from the Aggregate Compensation from Columbia Funds Complex Paid Name of Trustee the Funds to Trustees(3) - -------------------------------------------- ------------------------------ ----------------------------- Steven N. Kaplan (1) [$______] [$______] David C. Kleinman [$______] [$______] Allan B. Muchin [$______] [$______] Robert E. Nason (1) [$______] [$______] John A. Wing (1) [$______] [$______] Trustees who are interested persons of Acorn: Charles P. McQuaid $0] $0 Ralph Wanger $0 $0
(1) Includes fees deferred during the year pursuant to a deferred compensation plan. As of December 31, 2004, the value of each of the deferred compensation accounts in the Funds for Messrs. Guthart, Kaplan, Nason and Wing was [$______],[$______],[$______],[$______], respectively. (2) Effective September 28, 2004, Mr. Guthart ceased to be a Trustee of the Trust. (3) The Funds do not currently provide pension or retirement plan benefits to the Trustees. The officers and Trustees affiliated with the Adviser serve without any compensation from the Trust. Columbia Acorn has adopted a deferred compensation plan (the "Plan") for its non-interested Trustees. Under the Plan, any Trustee who is not an "interested person" of Columbia Acorn or Columbia WAM ("participating Trustees") may defer receipt of all or a portion of their compensation from the Trust in order to defer payment of income taxes or for other reasons. The deferred compensation payable to a participating Trustee is credited to a book reserve account as of the business day such compensation would have been paid to such Trustee. The value of a participant's deferral account at any time is equal to the value that the account would have had if the contributions to the account had been invested in Class Z shares of one or more of the Funds or in shares of Columbia Money Market Fund as designated by the participant. If a participating Trustee retires, the Trustee may elect to receive payments under the plan in a lump sum or in equal annual installments over a period of five years. If a participating Trustee dies, any amount payable under the Plan will be paid to that Trustee's designated beneficiaries. Each Fund's obligation to make payments under the Plan is a general obligation of that Fund. No Fund is liable for any other Fund's obligations to make payments under the Plan. Pursuant to the Settlements discussed under "Management Arrangements-Legal Proceedings" herein, at least 75% of the Board must meet the independence standards set forth in the Settlements (certain of those standards being more restrictive than those contained in the Investment Company Act and rules thereunder and that generally prohibit affiliations with certain Columbia and Bank of America-related entities). Those independence standards are referred to as "super-independence" standards. The chairman of the board must meet even more stringent independence standards. Certain other conditions in the Settlements generally require that: o No action may be taken by the board of trustees (or any committee thereof) unless such action is approved by a majority of the members of the board or the committee who meet the super-independence standards. If any proposed action to be approved by a majority of the independent trustees is not approved by the full board, the Trust is required to disclose the proposal and the vote in its shareholder report for that period; o Beginning in 2005 and not less than every fifth calendar year thereafter, the Trust must hold a meeting of shareholders to elect trustees; and o The board of trustees must appoint a senior officer who must report directly to the board with respect to his or her responsibilities, including (i) monitoring compliance with federal and state securities, applicable state laws respecting potential or actual conflicts of interest and fiduciary duties, and applicable codes of ethics and compliance manuals, (ii) managing the process by which management fees to be charged to the Funds are negotiated and (iii) preparing, or directing the preparation of, a written evaluation of, among other things, management fees charged to the Funds and to institutional and other clients, profit margins of CWAM and its affiliates from supplying services to the Funds and possible economies of scale. 37 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. Committees The standing committees of the Trust's Board of Trustees are:
No. of Meetings Committee Members Function Held in 2004 - --------- ------- -------- ------------ Executive Charles P. McQuaid Exercise powers of the Board of Trustees during intervals 4 Allan B. Muchin between meetings of the Board, with certain exceptions. Robert E. Nason Alternate: Ralph Wanger Audit David C. Kleinman Make recommendations to the Board of Trustees regarding the (chairman) selection of independent auditors for the Trust, confer with Jerome Kahn, Jr. the independent auditors regarding the scope and results of 7 Robert E. Nason each audit and carry out the provisions of its charter. John A. Wing Valuation Charles P. McQuaid Determine valuations of portfolio securities held by any (chairman) series of the Trust in instances as required by the Ralph Wanger valuation procedures adopted by the Board of Trustees. 29 Robert E. Nason Alternates: Jerome Kahn, Jr. John A. Wing Investment Advisory Margaret Eisen (chair) Make recommendations to the Board of Trustees regarding the 5 Agreement Allan B. Muchin continuation or amendment of the investment advisory Jerome Kahn, Jr. agreements between the Trust and the Adviser. David C. Kleinman Governance Allan B. Muchin Make recommendations to the Board of Trustees regarding (chairman) committees of the board and committee assignments, make Margaret Eisen recommendations to the Board regarding the composition of 4 Steven N. Kaplan the board and candidates for election as non-interested Robert E. Nason Trustees, oversee the process for evaluating the functioning of the board, and make recommendations to the board regarding the compensation of Trustees who are not affiliated with any investment adviser, administrator or distributor of the Funds. Investment Performance David C. Kleinman Examine methods of mutual fund performance measurement and Analysis (chairman) make recommendations to the Board of Trustees about the Steven N. Kaplan types of performance reports to be provided to the Board. 2 John A. Wing
38
No. of Meetings Committee Members Function Held in 2004 - --------- ------- -------- ------------ Compliance Margaret M. Eisen Provide oversight of the monitoring processes and controls Steven N. Kaplan regarding the Trust with legal, regulatory and internal Jerome Kahn, Jr. rules, policies, procedures and standards other than those 16 John A. Wing relating to accounting matters and oversight of compliance (chairman) by the Trust's investment adviser, principal underwriter and transfer agent.
Although the registrant's investment adviser, Trustees, or shareholders may submit suggested candidates for Independent Trustees to the Governance Committee, neither the Committee nor the Independent Trustees as a group shall consider those candidates on a preferential basis as opposed to other possible candidates. Any shareholders may submit the name of a candidate for consideration by the Governance Committee by submitting the recommendation to the Trust's Secretary. The Secretary will forward any such recommendation to the Chairman of the Governance Committee promptly upon receipt. Investment Adviser Columbia Wanger Asset Management, L.P. ("Columbia WAM") (named Wanger Asset Management, L.P. prior to September 29, 2000 ("WAM")), serves as the investment adviser for the Funds, Wanger Advisors Trust and for other institutional accounts. As of December 31, 2004, Columbia WAM had approximately [$22] billion in assets under management, including the Funds. Columbia WAM and its predecessor have managed mutual funds, including Columbia Acorn since 1992. Columbia WAM is an indirect wholly owned subsidiary of CMG, which in turn is an indirect wholly owned subsidiary of Bank of America Corporation. Prior to April 1, 2004, CMG was a wholly owned subsidiary of FleetBoston Financial Corporation ("Fleet"). On April 1, 2004, FleetBoston Financial Corporation was acquired by Bank of America Corporation. The Portfolio Funds are managed by Columbia WAM and its affiliate Columbia Management Advisors, Inc., previously named Columbia Management Company ("CMA"). Like Columbia WAM, CMA is owned by CMG. CMA also may provide administrative and operational services to the Funds. At a meeting of the Board of Trustees held on July 14, 2004, called in part for the purpose of voting on the continuation of the advisory agreement between the Funds and Columbia WAM dated August 1, 2004 (the "Advisory Agreement"), the Advisory Agreement was continued through July 31, 2005 by the unanimous vote of the "non-interested" Trustees of the Trust voting separately. The Trustees considered information about, among other things: (1) Columbia WAM and its respective personnel, resources and investment process; (2) the terms of the Advisory Agreement, including the services provided to the Funds and the compensation payable to the Adviser; (3) the nature and quality of services provided by Columbia WAM; (4) the investment performance of each Fund and of similar funds managed by other advisors; (5) the profitability to Columbia WAM of its relationship with the Funds; (6) fall-out benefits from that relationship; (7) compensation payable by the Funds to affiliates of the Adviser for other services; (8) economies of scale; and (9) comparative fees and expense ratios. The Trustees also considered the terms of an agreement between the Trust and CMG (the "CMG Agreement") in which CMG agreed that, except as otherwise authorized by the Trustees, through July 31, 2005 and subject to applicable laws and regulations, including but not limited to laws and regulations governing financial holding companies, registered investment companies and registered investment advisors, it would: (1) preserve the autonomy of the Trust; (2) keep Columbia WAM as a wholly-owned subsidiary of CMG (or any successor company) and as a separate Chicago-based investment management firm; Columbia WAM will be permitted to maintain an investment philosophy and approach to investment operations, research and talent that it deems appropriate; (3) use its reasonable best efforts to assure that Columbia WAM's electronic information system will provide timely and uninterrupted operating information and data consistent with all regulatory and compliance requirements; (4) allow Columbia WAM considerable latitude to recruit and compensate (on a competitive basis) investment management personnel and to control travel budgets for analysts consistent with its operational and strategic plans; (5) respect and honor Columbia WAM's relationships with brokers unless regulatory or compliance requirements require changes and permit Columbia WAM to continue to allocate commissions and any soft dollar payments as it has in the past including the broker certificate program and other matters; (6) maintain the trading desk at Columbia WAM for domestic and international trading activities; and (7) allow the principal investment management focus and responsibilities of Columbia WAM's portfolio managers and analysts to be dedicated to the Trust. Any responsibilities assigned to those individuals to manage other accounts will be reported to the Board of Trustees of the Trust each calendar quarter. CMG also acknowledged the importance that the Board of Trustees and the Trust's Compliance/Contract Review Committee place on full legal and regulatory compliance by CMG, Columbia WAM and all other Trust service providers and their personnel (Providers), and agreed to (i) fully cooperate with all inquiries by the Board of 39 Trustees and the Trust's chief compliance officer concerning such compliance by the Providers and (ii) proactively communicate with the Board and chief compliance officer of the Trust concerning any instance of actual, alleged or suspected legal or regulatory non-compliance by the Providers of which CMG is aware and that CMG deems to be material. Such cooperation and communication by CMG will be done as soon as possible after receipt of an inquiry or upon learning of any such actual; alleged or suspected legal or regulatory non-compliance. Each Advisory Agreement will continue from year to year so long as such continuation is approved at least annually by (1) the Board of Trustees or the vote of a majority of the outstanding voting securities of the Fund or Portfolio Fund, and (2) a majority of the Trustees who are not interested persons of any party to the Agreement, cast in person at a meeting called for the purpose of voting on such approval. Each Advisory Agreement may be terminated at any time, without penalty, by either the Trust or Columbia WAM, upon 60 days' written notice, and automatically terminates in the event of its assignment as defined in the 1940 Act. Under its Advisory Agreement for each Fund, the Adviser provides the Fund with discretionary investment services. Specifically, the Adviser is responsible for supervising and directing the investments of the Fund in accordance with the Fund's investment objective, program, and restrictions as provided in the Funds' prospectuses and this SAI. The Adviser is also responsible for effecting all security transactions on behalf of the Fund, including the allocation of principal business and portfolio brokerage and the negotiation of commissions (see "Portfolio Transactions" below). Under the Advisory Agreement, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection with the matters to which such Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence in the performance of its duties or from reckless disregard of its obligations and duties under the Agreement. The advisory fees paid to the Adviser by each Fund for the fiscal years ended December 31, 2004, 2003 and 2002 were as follows:
Fund 2004 2003 2002 Columbia Acorn Fund [$__________] $52,118,000 $37,007,000 Columbia Acorn [$__________] $11,792,000 $12,863,000 International Columbia Acorn USA [$__________] $4,194,000 $3,027,000 Columbia Acorn Select gross advisory fee: [$______] $3,817,000 $1,095,000 exp. reimb: [$______] (0) (45,000) -------------------- ---------------------- ---------------------- net advisory fee: [$______] $3,817,000 $1,050,000 Columbia Acorn gross advisory fee: [$______] $330,000 $381,000 International Select exp. reimb: [$______] (147,000) (119,000) --------------------- ---------------------- ---------------------- net advisory fee: [$______] $183,000 $262,000 Columbia Thermostat Fund $0 gross advisory fee:$49,000 $1,000 exp. reimb.: (350,000) ) (129,000) ------------------------- --------------------- net advisory fee: ($301,000) $(128,000)
Columbia WAM receives advisory fees from some of the Portfolio Funds in which Columbia Thermostat Fund invests. The advisory fees the Funds pay to the Adviser are calculated daily and paid monthly, at the annual rates shown below: Columbia Acorn Fund Average Daily Net Assets Annual Fee Rate ------------------------ --------------- First $700 million 0.75% Next $1.3 billion 0.70% In excess of $2 billion 0.65% 40 Columbia Acorn International Average Daily Net Assets Annual Fee Rate ------------------------ --------------- First $100 million 1.20% Next $400 million 0.95% In excess of $500 million 0.75% Columbia Acorn USA Average Daily Net Assets Annual Fee Rate ------------------------ --------------- First $200 million 0.95% In excess of $200 million 0.90% Columbia Acorn Select Average Daily Net Assets Annual Fee Rate ------------------------ --------------- First $700 million 0.90% In excess of $700 million 0.85% Columbia Acorn International Select Annual Fee Rate --------------- All assets 0.95% Columbia Thermostat Fund Annual Fee Rate --------------- All assets 0.10% Columbia WAM has voluntarily agreed to reimburse Columbia Acorn Select (exclusive of distribution and service fees and certain other expenses) to the extent the ordinary operating expenses exceed 1.35% of the average annual net assets for Class Z, Class A, Class B and Class C shares. Columbia WAM has also voluntarily agreed to reimburse Columbia Acorn International Select (exclusive of distribution and service fees and certain other expenses) to the extent the ordinary operating expenses exceed 1.45% of the average net assets for Class Z, Class A, Class B and Class C shares. This arrangement may be modified or terminated by either Columbia WAM or the Fund on 30 days' notice to the other. In addition, with respect to Columbia Thermostat Fund, Columbia WAM has contractually agreed to bear a portion of the Fund's expenses so that the Fund's ordinary operating expenses (exclusive of distribution and service fees and certain other expenses) for a maximum of 0.25% annually through [April 30, 2006] for Class Z, Class A, Class B and Class C shares. [confirm] In addition to the fees and expenses paid by Columbia Thermostat Fund directly, Columbia Thermostat Fund pays its pro rata share of the fees and expenses of the Portfolio Funds in which it invests. Other Arrangements with Service Providers Effective September 30, 2004, the transfer agency and shareholder servicing agreement between the Trust and CFS has been revised so that the Funds pay CFS an account fee for each open account of $21.00 per annum, plus certain out-of-pocket expenses that the Funds adviser and/or affiliates have contractually agreed to waive through [April 30, 2006]. Each Portfolio Fund pays investment advisory fees to its investment adviser, administrative and bookkeeping fees to its administrator, and transfer agency and shareholder servicing fees to CFS. Portfolio Managers Charles McQuaid is the lead portfolio manager for Columbia Acorn Fund and co-portfolio manager of Columbia Thermostat. Robert A. Mohn is the lead portfolio manager for Columbia Acorn USA and co-portfolio manager for Columbia Acorn Fund. P. Zachary Egan and Louis J. Mendes are the co-portfolio managers for Columbia Acorn International Fund. Ben Andrews is lead portfolio manager for Columbia Acorn Select. Todd Narter and Christopher Olson are the co-portfolio managers for Columbia Acorn International Select. Ralph Wanger is a co-portfolio manager for Columbia Thermostat Fund. The portfolio managers also have responsibility for the day-to-day management of accounts other than the Funds, including separate accounts and unregistered funds. The advisory fees received by Columbia WAM in connection with the management 41 of the Funds and other accounts are not based on the performance of the Funds or the other accounts. Information regarding those other accounts is set forth below.
- ------------------------ ---------------------------------------------------------------------------------------------- Number of Other Accounts Managed and Assets by Account Type as of December 31, 2004 - ------------------------ ---------------------------------------------------------------------------------------------- Registered Investment Companies (other than Other Pooled Portfolio Manager the Funds) Investment Vehicles Other Accounts - ------------------------ ------------------------------ ------------------------------ -------------------------------- Ben Andrews Number: 1 Number: 1 Number: 1 Assets: $82,689,000 Assets: $11,321,000 Assets: $42,121,000 - ------------------------ ------------------------------ ------------------------------ -------------------------------- P. Zachary Egan Number: 1 Number: 0 Number: 0 Assets: $138,631,000 Assets: $0 Assets: $0 - ------------------------ ------------------------------ ------------------------------ -------------------------------- Charles P. McQuaid Number: 0 Number: 2 Number: 3 Assets: $0 Assets: $217,000,000 Assets: $1,081,000,000 - ------------------------ ------------------------------ ------------------------------ -------------------------------- Louis J. Mendes Number: 1 Number: 0 Number: 0 Assets: $138,631,000 Assets: $0 Assets: $0 - ------------------------ ------------------------------ ------------------------------ -------------------------------- Robert A. Mohn Number: 1 Number: 3 Number: 4 Assets: $300,000,000 Assets: $950,000,000 Assets: $13,000,000 - ------------------------ ------------------------------ ------------------------------ -------------------------------- Todd Narter Number: 2 Number: 0 Number: 9 Assets: $642,774,000 Assets: $0 Assets: $1,100,000 - ------------------------ ------------------------------ ------------------------------ -------------------------------- Christopher Olson Number: 2 Number: 0 Number: 0 Assets: $642,774,000 Assets: $0 Assets: $0 - ------------------------ ------------------------------ ------------------------------ -------------------------------- Ralph Wanger Number: Number: Number: Assets: $____ Assets: $____ Assets: $____ - ------------------------ ------------------------------ ------------------------------ --------------------------------
As shown in the table above, certain portfolio managers may manage other accounts with investment strategies similar to the Funds, including other investment companies and separately managed accounts. Fees earned by Columbia WAM may vary among these accounts and the portfolio managers may personally invest in some but not all of these accounts. These factors could create conflicts of interest because a portfolio manager may have incentives to favor certain accounts over others, resulting in other accounts outperforming the Funds. A conflict may also exist if a portfolio manager identified a limited investment opportunity that may be appropriate for more than one account, but a Fund is not able to take full advantage of that opportunity due to the need to allocate that opportunity among multiple accounts. In addition, the portfolio manager may execute transactions for another account that may adversely impact the value of securities held by the Funds. However, Columbia WAM believes that these risks are mitigated by the fact that accounts with like investment strategies managed by a particular portfolio manager are generally managed in a similar fashion, subject to exceptions to account for particular investment restrictions or policies applicable only to certain accounts, differences in cash flows and account sizes, and similar factors. In addition, Columbia WAM has adopted trade allocation procedures that require equitable allocation of trade orders for a particular security among participating accounts. As of December 31, 2004, the portfolio managers receive all of their compensation from Columbia WAM and its parent company. Ben Andrews, P. Zachary Egan, Charles P. McQuaid, Louis J. Mendes, Robert A. Mohn, Todd Narter, Christopher Olson and Ralph Wanger each received compensation in the form of salary and bonus. In addition, Messrs. Andrews, Egan, McQuaid, Mohn, Narter and Wanger each received a distribution in connection with his association with Columbia WAM prior to its acquisition in September 2000 and Columbia WAM's recent performance. Messrs. Mendes and Olson also participate in a supplemental pool for Columbia WAM employees that was established in connection with the acquisition of Columbia WAM and is based on Columbia WAM's recent performance. Portfolio manager compensation is variable and is based on both security analysis and portfolio management skill, as reflected through investment performance. Security analysis performance is evaluated based on investment results versus benchmarks of assigned coverage areas, industry and country weighting recommendations, achievement of industry and country weighting change mandates, the attainment of consistency across accounts, the magnitude of assets managed and the number of new investment ideas generated. Portfolio management performance is gauged on the pre-tax total return of each Fund as measured against the performance of its benchmark index as 42 well as its Lipper peer group. The benchmark index for each Fund is (1) Columbia Acorn Fund: Russell 2500 Index and Standard & Poor's 500 Composite Stock Price Index; (2) Columbia International: Citigroup EMI (Global ex-U.S.); (3) Columbia Acorn Select: Standard & Poor's MidCap 400; (4) Columbia Acorn USA: Russell 2000 Index; (5) Columbia Acorn International Select: Citigroup (World ex-U.S.) Cap Range $2-10B; and (6) Columbia Thermostat; Standard & Poor's 500 Composite Stock Price Index. For portfolio managers that manage multiple funds, the performance of each fund is weighted by asset size so that the performance of a larger fund bears more importance on a portfolio manager's compensation than a smaller fund. Other factors used to determine portfolio manager compensation include the manager's business building efforts and governance and citizenship. The same factors and approach are applied to a portfolio manager's management of a separate account. Further, salary and bonus amounts were also impacted by Columbia WAM's income growth, revenue growth and growth of assets under management. Base salary amounts are determined according to multiple year performance, whereas bonus amounts are determined largely according to the manager's current year performance. Portfolio Manager compensation is not based on sales or promotional efforts organized by the Funds' intermediary and retail sales channels. Additional factors used to determine Mr. McQuaid's compensation include: revenue growth, client relationships, relationships with CMG and Bank of America Corporation key personnel, maintaining a solid infrastructure and personnel management. In addition, a portion of Mr. Mohn's compensation is determined based on his responsibilities as the director of domestic research at Columbia WAM, and a portion of Mr. Egan's compensation is determined based on his responsibilities as the director of international research at Columbia WAM. At December 31, 2004, each portfolio manager beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 Act (the "1934 Act") shares of the respective Funds they manage having values within the indicated dollar ranges.
- --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------ Columbia Acorn Columbia Acorn International Columbia Columbia Acorn International Columbia Acorn USA Columbia Acorn Select Thermostat Fund Fund Select - --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------ Ben Andrews N/A N/A N/A ______ N/A N/A - --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------ P. Zachary Egan N/A ______ N/A N/A N/A N/AS - --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------ Charles P. McQuaid ______ N/A N/A N/A N/A ______ - --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------ Louis J. Mendes N/A ______ N/A N/A N/A N/A - --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------ Robert A. Mohn ______ N/A ______ N/A N/A N/A - --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------ Todd Narter N/A N/A N/A N/A ______ N/A - --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------ Christopher Olson N/A N/A N/A N/A ______ N/A - --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------ Ralph Wanger N/A N/A N/A N/A N/A ______ - --------------------- ------------------- ------------------ ------------------- ---------------- --------------- ------------------
Portfolio Transactions Columbia WAM places the orders for the purchase and sale of portfolio securities and options and futures contracts for the Funds. Columbia WAM's overriding objective in selecting brokers and dealers to effect portfolio transactions is to seek the best combination of net price and execution. The best net price, giving effect to brokerage commissions, if any, and other transaction costs, is an important factor in this decision; however, a number of other judgmental factors may also enter into the decision. These factors include Columbia WAM's knowledge of negotiated commission rates currently available and other current transaction costs; the nature of the security being purchased or sold; the size of the transaction; the desired timing of the transaction; the activity existing and expected in the market for the particular security; confidentiality; the execution, clearance and settlement capabilities of the broker or dealer selected and others considered; Columbia WAM's knowledge of the financial stability of the broker or dealer selected and such other brokers and dealers; evaluation of competing markets, including exchanges, over-the-counter markets, electronic communications networks or other alternative trading facilities; the broker's or 43 dealer's responsiveness to Columbia WAM; and Columbia WAM's knowledge of actual or apparent operation problems of any broker or dealer. Recognizing the value of these factors, Columbia WAM may cause a Fund to pay a brokerage commission in excess of that which another broker may have charged for effecting the same transaction. Columbia WAM has established internal policies for the guidance of its trading personnel, specifying minimum and maximum commissions to be paid for various types and sizes of transactions effected for the Funds. Columbia WAM has discretion for all trades of the Funds. Transactions which vary from the guidelines are subject to periodic supervisory review. These guidelines are reviewed and periodically adjusted, and the general level of brokerage commissions paid is periodically reviewed by Columbia WAM. Evaluations of the reasonableness of brokerage commissions, based on the factors described in the preceding paragraph, are made by Columbia WAM's trading personnel while effecting portfolio transactions. The general level of brokerage commissions paid is reviewed by Columbia WAM, and reports are made annually to the Board of Trustees. Columbia WAM maintains and periodically updates a list of approved brokers and dealers which, in Columbia WAM's judgment, are generally capable of providing best price and execution and are financially stable. Columbia WAM's traders are directed to use only brokers and dealers on the approved list. Columbia WAM may place trades for the Funds through a registered broker-dealer that is an affiliate of Columbia WAM pursuant to procedures adopted by the Board of Trustees. Such trades will only be effected consistent with Columbia WAM's obligation to seek best execution for its clients, and the Funds will pay these affiliates a commission for these transactions. The Funds have adopted procedures consistent with Investment Company Act Rule 17e-1 governing such transactions. It is Columbia WAM's practice, when feasible, to aggregate for execution as a single transaction orders for the purchase or sale of a particular security, with the same terms and conditions, for the accounts of several clients in order to seek a lower commission or more advantageous net price. All clients participating in the aggregated execution receive the same execution price and transaction costs are shared pro-rata, whenever possible. Investment Research Products and Services Furnished by Brokers and Dealers Columbia WAM engages in the long-standing practice in the money management industry of acquiring research and brokerage products and services ("research products") from broker-dealer firms in return for directing trades for the Funds to those firms. In effect, Columbia WAM is using the commission dollars generated from the Funds to pay for these research products. The money management industry uses the term "soft dollars" to refer to this industry practice. Columbia WAM has a duty to seek the best combination of net price and execution. Columbia WAM faces a potential conflict of interest with this duty when it uses Fund trades to obtain soft dollar products. This conflict exists because Columbia WAM is able to use the soft dollar products in managing its Funds without paying cash ("hard dollars") for the product. This reduces Columbia WAM's expenses. Moreover, under a provision of the federal securities laws applicable to soft dollars, Columbia WAM is not required to use the soft dollar product in managing those accounts that generate the trade. Thus, the Funds that generate the brokerage commission used to acquire the soft dollar product may not benefit directly from that product. In effect, those Funds are cross subsidizing Columbia WAM's management of the other Funds that do benefit directly from the product. This practice is explicitly sanctioned by a provision of the Securities Exchange Act of 1934, which creates a "safe harbor" for soft dollar transactions conducted in a specified manner. Although it is inherently difficult if not impossible to document, Columbia WAM believes that over time most, if not all, Funds benefit from soft dollar products such that cross subsidizations even out. Columbia WAM attempts to reduce or eliminate this conflict by directing Fund trades for soft dollar products only if Columbia WAM concludes that the broker-dealer supplying the product is capable of providing a combination of the best net price and execution on the trade. As noted above, the best net price, while significant, is one of a number of judgmental factors Columbia WAM considers in determining whether a particular broker is capable of providing the best net price and execution. Columbia WAM may cause a Fund to pay a brokerage commission in a soft dollar trade in excess of that which another broker-dealer might have charged for the same transaction. Columbia WAM acquires two types of soft dollar research products: (i) proprietary research created by the broker-dealer firm executing the trade and (ii) other research created by third parties that are supplied to Columbia WAM through the broker-dealer firm executing the trade. 44 Proprietary research consists primarily of traditional research reports, recommendations and similar materials produced by the in house research staffs of broker-dealer firms. This research includes evaluations and recommendations of specific companies or industry groups, as well as analyses of general economic and market conditions and trends, market data, contacts and other related information and assistance. Columbia WAM's research analysts periodically rate the quality of proprietary research produced by various broker-dealer firms. Based on these evaluations, Columbia WAM develops target levels of commission dollars on a firm-by-firm basis. Columbia WAM attempts to direct trades to each firm to meet these targets. Columbia WAM also uses soft dollars to acquire research created by third parties that are supplied to Columbia WAM through broker-dealers executing the trade (or other broker-dealers who "step in" to a transaction and receive a portion of the brokerage commission for the trade). The targets that Columbia WAM establishes for both proprietary and for third party research typically will reflect discussions that Columbia WAM has with the broker-dealer providing the research regarding the level of commissions it expects to receive for the research. However, these targets are not binding commitments, and Columbia WAM does not agree to direct a minimum amount of commissions to any broker-dealer for soft dollar research. In setting these targets, Columbia WAM makes a determination that the value of the research is reasonably commensurate with the cost of acquiring it. These targets are established on a calendar year basis. Columbia WAM will receive the research whether or not commissions directed to the applicable broker-dealer are less than, equal to or in excess of the target. Columbia WAM generally will carry over target shortages and excesses to the next year's target. Columbia WAM believes that this practice reduces the conflicts of interest associated with soft dollar transactions, since Columbia WAM can meet the non-binding expectations of broker-dealers providing soft dollar research over flexible time periods. In the case of third party research, the third party is paid by the broker-dealer and not by Columbia WAM. Columbia WAM may enter into a contract with the third party vendor to use the research. Columbia WAM also receives company-specific research for soft dollars from independent research organizations that are not brokers. Consistent with industry practice, Columbia WAM does not require that the Fund that generates the trade receive any benefit from the soft dollar product obtained through the trade. As noted above, this may result in cross subsidization of soft dollar products among Funds. As noted therein, this practice is explicitly sanctioned by a provision of the 1934 Act, which creates a "safe harbor" for soft dollar transactions conducted in a specified manner. In certain cases, Columbia WAM will direct a trade to one broker-dealer with the instruction that it execute the trade and pay over a portion of the commission from the trade to another broker-dealer who provides Columbia WAM with soft dollar research. The broker-dealer executing the trade "steps out" of a portion of the commission in favor of the other broker-dealer providing the soft dollar product. Columbia WAM may engage in step out transactions in order to direct soft dollar commissions to a broker-dealer which provides research but may not be able to provide best execution. Brokers who receive step out commissions typically are brokers providing third party soft dollar research that is not available on a hard dollars basis. Columbia WAM has not engaged in step out transactions as a manner of compensating broker-dealers that sell shares of investment companies managed by Columbia WAM. The Trust's purchases and sales of securities not traded on securities exchanges generally are placed by Columbia WAM with market makers for these securities on a net basis, without any brokerage commissions being paid by the Trust. Net trading does involve, however, transaction costs. Included in prices paid to underwriters of portfolio securities is the spread between the price paid by the underwriter to the issuer and the price paid by the purchasers. Each Fund's purchases and sales of portfolio securities in the over-the-counter market usually are transacted with a broker-dealer on a net basis without any brokerage commission being paid by such Fund, but do reflect the spread between the bid and asked prices. Columbia WAM may also transact purchases of some portfolio securities directly with the issuers. With respect to a Fund's purchases and sales of portfolio securities transacted with a broker or dealer on a net basis, Columbia WAM may also consider the part, if any, played by the broker or dealer in bringing the security involved to Columbia WAM's attention, including investment research related to the security and provided to the Fund. The Adviser may place trades for the Funds through affiliates of the Adviser in accordance with Investment Company Act Rule 17e-1 governing such transactions and pursuant to procedures adopted by the Board of Trustees. The Adviser did not place any trades for the Funds through its affiliates during the fiscal year 2004. The following table shows the total brokerage commissions paid by each Fund during the last three fiscal years. 45
Brokerage Commissions (dollars in thousands) Columbia Acorn Fund Years Ended ----------- 2004 2003 2002 ---- ---- ---- Total commissions $12,154 $8,476 $7,518 Columbia Acorn International Years Ended ----------- 2004 2003 2002 ---- ---- ---- Total commissions $3,681 $3,113 $4,305 Columbia Acorn USA Years Ended ----------- 2004 2003 2002 ---- ---- ---- Total commissions $739 $592 $768 Columbia Acorn Select Years Ended ----------- 2004 2003 2002 ---- ---- ---- Total commissions $1,608 $995 $310 Columbia Acorn International Select Years Ended ----------- 2004 2003 2002 ---- ---- ---- Total commissions $150 $105 $222 Columbia Thermostat Fund Years Ended ----------- 2004 2003 2002 ---- ---- ---- Total commissions $0 $0 $0
The Trust is required to identify any securities of its "regular brokers or dealers" that the Funds have acquired during their most recent fiscal year. At December 31, 2004, the Funds held securities of their regular brokers or dealers as set forth below: Columbia Acorn Fund ISSUER VALUE (dollars in thousands) Investment Technology Group [$_______] Directed transactions include transactions that the Fund or Columbia WAM directs to a registered broker-dealer, through an agreement or understanding or otherwise through an internal allocation procedures, because of research services provided by 46 the registered broker-dealer to the Funds. For each registered broker-dealer to which the Funds or Columbia WAM directed transactions during the last fiscal year, the following tables show the dollar amount of directed transactions for each Fund, and the commissions paid by each Fund on directed transactions.
Columbia Acorn Fund [Name of Broker] Total amount of directed brokerage transactions Total amount of directed during 2004.................. $ brokerage commissions paid $ during 2004.................. $ Columbia Acorn International [Name of Broker] Total amount of directed brokerage transactions Total amount of directed during 2004.................. $ brokerage commissions paid $ during 2004.................. $ Columbia Acorn USA [Name of Broker] Total amount of directed brokerage transactions Total amount of directed during 2004.................. $ brokerage commissions paid $ during 2004.................. $ Columbia Acorn Select [Name of Broker] Total amount of directed brokerage transactions Total amount of directed during 2004.................. $ brokerage commissions paid $ during 2004.................. $ Columbia Acorn International Select [Name of Broker] Total amount of directed brokerage transactions Total amount of directed during 2004.................. $ brokerage commissions paid $ during 2004.................. $ Columbia Thermostat Fund [Name of Broker] Total amount of directed brokerage transactions Total amount of directed during 2004.................. $ brokerage commissions paid $ during 2004.................. $
During the last three most recent fiscal years, the Funds have not paid any brokerage commissions to any broker that is an affiliated person of the Funds, Columbia WAM or CFD, or of any of their affiliates. Administration Agreement Columbia Acorn has a separate administration agreement with the Adviser under which services are provided to Columbia Acorn and each Fund by Columbia WAM. Pursuant to the agreement, Columbia Acorn shall pay Columbia WAM for its services, a fee accrued daily and paid monthly at the following annual rates: 0.05% of Columbia Acorn's average daily net assets up to $8 billion of assets; 0.04% of Columbia Acorn's average daily net assets from $8 billion to $16 billion of assets; and 0.03% of 47 Columbia Acorn's average daily net assets over $16 billion. Pursuant to that agreement, the Adviser provides certain administrative services to each Fund, including: (i) maintaining the books and records, including financial and corporate records, of Columbia Acorn; (ii) supervising the preparation and filing of registration statements, notices, reports, tax returns and other documents; (iii) overseeing and assisting in the coordination of the performance of administrative and professional services rendered to the Funds by others; (iv) providing administrative office and data processing facilities; (v) developing and implementing procedures to monitor each Fund's compliance with regulatory requirements and with each Fund's investment policies and restrictions; (vi) providing for the services of employees of the Adviser who may be appointed as officers of Columbia Acorn; and (vii) providing services to shareholders of the Funds. The Administration Agreement has a one year term. The Adviser has the power under the Administration Agreement to delegate some or all of its responsibilities to others, at the Adviser's expense. The Adviser retains responsibility for any services it delegates. The Adviser has delegated some or all of the services provided pursuant to the Administration Agreement to affiliates of CMG. The administrative fees paid to the Adviser by each Fund for the fiscal years ended December 31, 2004, 2003 and 2002 were as follows: Fund 2004 2003 2002 Columbia Acorn Fund [$__________] $3,905,000 $2,747,000 Columbia Acorn International [$__________] $703,000 $774,000 Columbia Acorn USA [$__________] $227,000 $163,000 Columbia Acorn Select [$__________] $212,000 $61,000 Columbia Acorn International [$__________] $17,000 $20,000 Select Columbia Thermostat Fund [$__________] $25,000 $0 Principal Underwriter CFD, One Financial Center, Boston, MA 02111 is the principal underwriter of the Funds' shares. CFD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors. CFD'S CHARGES AND EXPENSES Sales Charges (dollars in thousands)
Class A Shares Year ended December 31, 2004 ---------------------------- Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- ------------- --------- -------- ------------- ---------- Aggregate initial sales charges on Fund share sales [$______] [$______] [$______] [$______] [$______] [$______] Initial sales charges retained by CFD [$______] [$______] [$______] [$______] [$______] [$______] Aggregate contingent deferred sales charges (CDSC) on Fund redemptions retained by CFD [$______] [$______] [$______] [$______] [$______] [$______] Class B Shares Year ended December 31, 2004 ---------------------------- Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- ------------- --------- -------- ------------- ---------- Aggregate CDSC on Fund redemptions retained by CFD [$------] [$------] [$------] [$------] [$------] [$------]
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Class C Shares Year ended December 31, 2004 ---------------------------- Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- ------------- --------- -------- ------------- ---------- Aggregate CDSC on Fund redemptions retained by CFD [$------] [$------] [$------] [$------] [$------] [$------] Class A Shares Year ended December 31, 2003 ---------------------------- Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- ------------- --------- -------- ------------- ---------- Aggregate initial sales charges on Fund share sales $10,178 $217 $538 $2,305 $11 $1,204 Initial sales charges retained by CFD $1,333 $31 $80 $331 $1 $179 Aggregate contingent deferred sales charges (CDSC) on Fund redemptions retained by CFD $12 $13 $10 (a) $1 $0 Class B Shares Year ended December 31, 2003 ---------------------------- Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- ------------- --------- -------- ------------- ---------- Aggregate CDSC on Fund redemptions retained by CFD $1,914 $71 $125 $146 $8 $26 Class C Shares Year ended December 31, 2003 ---------------------------- Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- ------------- --------- -------- ------------- ---------- Aggregate CDSC on Fund redemptions retained by CFD $118 $7 $4 $12 $1 $0 Class A Shares Year ended December 31, 2002 ---------------------------- Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- ------------- --------- -------- ------------- ---------- Aggregate initial sales charges on Fund share sales $7,600 $257 $402 $273 $11 $67 Initial sales charges retained by CFD $694 $34 $51 $40 $2 $0 Aggregate contingent deferred sales charges (CDSC) on Fund redemptions retained by CFD $10 $29 (a) (a) $0 $0 Class B Shares Year ended December 31, 2002 ---------------------------- Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- ------------- --------- -------- ------------- ---------- Aggregate CDSC on Fund redemptions retained by CFD $1,321 $73 $152 $96 $8 $0
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Class C Shares Year ended December 31, 2002 ---------------------------- Columbia Columbia Columbia Acorn Columbia Columbia Acorn Columbia Acorn International Thermostat Acorn Fund International Acorn USA Select Select Fund ----------- ------------- --------- -------- ------------- ---------- Aggregate CDSC on Fund redemptions retained by CFD $153 $16 $20 $3 $6 $0
(a) Rounds to less than one. Ownership of the Fund As of April 1, 2005, the following shareholders of record owned 5% or more of each class of the outstanding shares of any Fund:
Percentage of Outstanding Name and Address Fund Shares Held ---------------- ---- ----------- Charles Schwab & Co. Inc.(1) Columbia Acorn Fund Z _____% 101 Montgomery Street Columbia Acorn International Z _____% San Francisco, CA 94104-4122 Columbia Acorn USA Z _____% Columbia Acorn Select Z _____% Columbia Acorn International Select Z _____% National Financial Services Corp.(1) Columbia Acorn Fund Z _____% One World Financial Center Columbia Acorn International Z _____% 200 Columbia Street Columbia Acorn Select Z _____% New York, NY 10281-1003 Columbia Acorn International Select Z _____% State of Illinois Employees Deferred Columbia Acorn Fund Z _____% Compensation Plan(2) 200 W. Washington Springfield, IL 62706-0001 Vanguard Fiduciary Trust Co.(1) Columbia Acorn USA Z _____% PO Box 2600 Valley Forge, PA 19482-2600 Putnam Fiduciary Trust Co. Columbia Acorn USA Z _____% FBO Cardinal Health Profit Sharing Retirement & Savings Plan (2) 1 Investors Way Norwood, MA 02062-1599 Ralph Wanger Columbia Thermostat Fund Z _____% 227 W. Monroe Street, Suite 3000 Chicago, IL 60606 Charles Schwab & Co. Inc.(1) Columbia Acorn Fund A _____% 101 Montgomery Street San Francisco, CA 94104-4122
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Percentage of Outstanding Name and Address Fund Shares Held ---------------- ---- ----------- Charles Schwab & Co. Inc.(1) Columbia Acorn International A _____% 101 Montgomery Street San Francisco, CA 94104-4122 Charles Schwab & Co. Inc.(1) Columbia Acorn USA A _____% 101 Montgomery Street San Francisco, CA 94104-4122 Merrill Lynch Pierce Fenner & Smith(1) Columbia Acorn Fund C _____% 4800 Deer Lake Dr Jacksonville, FL 32246-6484 Merrill Lynch Pierce Fenner & Smith(1) Columbia Acorn USA C _____% 4800 Deer Lake Dr Jacksonville, FL 32246-6484 Charles Schwab & Co. Inc.(1) Columbia Acorn Select A _____% 101 Montgomery Street San Francisco, CA 94104-4122 Merrill Lynch Pierce Fenner & Smith(1) Columbia Acorn Select C _____% 4800 Deer Lake Dr Jacksonville, FL 32246-6484 State of Arkansas(2) Columbia Acorn International Fund A _____% 1515 W. 7th Street Little Rock, AR 72201-3934 Citigroup Global Markets, Inc. (1) Columbia Acorn USA Fund B _____% 333 W. 34th Street New York, NY 10001-2402 JP Morgan Chase (2) Columbia Acorn USA Fund Z _____% 3 Metrotech FL 8 Brooklyn, NY 11245-00001 Citigroup Global Markets, Inc. (2) Columbia Acorn Select Fund C _____% 333 W. 34th Street New York, NY 10001-2402 Calhoun & Co. Columbia Acorn Select Fund Z _____% c/o Coamerica Bank P.O. Box 75000 Detroit, MI 48275-00001 Merrill Lynch Pierce Fenner & Smith(1) Columbia Thermostat Fund C _____% 4800 Deer Lake Drive Jacksonville, FL 32246-6484 Charles Schwab & Co. Inc.(1) Columbia Thermostat Fund A _____% 101 Montgomery Street San Francisco, CA 94104-4122
(1) Shares are held of record on behalf of customers, and not beneficially. 51 (2) Shares are held of record on behalf of plan participants, and not beneficially. At April 1, 2005, the Trustees and officers of Columbia Acorn as a group owned beneficially [___%] of the outstanding Class Z shares of Columbia Thermostat and [less than 1% of each other class of shares of each Fund]. As of April 1, 2005, none of the independent Trustees owns beneficially or of record any shares of Columbia WAM or CFD, or of any person directly or indirectly controlling, controlled by, or under common control with Columbia WAM or CFD. The following table shows the dollar range of equity securities "beneficially" owned (within the meaning of that term as defined in rule 16a-1(a)(2) under the 1934 Act) by each Trustee as of December 31, 2004 (i) in the Funds and (ii) in the funds in the Columbia Funds Complex.
Aggregate Dollar Range of Equity Securities in All Dollar Range of Equity Registered Investment Companies Securities Owned Overseen by Trustee in Name of Trustee Name of Fund in each Fund Columbia Funds Complex - --------------- ------------ ---------------------- -------------------------------- Trustees who are not interested persons of Columbia Acorn: Margaret Eisen Columbia Acorn Fund [None] [$50,001-$100,000] Columbia Acorn International [$50,001-$100,000] Columbia Acorn USA [None] Columbia Acorn Select [None] Columbia Acorn International [None] Select Columbia Thermostat Fund [None] Jerome Kahn, Jr.* Columbia Acorn Fund [Over $100,000] [Over $100,000] Columbia Acorn International [Over $100,000] Columbia Acorn USA None Columbia Acorn Select [$50,001-$100,000] Columbia Acorn International [$1-$10,000] Select Columbia Thermostat Fund None Steven N. Kaplan* Columbia Acorn Fund [$10,001-$50,000] [Over $100,000] Columbia Acorn International [$50,001-100,000] Columbia Acorn USA [None] Columbia Acorn Select [$1-$10,000] Columbia Acorn International [None] Select Columbia Thermostat Fund [None] David C. Kleinman Columbia Acorn Fund [$10,001-$50,000] [Over $100,000] Columbia Acorn International [$10,001-$50,000] Columbia Acorn USA [$10,001-$50,000] Columbia Acorn Select [$10,001-$50,000] Columbia Acorn International [$1-$10,000] Select Columbia Thermostat Fund None
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Aggregate Dollar Range of Equity Securities in All Dollar Range of Equity Registered Investment Companies Securities Owned Overseen by Trustee in Name of Trustee Name of Fund in each Fund Columbia Funds Complex - --------------- ------------ ---------------------- -------------------------------- Allan B. Muchin Columbia Acorn Fund [Over $100,000] [Over $100,000] Columbia Acorn International [None] Columbia Acorn USA [None] Columbia Acorn Select [None] Columbia Acorn International [None] Select Columbia Thermostat Fund [None] Robert E. Nason* Columbia Acorn Fund [Over $100,000] [Over $100,000] Columbia Acorn International [$10,001-$50,000] Columbia Acorn USA [$10,001-$50,000] Columbia Acorn Select [$10,001-$50,000] Columbia Acorn International [$1-$10,000] Select Columbia Thermostat Fund [None] John A. Wing* Columbia Acorn Fund [$50,001-$100,000] [$50,001-$100,000] Columbia Acorn International [None] Columbia Acorn USA [None] Columbia Acorn Select [None] Columbia Acorn International [None] Select Columbia Thermostat Fund [None]
o In addition to the value of the shares owned as set forth above, Messrs. Kahn, Kaplan, Nason and Wing have deferred trustee fees pursuant to a deferred compensation plan described above. The value of the deferred fees is determined as if the fees had been invested in shares of one or more Funds, as determined by the Trustee, as of the date of the deferral. As of December 31, 2005, the value of each of the deferred compensation accounts in the Funds for Messrs. Kaplan, Nason and Wing was [$_______], [$_______], [$_______] and [$_______], respectively.
Aggregate Dollar Range of Equity Securities in All Dollar Range of Equity Registered Investment Companies Securities Owned Overseen by Trustee in Name of Trustee Name of Fund in each Fund Columbia Funds Complex - --------------- ------------ ---------------------- -------------------------------- Trustees who are interested persons of Columbia Acorn: Charles P. McQuaid Columbia Acorn Fund [Over $100,000] [Over $100,000] Columbia Acorn International [Over $100,000] Columbia Acorn USA [Over $100,000] Columbia Acorn Select [Over $100,000] Columbia Acorn International [Over $100,000] Select Columbia Thermostat Fund [Over $100,000]
53
Aggregate Dollar Range of Equity Securities in All Dollar Range of Equity Registered Investment Companies Securities Owned Overseen by Trustee in Name of Trustee Name of Fund in each Fund Columbia Funds Complex - --------------- ------------ ---------------------- -------------------------------- Trustees who are interested persons of Columbia Acorn: Ralph Wanger Columbia Acorn Fund [Over $100,000] [Over $100,000] Columbia Acorn International [Over $100,000] Columbia Acorn USA [Over $100,000] Columbia Acorn Select [Over $100,000] Columbia Acorn International [Over $100,000] Select Columbia Thermostat Fund [Over $100,000]
12b-1 Plan, Contingent Deferred Sales Charges and Conversion of Shares Each Fund offers four classes of shares - Class Z, Class A, Class B, and Class C. Each Fund 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 1940 Act for each class except Class Z. Under the Plan, each Fund pays CFD monthly service and distribution fees at the annual rates described in the Prospectus for that Funds' Class A, Class B and Class C shares. CFD may use the entire amount of such fees to defray the costs of commissions and service fees paid to FSFs and for certain other purposes. Since the distribution and service fees are payable regardless 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 Adviser) with respect to the Class A, B and C shares to the extent that such payments might be construed to be indirect financing of the distribution of those shares. The Trustees believe the Plan could be a significant factor in the growth and retention of Fund assets resulting in a more advantageous expense ratio 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 its continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust (Independent Trustees) and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, 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 Independent Trustees. Class A shares are offered at net asset value plus varying sales charges. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within six years after purchase. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. The CDSCs are described in the Prospectus. Class Z shares are offered at net asset value and are not subject to a CDSC. However, generally, if you redeem or exchange Class A, B, C or Z shares of Columbia Acorn International or Columbia Acorn International Select that you have owned 60 days or less, that Fund will charge you a redemption fee of 2% of the redemption proceeds. See "How to Sell Shares" for more information on redemption fees. The CDSCs and initial sales charge are described in the Prospectuses for the Funds' Class A, Class B and Class C shares. 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 54 automatically converted into Class A shares, which are not subject to the distribution fee, having an equal value. Class C shares do not convert. See the Prospectus for a description of the different programs. Redemption Fees (dollars in thousands)
Contingent redemption fees charged on Fund share redemptions retained by the Fund Class Z Shares Year ended December 31, 2004 ---------------------------- Columbia Acorn International Columbia Acorn International Select ---------------------------- ----------------------------------- $________________ $________________ Contingent redemption fees charged on Fund share redemptions retained by the Fund Class Z Shares Period ended December 31, 2003(a) ------------------------------ Columbia Acorn International Columbia Acorn International Select ---------------------------- ----------------------------------- $________________ $________________
(a) Effective February __, 2003, Columbia Acorn International and Columbia Acorn International Select began imposing a 2% redemption fee to shareholders of Class Z shares who redeem shares held for 60 days or less. The amounts shown are for the period February __, 2003 to December 31, 2003. 12b-1 Fees Paid to CFD in 2004 (dollars in thousands) Columbia Acorn Fund [$18,497] Columbia Acorn International [$588] Columbia Acorn USA [$884] Columbia Acorn International Select [$59] Columbia Acorn Select [$1,375] Columbia Acorn Thermostat Fund [$299] Sales-related expenses (dollars in thousands) of CFD relating to the Class A, B and C shares of the Funds for the fiscal year ended December 31, 2004 were:
Columbia Acorn Fund Year ended December 31, 2004 ----------------------------- Class A Shares Class B Shares Class C Shares ---------------- -------------- -------------- Fees to FSFs [$_____] [$_____] [$_____] Cost of sales material relating to the Fund (including printing and mailing expenses) [_____] [_____] [_____] Allocated travel, entertainment and other promotional expenses (including advertising) [_____] [_____] [_____] Columbia Acorn USA Year ended December 31, 2004 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs [$_____] [$_____] [$_____] Cost of sales material relating to the Fund (including printing and mailing expenses) [_____] [_____] [_____] Allocated travel, entertainment and other promotional expenses (including advertising) [_____] [_____] [_____]
55
Columbia Acorn Select Year ended December 31, 2004 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs [$_____] [$_____] [$_____] Cost of sales material relating to the Fund (including printing and mailing expenses) [_____] [_____] [_____] Allocated travel, entertainment and other promotional expenses (including advertising) [_____] [_____] [_____] Columbia Acorn International Year ended December 31, 2004 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs [$_____] [$_____] [$_____] Cost of sales material relating to the Fund (including printing and mailing expenses) [_____] [_____] [_____] Allocated travel, entertainment and other promotional expenses (including advertising) [_____] [_____] [_____] Columbia Acorn International Select Year ended December 31, 2004 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs [$_____] [$_____] [$_____] Cost of sales material relating to the Fund (including printing and mailing expenses) [_____] [_____] [_____] Allocated travel, entertainment and other promotional expenses (including advertising) [_____] [_____] [_____] Columbia Thermostat Fund Year ended December 31, 2004 ---------------------------- Class A Shares Class B Shares Class C Shares -------------- -------------- -------------- Fees to FSFs [$_____] [$_____] [$_____] Cost of sales material relating to the Fund (including printing and mailing expenses) [_____] [_____] [_____] Allocated travel, entertainment and other promotional expenses (including advertising) [_____] [_____] [_____]
LEGAL PROCEEDINGS As discussed in greater detail in earlier supplements, on March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"), the advisor to the Columbia Funds, and Columbia Funds Distributor, Inc. ("CFD" and collectively with Columbia Management, "Columbia") the distributor of the shares of the Columbia Funds, the Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the Columbia Family of Funds"), entered into agreements in principle with the staff of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the proceedings brought in connection with the SEC's and NYAG's investigations of frequent trading and market timing in certain Columbia mutual funds. Columbia Wanger Asset Management, L.P., the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either proceeding nor were any of its officers or directors. On February 9, 2005, Columbia entered into an Assurance of Discontinuance (the "NYAG Settlement") with the NYAG and consented to the entry of a cease-and-desist order by the SEC (the "SEC Order" and together, the "Settlements"). The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle. Although none of the Columbia Acorn Funds is a party to the Settlement orders, under the terms of the Settlements and in order for Columbia Management to continue to provide administrative services to the Columbia Acorn Funds, the Board of Trustees of the Columbia Acorn Funds expects to comply voluntarily with certain requirements, including: the election of an independent board chairman, which the Board had done well in advance of the regulatory proceedings; and the appointment of one or more individuals to monitor legal compliance and to add another level of assurance that the management fees to be charged to the Funds are negotiated at arm's length and are reasonable. 56 Under the terms of the SEC Order, Columbia has agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review Columbia's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce management fees paid by the Columbia Family of Funds, Nations Funds and other related mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions based on net assets as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the settlement amounts will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the independent trustees of the funds. The distribution plan must be based on a methodology developed in consultation with Columbia and the independent trustees of the funds and not unacceptable to the staff of the SEC. More specific information on the distribution plan will be communicated at a later date. As a result of these matters or any adverse publicity or other developments resulting from them, including lawsuits brought by shareholders of the affected Columbia Funds, 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 Columbia Funds. A copy of the SEC Order is be available on the SEC's website at http://www.sec.gov. A copy of the NYAG Settlement is be available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. CODE OF ETHICS The 1940 Act and rules thereunder require that the Trust and the Adviser establish standards and procedures for the detection and prevention of certain conflicts of interest, including activities by which persons having knowledge of the investments and investment intentions of the Funds might take advantage of that knowledge for their own benefit. The Trust, the Adviser and CFD have adopted Codes of Ethics pursuant to the 1940 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 under limited circumstances. 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. 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 AND FUND PROXY VOTING RECORD The Funds have delegated to Columbia WAM the responsibility to vote proxies relating to portfolio securities held by the Funds. In deciding to delegate this responsibility to Columbia WAM, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by Columbia WAM. These included the procedures that Columbia WAM follows when a vote presents a conflict between the interests of the Funds and their shareholders and Columbia WAM, its affiliates, its other clients or other persons. Columbia WAM's policy is to vote all proxies for Fund securities in a manner considered by Columbia WAM to be in the best interest of the Funds and their shareholders without regard to any benefit to Columbia WAM, its affiliates, its other clients or other persons. Columbia WAM 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. Columbia WAM 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 Funds. Columbia WAM determines the best interest of the Funds in light of the potential economic return on the Funds' investment. 57 Columbia WAM addresses potential material conflicts of interest by having predetermined voting guidelines and by having each individual stock analyst review and vote each proxy for the stocks that he or she follows. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, Columbia WAM's Proxy Committee determines the vote in the best interest of the Funds, without consideration of any benefit to Columbia WAM, its affiliates, its other clients or other persons. Columbia WAM's Proxy Committee is composed of representatives of Columbia WAM's equity investments, equity research, compliance, legal and administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on an annual basis, Columbia WAM's proxy voting policies to ensure consistency with internal and regulatory agency policies, and to develop additional predetermined voting guidelines to assist in the review of proxy proposals. The Proxy Committee may vary from a 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. 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. Columbia WAM has retained 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. Columbia WAM's proxy voting policies, guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the Trust's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the Funds' proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov; and (iii) without charge, upon request by calling (800) 426-3750. DISCLOSURE OF PORTFOLIO INFORMATION The Trustees of Columbia Acorn have adopted policies with respect to the disclosure of information regarding the Funds' portfolio holdings by the Funds, Columbia WAM, or its affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, or (2) the day next following the filing of the information with the SEC in a required filing. Certain limited exceptions pursuant to the Funds' policies are described below. The Trustees shall be informed as needed regarding the Funds' compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of CMG and its affiliates. The Funds' policies prohibit CMG and the Funds' other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Funds' shares, third-party service providers, rating and ranking organizations and affiliated persons of the Funds. Public Disclosures The Funds' portfolio holdings are currently disclosed to the public through their filings with the SEC. The Funds file their portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Funds' fiscal year). Shareholders may obtain the Funds' Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Funds' Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room. The Funds also currently make portfolio information publicly available at columbiafunds.com, as disclosed in the following table:
- ----------------------------------------- ------------------------------------- -------------------------------------------- Information Provided Frequency of Disclosure Date of Web Posting - ----------------------------------------- ------------------------------------- -------------------------------------------- Full portfolio holdings information Monthly 30 calendar days after month end. - ----------------------------------------- ------------------------------------- --------------------------------------------
The scope of the information provided relating to each Fund's portfolio that is made available on the website may change from time to time without prior notice. 58 A Fund, CMG or its affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly. Other Disclosures The Funds periodically disclose their portfolio information on a confidential basis to various service providers that require such information in order to assist the Funds with their day-to-day business affairs. In addition to CMG and its affiliates, these service providers include the Funds' custodians, independent registered public accounting firm, legal counsel, and financial printer, and the Funds' proxy voting service. These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Funds. The Funds may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Funds, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information. The Funds' policies provide that non-public disclosures of a Fund's portfolio holdings may also be made if (1) the Fund has a legitimate business purpose for making such disclosure and (2) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information. The President, Treasurer, Assistant Treasurer, and/or Chief Compliance Officer of the Funds may authorize such non-public disclosures of a Fund's portfolio holdings if these requirements are satisfied. Certain clients of the Funds' investment adviser(s) may follow a strategy similar to that of the Funds and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Funds. CUSTODIAN State Street Bank and Trust Company, located at 2 Avenue De Lafayette, Boston, MA 02111-2900 ("State Street") is the custodian of the assets of the Funds. The Custodian is responsible for holding all securities and cash of the Funds, receiving and paying for securities purchased, delivering against payment securities sold, receiving and collecting income from investments, making all payments covering expenses of the Funds, and performing other administrative duties, all as directed by authorized persons of the Funds. Columbia WAM and Columbia Management supervise State Street in such matters as purchase and sale of portfolio securities, payment of dividends or payment of expenses of the Funds. Portfolio securities purchased in the U.S. are maintained in the custody of State Street or other domestic banks or depositories. Portfolio securities purchased outside of the U.S. are maintained in the custody of foreign banks and trust companies who are members of the State Street's Global Custody Network and foreign depositories (foreign sub-custodians). With respect to foreign sub-custodians, there can be no assurance that a Fund, and the values of its shares, will not be adversely affected by acts of foreign governments, financial or operational difficulties of the foreign sub-custodians, difficulties and costs of obtaining jurisdiction over, or enforcing judgments against, the foreign sub-custodians or application of foreign law to a Fund's foreign subcustodial arrangements. Accordingly, an investor should recognize that the noninvestment risks involved in holding assets abroad are greater than those associated with investing in the U.S. The Funds may invest in obligations of State Street and may purchase or sell securities from or to State Street. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP, located at One North Wacker, Chicago, IL 60606, serves as the Fund's independent registered public accounting firm, providing audit services, tax return review services, and assistance and consultation in connection with the review of various SEC filings. 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 reports of PricewaterhouseCoopers LLP and another independent registered public accounting firm given on the authority of that those firms as experts in accounting and auditing. DETERMINATION OF NET ASSET VALUE Each Fund determines its 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. 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. NAV will not be determined on days when the NYSE is closed unless, in the judgment of the Trustees, the NAV of a Fund should be determined on any such day, in which case the determination will be made at 4 p.m., Eastern time. To calculate the net asset value on a given day, we value each stock listed or traded on a stock exchange at its latest sale price on that day. If there are no sales that day, we value the security at the most recently quoted bid price. We value each over-the-counter security as of the last sale price for that day. If a security is traded principally on the Nasdaq Stock Market Inc. (Nasdaq), the SEC-approved Nasdaq Official Closing Price is applied. When the price of a security is not available, including days when we determine that the sale or bid price of the security does not reflect that security's market value, we value the security at a fair value determined in good faith under procedures established by the Board of Trustees. 59 We value a security at fair value when events have occurred after the last available market priced and before the close of the NYSE that materially affect the security's price. In the case of foreign securities, this could include events occurring after the close of the foreign market and before the close of the NYSE. When a Fund uses fair value to price securities, it may value those securities higher or lower than another fund that uses market quotations to price the same securities. The Trust has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for that security. The Fund's foreign securities may trade on days when the NYSE is closed. Except as described above, we will not price shares on days that NYSE is closed for trading. Shares of the Portfolio Funds are valued at their respective net asset values. The Portfolio Funds generally value securities in their portfolio for which market quotations are readily available at the current market values of those securities (generally the last reported sale price) and all other securities and assets at fair value pursuant to methods established in good faith by the Board of directors or trustees of the Portfolio Fund. If market quotations of Portfolio Funds are not readily available, or if a quotation is determined not to represent a fair value, management will use a method that the Fund's Trustees believe accurately reflects a fair value. Each day, newspapers and other reporting services may publish the share prices of mutual funds at the close of business on the previous day. Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn International Select and the Portfolio Funds may invest in securities which are primarily listed on foreign exchanges, and therefore may experience trading and changes in NAV on days on which the Funds do not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn International Select and Columbia Thermostat Fund 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 Adviser 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 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 Funds' Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate on that day. Fund positions for which market quotations are not readily available and other assets are valued at a fair value as determined by the Valuation Committee in good faith under the procedures approved by of the Funds' 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 a 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 a security may occur between such times and the close of the Exchange which may affect the value of the security. Circumstances in which fair value pricing may be utilized include, but are not limited to: (i) when significant events occur which may affect the securities of a single issuer, such as mergers, bankruptcies or significant issuer specific developments; (ii) when significant events occur which may affect an entire market, such as natural disasters or significant governmental actions; and (iii) when non-significant events occur such as markets closing early or not opening, security trading halts or pricing of nonvalued securities and restricted or nonpublic securities. The Funds may use a systematic fair valuation model provided by an independent third party to value international equity securities in order to adjust for stale pricing, which may occur between the close of the foreign exchanges and the NYSE. HOW TO BUY SHARES The Prospectuses contain a general description of how investors may buy shares of the Funds and tables of charges. This SAI contains additional information which may be of interest to investors. 60 The Funds will 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 an order for purchase of shares placed through an FSF, 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 a Fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank. Each 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 Funds' Prospectuses 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 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 charges. 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 may 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. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted. 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. 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 Prospectuses. Certificates are not available for any class of shares offered by the Funds. If you currently hold previously issued share certificates, you may send the certificates to CFS for deposit to your account. In addition to the commissions specified in the Class A, B and C Fund prospectuses 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, or whose customers have invested in, 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, customer 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 the FSF 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 SAI and in connection with the Columbia Funds, CFD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include: 61
1st Global Capital Corp Fidelity NYLife Distributors 401 Company Financial Data Services Optimum Investment Advisors ABN AMRO Trust Services Franklin Templeton Orbitex ADP Retirement Services Freeman Welwood Pershing LLC Advest Gem Group Phoenix Home Life AEGON/Transamerica Great West Life Piper Jaffray AG Edwards Hewitt Associates LLC PNC American Century Services Huntington Bank PPI Employee Benefits American Express ING Private Bank & Trust AMG Intermountain Health Care Prudential AON Consulting Investmart, Inc. Putnam Investments AST Trust Company Investment Manager Services Raymond James Banc of America Investment (IMS) RBC Dain Rausher Services Janney Montgomery Scott Robert W Baird BancOne JJB Hilliard Lyons Royal Alliance Bear Stearns JP Morgan/American Century RSM McGladrey Inc. Benefit Plan Administrators Kenney Investments Safeco Bidwell & Company Kirkpatrick Pettis Smith Polian Inc Scott & Stringfellow BNY Clearing Legg Mason Wood Walker Scudder Investments C N A Trust Liberty Life Security Benefit Charles Schwab Lincoln Financial Segall Bryant Hamill CIBC Oppenheimer Lincoln Life South Trust Securities Citigroup Global Markets Linsco Private Ledger Southwest Securities CitiStreet Associates LLC M & T Securities Standard Insurance City National Bank Marquette Trust Company Stanton Group City of Milwaukee Mass Mutual Life State of NY Deferred Columbia Trust Company Matrix Settlement & Clearance Compensation Plan Commonwealth Financial Services (MSCS) Stephens, Inc. Compensation & Capital McDonald Investments Stifel Nicolaus & Co CPI Qualified Plan Consultants Merrill Lynch Strong Capital Daily Access Concepts MetLife Sungard T Rowe Price Davenport & Company MFS Trustar Retirement Services Delaware Investments Mfund Trax Trustlynx/Datalynx Digital Retirement Solutions MidAtlantic Capital UBS Financial Services Discover Brokerage Milliman USA USAA Investment Management Dreyfus/Mellon Morgan Keegan Vanguard Edgewood Services Morgan Stanley Dean Witter Wachovia Edward Jones PFPC TD Waterhouse E-Trade, Nationwide Investment Services Webster Investment Services ExpertPlan Neuberger Berman Mgmt Wells Fargo FAS Liberty Life Spectrum NFP Securities Wilmington Trust Ferris Baker Watts NSD -NetStock Sharebuilder
Please contact your FSF or intermediary for details about payments it may receive. [During fiscal year ended December 31, 2004, the Funds made no payments to dealers.] The Fund does not have any arrangements with shareholders or other individuals that would permit frequent purchases or redemptions of fund 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 any Fund may be purchased through the Automatic Investment Plan. Electronic funds transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase Fund shares at 62 the public offering price next determined after CFD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfers, you may request the Automatic Investment Plan purchase for any day. For share purchases of Columbia Acorn International, Columbia Acorn Select, Columbia Acorn International Select and Columbia Thermostat, no minimum investment applies to accounts participating in the Automatic Investment Plan. For share purchases of Columbia Acorn Fund and Columbia Acorn USA for accounts opened prior to December 15, 2003, no minimum investment applies to accounts participating in the Automatic Investment Plan. Further information and application forms are available from FSFs or from CFD. Automated Dollar Cost Averaging (Classes A, B, C and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any mutual 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 five 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 or sales charges. 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., P.O. Box 8081, Boston, MA 02266-8081. You should consult your FSF or investment adviser 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. 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. Participants in Retirement Plans not sponsored by CTC, not including 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 close-out fee applies to plans opened after September 1, 1996. 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 by check 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. 63 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 and Class B only). Reduced sales charges on Class A and B shares can be effected by combining a current purchase of Class A or B shares with prior purchases of shares of other 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 Columbia fund shares held by the shareholder. 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. The Fund may terminate or amend this Right of Accumulation. Statement of Intent (Class A only). Any person may qualify for reduced sales charges on purchases of Class A 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 Columbia fund shares held by the shareholder on the date of the Statement in Columbia funds (except shares of any Columbia money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market Columbia 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 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. Reinstatement Privilege. Subject to a Fund's policy on trading of fund shares, an investor who has redeemed Class A, B or C shares (other than shares of Columbia Acorn International and Columbia Acorn International Select 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, subject to the investment minimums of the fund. Investors who desire to exercise this privilege should contact their FSF or CFS. Shareholders may exercise this privilege an unlimited number 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. Class A shares of the Funds may be sold at NAV to the following individuals whether currently employed or retired, subject to the investment minimums of each Fund: Trustees of funds advised or administered by the Adviser; directors, officers and employees of the Adviser, CFD and companies affiliated with the 64 Adviser, 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. Fee-Based Compensation. Class A shares of the Funds may be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisers 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. Waiver of Contingent Deferred Sales Charges (CDSCs) (Classes B and C shares). 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 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. 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 "How to Sell Shares - 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 must be 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 IRAs, so long as the FSF agrees to return the applicable portion of any commission paid by CFD. 6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to make distributions from qualified 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. Privileges of Insurance Company Separate Accounts. Class A shares of the Funds may be sold to insurance company separate accounts without the imposition of a front-end sales charge provided that the following conditions are met: 1. The sponsoring insurance company makes shares of a Fund available to its contract owner/investors without the imposition of a sales charge; 2. The sponsoring insurance company provides services to the investors in the insurance company separate account, including recordkeeping and administrative services, for which the sponsoring insurance company would be compensated by the Trust's service providers and not by a Fund; and 65 3. The insurance company separate account is structured as a pool of IRA accounts managed by the sponsoring insurance company. HOW TO SELL SHARES Shares may also be sold on any day the Exchange is open, either directly to the Funds 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, Columbia Acorn may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Funds against financial losses and dilution in net asset value caused by dishonored purchase payment checks. To sell shares directly to the Funds, 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 or redemption fee) next calculated after the Funds receive the request in proper form. If you redeem or exchange Class A, B, C or Z shares of Columbia Acorn International or Columbia Acorn International Select that you have owned 60 days or less, that Fund generally will charge you a redemption fee of 2% of the redemption proceeds. Columbia Acorn International and Columbia Acorn International Select will use the "first-in, first-out" method to determine when shares were purchased. The redemption fee will be deducted from your redemption proceeds and retained by the Fund to help cover transaction and tax costs that long-term investors may bear when the Fund realizes capital gains as a result of selling securities to meet investor redemptions. The redemption fee is not imposed on redemptions of shares purchased through reinvestment of dividends and distributions, or exchanges of shares for Class A, B, C or Z shares of a fund distributed by CFD that has a redemption fee. 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, IRA holders and other legal entities. Call CFS for more information 1-800-345-6611. FSFs must receive requests before the time at which the Funds' shares are valued to receive that day's price, FSFs are responsible for furnishing all necessary documentation to CFS and may charge for this service. Systematic Withdrawal Plan (SWP) A shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in the Funds designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and 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 of shares of the Funds 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 the Funds 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 share account may do so but may 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 Funds 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 sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Funds (other than through the reinvestment of dividends) and a SWP at the same time. 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. To participate in this program the minimum withdrawal amount is $50 and the minimum account balance is $5,000. 66 Columbia Acorn 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 Funds 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. The SWP on accounts held in "street name" must be made payable to the back office via the NSCC. Telephone Redemptions. Telephone redemption privileges are described in the Prospectus. Non Cash Redemptions. The Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of a Fund during any 90-day period for any one shareholder. Redemptions in excess of the above amounts will normally be paid in cash, but may be paid wholly or partly by a distribution in-kind of securities. If a redemption is made in kind, the redeeming shareholder would bear any transaction costs incurred in selling the securities received. The Agreement and Declaration of Trust also authorizes the Trust to redeem shares under certain other circumstances as may be specified by the Board of Trustees. Under certain circumstances, a Portfolio Fund may determine to make payment of a redemption request by Columbia Thermostat Fund wholly or partly by a distribution in kind of securities from its portfolio, instead of cash, in accordance with the rules of the SEC. In such cases, the Funds may hold securities distributed by a Portfolio Fund until the Adviser determines that it is appropriate to dispose of such securities. HOW TO EXCHANGE SHARES The Class A and B shares of the Funds may be exchanged for the same class of shares of any other continuously offered Funds distributed by CFD (with certain exceptions) on the basis of the NAVs per share at the time of exchange. The Class Z shares of the Funds may be exchanged for the Class A or Class Z shares of any other fund distributed by CFD (with certain exceptions). Initial exchanges into Columbia Acorn Fund and Columbia Acorn USA will be subject to the investment minimums described in the prospectuses, and will be made at net asset value plus applicable sales charges. The prospectus of each fund distributed by CFD describes its investment objective and policies, and shareholders should obtain a prospectus and consider these objectives and policies carefully before requesting an exchange. Consult CFS before requesting an exchange. If you redeem or exchange Class A, B, C or Z shares of Columbia Acorn International or Columbia Acorn International Select that you have owned 60 days or less, that Fund will charge you a redemption fee of 2% of the redemption proceeds. Columbia Acorn International and Columbia Acorn International Select will use the "first-in" "first-out" method to determine whether the redemption fee applies. The redemption fee will be deducted from your redemption proceeds and retained by the Fund to help cover transaction and tax costs that long-term investors may bear when the Fund realizes capital gains as a result of selling securities to meet investor redemptions. The redemption fee is not imposed on redemptions of shares purchased through reinvestment of dividends and distributions, or exchanges of shares for Class A, B, C or Z shares of a fund distributed by CFD that has a redemption fee. 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 Columbia 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, or authorize the use of, the telephone to execute transactions. 67 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. Sales charges may apply for exchanges from money market funds. An exchange is generally a sale transaction for federal income tax purposes and may result in capital gain or loss. The exchange privilege may be revised, suspended or terminated at any time. DISTRIBUTIONS Distributions on shares of a Fund are invested in additional shares of the same Class of shares 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 CFS 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. No charge is currently made for reinvestment. SUSPENSION OF REDEMPTIONS Columbia Acorn 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 Funds to dispose of their 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 f 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 Funds and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Funds or the Trust's Trustees. The Declaration provides for indemnification out of a Fund's property for all loss and expense of any shareholder held personally liable for the obligations of a 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 a Fund would be unable to meet its obligations and the disclaimer was inoperative. The risk of a particular Fund incurring financial loss on account of another Fund 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," Columbia Acorn 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 for the purpose of electing Trustees. Trustees may be removed from office, with or without cause, by a vote of the holders of two-thirds of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectuses 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 Funds would vote together, irrespective of Fund, on the election of Trustees, but each Fund would vote separately from the others on other matters, such as changes in the investment policies of that Fund or the approval of the management agreement for that Fund. 68 PERFORMANCE MEASURES AND INFORMATION Total Return Standardized total return and average annual total return. Total return on a per share basis is the value of the amount of reinvested dividends received per share plus or minus the change in the net asset value per share for a given period. Total return percentage may be calculated by dividing the value of a share including reinvested distributions at the end of a given period by the value of the share at the beginning of the period and subtracting one. Average annual total return is the actual return on a $1,000 investment in a particular class of shares of each Fund, made at the beginning of a stated period, adjusted for the maximum sales charge or applicable CDSC for the class of shares of each Fund and assuming that all distributions were reinvested at NAV, converted to an average annual return assuming annual compounding. Nonstandardized total return. Nonstandardized total returns may differ from standardized average annual total returns in that they may relate to nonstandardized periods, represent aggregate rather than average annual total returns or may not reflect the sales charge or CDSC. For all Funds, total return for a newer class of shares (Classes A, B and C) for periods prior to their inception includes (a) the performance of the newer class of shares since inception (March 3, 2003 for Columbia Thermostat Fund and October 16, 2000 for all other funds) and (b) the performance of the oldest existing class of shares (Class Z) from its inception date up to the date the newer class was offered for sale. The performance will not be adjusted to take into account the fact that the newer class of shares bears different class specific expenses than the oldest class of shares (e.g., Rule 12b-1 fees). Therefore, the total rate of return quoted for a newer class of shares will differ from the return that would be quoted had the newer class of shares been outstanding for the entire period over which the calculation is based (i.e., the total rate of return quoted for the newer class will be higher than the return that would have been quoted had the newer class of shares been outstanding for the entire period over which the calculation is based if the class specific expenses for the newer class are higher than the class specific expenses of the oldest class, and the total rate of return quoted for the newer class will be lower than the return that would be quoted had the newer class of shares been outstanding for this entire period if the class specific expenses for the newer class are lower than the class specific expenses of the oldest class). A Fund's total return "after taxes on distributions" shows the effect of taxable distributions, but not any taxable gain or loss, on an investment in shares of the Fund for a specified period of time. A Fund's total return "after taxes on distributions and sale of Fund shares" shows the effect of both taxable distributions and any taxable gain or loss realized by the shareholder upon the sale of fund shares at the end of a specified period. To determine these figures, all income, short-term capital gain distributions, and long-term capital gain distributions are assumed to have been taxed at the actual historical federal maximum tax rate. Those maximum tax rates are applied to distributions prior to reinvestment and the after-tax portion is assumed to have been reinvested in the Funds. State and local taxes are ignored. Actual after-tax returns depend on a shareholder's tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. Average Annual Total Return (After Taxes on Distributions) is computed as follows: n ATVD = P(l+T) Where: P = the amount of an assumed initial investment in shares of a Fund T = average annual total return (after taxes on distributions) n = number of years from initial investment to the end of the period ATV D = ending value of shares held at the end of the period after taxes on fund distributions but not after taxes on redemptions. Average Annual Total Return (After Taxes on Distributions and Sale of Fund Shares) is computed as follows: n ATVDR = P(l+T) Where: P = the amount of an assumed initial investment in shares of a Fund T = average annual total return (after taxes on distributions and redemption) n = number of years from initial investment to the end of the period ATV DR = ending value of shares held at the end of the period after taxes on fund distributions and redemption. Performance results reflect any voluntary fee waivers or reimbursement of Fund expenses by the Adviser or its affiliates. Absent these fee waivers or expense reimbursements, performance results would have been lower. 69 The Funds may also use statistics to indicate volatility or risk. The premise of each of these measures is that greater volatility connotes greater risk undertaken in achieving performance. The Funds may quote the following measures of volatility: Beta. Beta is the volatility of a fund's total return relative to the movements of a benchmark index. A beta greater than one indicates volatility greater than the index, and a beta of less than one indicates a volatility less than the index. R-squared. R-squared reflects the percentage of a fund's price movements that are explained by movements in the benchmark index. An R-squared of 1.00 indicates that all movements of a fund's price are completely explained by movements in the index. Generally, a higher R-squared will indicate a more reliable beta figure. Alpha. Alpha is a measure used to discuss a fund's relative performance. Alpha measures the actual return of a fund compared to the expected return of a fund given its risk (as measured by beta). The expected return of a fund is based on how historical movements of the benchmark index and historical performance of a fund compare to the benchmark index. The expected return is computed by multiplying the advance or decline in a market represented by a fund's beta. A positive alpha quantifies the value that a fund manager has added and a negative alpha quantifies the value that a fund manager has lost. Standard deviation. Standard deviation quantifies the volatility in the returns of a fund by measuring the amount of variation in the group of returns that make up a fund's average return. Standard deviation is generally calculated over a three- or five-year period using monthly returns and modified to present on annualized standard deviation. Sharpe ratio. A fund's Sharpe ratio quantifies its total return in excess of the return of a guaranteed investment (90 day U.S. treasury bills), relative to its volatility as measured by its standard deviation. The higher a fund's Sharpe ratio, the better a fund's returns have been relative to the amount of investment risk it has taken. Beta and R-squared are calculated by performing a least squares linear regression using three years of monthly total return figures for each portfolio and benchmark combination. Alpha is calculated by taking the difference between the average monthly portfolio return and the beta-adjusted average monthly benchmark return. The result of this calculation is then geometrically annualized. As of March 31,2005, some statistics for the Class Z shares of the Funds are as follows:
R2 Beta Alpha ------- ------- ------- Columbia Acorn Fund ------------------- vs. S&P 500 [0.54] [0.77] [17.72%] vs. Russell 2000 [0.89] [0.75] [8.03%] Columbia Acorn International ---------------------------- vs. Citigroup EMI Global Ex U.S. [0.74] [1.17] [0.40%] vs. MSCI EAFE [0.67] [1.09] [8.83%] Columbia Acorn USA ------------------ vs. S&P 500 [0.53] [0.87] [14.39%] vs. Russell 2000 [0.75] [0.79] [4.[6%] Columbia Acorn Select --------------------- vs. S&P 500 [0.65] [0.78] [13.53%] vs. S&P MidCap 400 [0.67] [0.74] [3.42%] Columbia Acorn International Select ----------------------------------- vs. Citigroup World Ex U.S. [0.58] [1.19] [7.38%] vs. MSCI EAFE [0.55] [1.22] [-0.79%]
70 Other measures of volatility and relative performance may be used as appropriate. All such measures will fluctuate and do not represent future results. 71 APPENDIX I DESCRIPTION OF BOND RATINGS A rating of a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the creditworthiness of an issuer. Consequently, the Adviser believes that the quality of debt securities in which the Funds invest should be continuously reviewed. A rating is not a recommendation to purchase, sell or hold a security, because it does not take into account market value or suitability for a particular investor. When a security has received a rating from more than one service, each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the ratings services from other sources which they consider reliable. Ratings may be changed, suspended or withdrawn as a result of changes in or unavailability of such information, or for other reasons. The following is a description of the characteristics of ratings used by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"). Moody's Ratings Aaa bonds are judged to be 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 the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa bonds are judged to be 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 as 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 bonds 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. S&P Ratings AAA bonds AAA 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 differ from AAA bonds 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 protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in the A category. BB, B, CCC and CC bonds are regarded as having predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC 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 is 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. APPENDIX II PROXY VOTING POLICY AND PROCEDURES PROXY VOTING POLICY 1.0 General Columbia Wanger Asset Management, L.P. ("CWAM") shall vote all proxies for Client securities for which CWAM has been granted voting authority in a manner consistent with the best interests of CWAM's Clients, without regard to any benefit to CWAM or its affiliates. Clients are described in Section 6.0 below. 2.0 Recommendation CWAM shall examine each proxy recommendation and vote against management's recommendation if, in its judgment, approval or adoption of the recommendation would be expected to impact adversely the current or potential market value of the issuer's securities. 3.0 Client Interest The best interest of a Client includes the potential economic return on the Client's investment. In the event a Client informs CWAM that its other interests require a particular vote, CWAM shall vote as the Client instructs. 4.0 Voting CWAM addresses potential material conflicts of interest by having each stock analyst review and vote each proxy for the stocks that he/she follows. For those proposals where the analyst is voting against management's recommendation or where there is a variance from these guidelines, the CWAM Proxy Committee will determine the vote in the best interest of CWAM's Client, without consideration of any benefit to CWAM, its affiliates or its other Clients. 5.0 Policy CWAM's policy is based upon its fiduciary obligation to act in its Clients' best interests. Applicable Regulation imposes obligations with respect to proxy voting on investment advisers, and also on investment companies. 6.0 Account Policies Except as otherwise directed by the Client, CWAM shall vote proxies as follows: 6.1 Separate Accounts CWAM shall vote proxies on securities held in separate Accounts where the Client has given CWAM proxy voting authority. 6.2 Columbia Acorn Trust/Wanger Advisors Trust CWAM shall vote proxies for portfolio securities held in these funds. 6.3 CWAM Offshore Funds CWAM shall vote proxies on securities held in the Wanger Investment Company PLC (Wanger US Smaller Companies and Wanger European Smaller Companies) and Banque Du Louvre Multi Select Fund and OFI Multi Select Fund. CWAM has not been given authority to vote proxies for the New America Small Caps Fund. 6.4 CWAM Subadvised Mutual Fund Accounts The authority to vote proxies on securities held in the AXP International Aggressive Growth Fund is reserved to the client. CWAM has authority to vote proxies on securities held in the Optimum Small Cap Growth Fund. 7.0 Proxy Committee 7.1 CWAM has established a Proxy Committee, which currently consists of the Chief Investment Officer (CIO), Chief Operating Officer (COO), and Chief Compliance Officer (CCO). For proxy voting purposes only, the Proxy Committee will also include the analyst who follows the portfolio security to be voted on. A designated portfolio manager (PM) will be an alternate member of the Proxy Committee for voting purposes. 7.1.1. In the event that such voting members are unable to participate in a meeting of the Proxy Committee to vote on a proxy, their designees shall act on their behalf. A vacancy in the Proxy Committee shall be filled by the prior member's successor in position at CWAM or a person of equivalent experience. Others may be appointed as Standing Members (and Alternate Members) at the discretion of the Proxy Committee. In addition, others may be invited to participate in Proxy Committee meetings on an ad hoc basis at the discretion of the Proxy Committee. 7.1.2 Meetings will be held on an "as needed" basis to vote on proxy matters which come to the attention of the Proxy Committee. Members may vote at meetings by written consent, email or phone. A vote of a majority of the Proxy Committee may approve a proposal. For administrative and procedural matters, meetings will be held as needed. 7.2 Proxy Committee Responsibilities: 7.2.1 Oversee the operation of the this Proxy Voting Policy and assist in compliance with Applicable Regulation, 7.2.2 Review CWAM proxy voting procedures as described herein at least annually to ensure consistency with internal policies and Applicable Regulation and recommend changes if necessary, 7.2.3 Develop guidelines to assist in the review and voting of proxy proposals, 7.2.4 Determine proxy votes when proposals require the attention of the Proxy Committee as described herein, 7.2.5 Select and monitor a third party proxy voting service to help implement the proxy voting process and to periodically evaluate the extent and quality of services provided by the third party, 7.2.6 Monitor the education of appropriate employees involved in the proxy voting process, 7.2.7 Review disclosures relating to CWAM and Clients with respect to proxy voting procedures, 7.2.8 Monitor the recordkeeping of information related to the proxy voting process, and 7.2.9 Review Forms N-PX filed with the Securities and Exchange Commission. 7.2.9.1 The Proxy Committee has delegated to the CCO the review described in Section 7.2.9. 7.3 The functions of the Proxy Committee shall include, in part: 7.3.1 Direction of the vote on proposals where there has been a recommendation to the Proxy Committee not to vote according to the Voting Guidelines (See Section 8.0). 7.3.2 Annual review of these procedures to ensure consistency with internal policies and Applicable Regulation, 7.3.3 Annual review of existing Voting Guidelines and development of additional Voting Guidelines to assist in the review of proxy proposals, and 7.3.4 Development and modification of voting procedures deemed appropriate or necessary. 7.4 In determining the vote on any proposal for which it has responsibility, the Proxy Committee shall act in accordance with the policy stated above. 7.5 Conflict No member of the Proxy Committee shall vote on any matter before the Proxy Committee if he or she has a conflict of interest by reason of a direct relationship with the issuer to whom a proposal relates, e.g., is a portfolio manager for an account of the issuer or has a personal or family relationship with senior officers or directors of the issuer. Each member of the Proxy Committee has a duty to disclose any such conflict or any attempt to influence his or her vote. 8.0 Voting Guidelines 8.1 CWAM does not delegate any of its proxy voting to a third party. The analyst who follows the stock shall review all proxies and ballot items for which CWAM has authority to vote. The analyst shall consider the views of management on each proposal, and if those views are consistent with this Proxy Voting Policy, will vote in favor of management. However, each analyst has the responsibility of independently analyzing each proposal and voting each proxy item on a case-by-case basis. 8.2 CWAM uses the following guidelines with respect to voting on specific matters: 8.2.1 Election of the Board of Directors CWAM will generally support management's recommendation for proposals for the election of directors or for an increase or decrease in the number of directors provided a majority of directors would be independent. When director elections are contested, the analyst's recommendation and vote shall be forwarded to the Proxy Committee for a full vote. 8.2.2 Approval of Independent Auditors CWAM will generally support management in its annual appointment or approval of independent corporate auditors. An auditor will usually be thought of as independent unless the auditor receives more than 50% of its revenues from non-audit and non-tax activities from the issuer and its affiliates. In those cases, the vote should be forwarded to the Proxy Committee for a full vote. 8.2.3 Compensation and Equity-Based Compensation Plans CWAM is generally opposed to compensation plans that substantially dilute ownership interest in an issuer, provide participants with excessive awards, or have inherently objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for incentive programs (including options, restricted stock or other equity equivalent programs but excluding expired or exercised rights) exceeds 10% of the currently outstanding shares overall, or 3% for directors only, the proposal shall be referred to the Proxy Committee. The analyst shall provide background information on total compensation and issuer performance, along with a recommendation, to the Proxy Committee. The Proxy Committee will then consider the circumstances surrounding the issue and vote in the best interests of the Client. 8.2.4 Corporate Governance Issues CWAM will generally support resolutions to improve shareholder democracy and reduce the likelihood of management entrenchment or conflict-of-interest. All matters relating to corporate governance will be voted by CWAM on a case-by-case basis using this basic premise. If an analyst believes that a vote should be made contrary to this premise, then the recommendation shall be brought to the Proxy Committee for a full vote. 8.2.5 Social and Corporate Responsibility Issues CWAM believes that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the issuer's board of directors. However, proposals regarding social issues initiated by shareholders asking the issuer to disclose or amend certain business practices will be analyzed by the appropriate analyst and evaluated on a case-by-case basis. If an analyst believes that a vote against management is appropriate, the analyst shall refer the proposal to the Proxy Committee for a full vote. 8.2.6 "Blank Check" Proposals Occasionally proxy statements ask that shareholders allow proxies to approve any other items in a "blank check" manner. Analysts should vote against such proposals, and need not refer those items to the Proxy Committee. 8.2.7 Shares Disposed of Subsequent to the Proxy Record Date Occasionally, CWAM receives proxy statements for securities that have been sold subsequent to the record date of the proxy vote, but prior to the actual date that the proxy ballot must be voted. In such instances, the analyst may abstain from voting. 8.2.8 Special Issues Voting Foreign Proxies Voting proxies with respect to shares of foreign issuers may involve significantly greater effort and corresponding cost due to the variety of regulatory schemes and corporate practices in other countries. Oftentimes, there may be language barriers, which will mean that an English translation of proxy information may not be available. Such translations must be obtained before the relevant shareholder meeting. Time frames between shareholder notification, distribution of proxy materials, book-closure and the actual meeting date may be too short to allow timely action. In such situations, and where CWAM believes that it is uncertain with regards to the information received, or that the costs associated with proxy voting could exceed the expected benefits, the analyst may elect to abstain from voting. 8.2.8.1 In addition, to vote shares in certain countries, shares must be "blocked" by the custodian or depository for a specified number of days before the shareholder meeting. Blocked shares typically may not be traded until the day after the shareholder meeting. CWAM may refrain from shares subject to blocking restrictions where, in the analyst's judgment, benefit from proxy voting is outweighed by the interest of maintaining client liquidity in the shares. The decision to vote/not vote is made by the analyst, generally on a case-by-case basis based on relevant factors, including the extent to which the proxy items bear directly on shareholder value, the length of the blocking period, the significance of the holding, and whether the holding is considered a long-term Client holding. 8.2.8.2 In cases where the analyst determines that CWAM should abstain from voting foreign proxies, the CWAM librarian (or its designee) will document the reasons for abstaining from proxy voting. PROXY VOTING PROCEDURES 1.0 The Proxy Committee ("Committee") has developed the following procedures to assist in the voting of proxies according to the Voting Guidelines set forth in the Proxy Voting Policy in Section 8.0 thereof. The Committee may revise these procedures from time to time, as it deems appropriate or necessary to affect the purposes of the Proxy Voting Policy. 2.0 For Columbia Acorn Funds and Wanger Advisors Funds (the "Funds"). 2.1.1 CWAM shall use Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS shall provide record keeping services. ISS also will provide its internally generated proxy analysis, which can be used to help supplement the Analyst's research in the proxy voting process. 2.1.2 On a daily basis, the Funds' custodian shall send ISS a holding file detailing each domestic equity holding included in the Funds. Information on equity holdings for the international portfolios included in the Funds shall be sent weekly. 2.1.3 ISS shall receive proxy material information from Proxy Edge or State Street Bank for the Funds. This shall include issues to be voted upon, together with a breakdown of holdings for the Funds. 2.1.4 Whenever a vote is solicited, ISS shall send CWAM a request to vote over a secure website. The Proxy Administrator, the CWAM Proxy Administrator (or a substitute) will be responsible to check this website daily. The Proxy Administrator will forward all materials to the appropriate Analyst, who will review and complete the proxy ballot and return to the Proxy Administrator, or will refer one or more proposals to the Committee. The Analyst will file Committee documentation under G:\Shared\ProxyComm. The Proxy Administrator will promptly provide ISS the final instructions as how to vote the proxy. 2.1.5 ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by the Funds on which a vote is solicited unless otherwise directed by the analyst. On a yearly basis (or when requested), CWAM shall receive a report from ISS detailing CWAM's voting for the previous period on behalf of the Funds. 3.0 For All Other Clients for Which CWAM Has Voting Authority (e.g. Separate Accounts), CWAM shall use each Separate Account's respective custodian for voting proxies. CWAM shall separately maintain voting records for these accounts. 3.1.1 The Proxy Administrator will be responsible for obtaining all proxy materials from the custodian, forward these to the appropriate Analyst who will review and complete the proxy ballot and return to the Proxy Administrator or will refer one or more proposals to the Committee. The Analyst will keep documentation (usually copies of email correspondence) of any proposals brought before the Committee and will instruct the Proxy Administrator to vote the proposal in accordance with the Committee decision. The Analyst will file Committee documentation under G:\Shared\ProxyComm. The Proxy Administrator will promptly provide ISS the final instructions as how to vote the proxy. 3.1.2 The Proxy Administrator will be responsible for recording all voting records onto a spreadsheet, which will comprise the detail of how CWAM voted each proxy on behalf of the respective Client. This spreadsheet shall comply with the appropriate record keeping requirements, and will be available to the Client upon request. 3.1.3 Exception. A Separate Account may agree with CWAM that CWAM shall utilize ISS for proxy voting, as described in these policies. 4.0 The Firm shall retain any proxy voting records in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of the Firm. 5.0 The Firm's CCO shall be responsible for reviewing proxy voting activities. PART C OTHER INFORMATION Item 23 Exhibits: a.1 Agreement and Declaration of Trust. (1) a.2 Amendment No. 1 to Agreement and Declaration of Trust. (9) a.3 Amendment No. 2 to Agreement and Declaration of Trust. b. Bylaws, as amended effective September 28, 2004. d.1 Amended and Restated Investment Advisory Agreement between Columbia Acorn Trust (on behalf of Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn Select, Columbia Acorn International Select, Columbia Thermostat Fund) and Columbia Wanger Asset Management, L.P., dated August 1, 2004. d.2 Organizational Expenses Agreement between Acorn Investment Trust [now named Columbia Acorn Trust] and Wanger Asset Management, L.P. [now named Columbia Wanger Asset Management, L.P.], dated September 3, 1996. (4) d.3 Amended and Restated Administration Agreement between Columbia Acorn Trust (on behalf of Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn Select, Columbia Acorn International Select and Columbia Thermostat Fund) and Columbia Wanger Asset Management, L.P., dated August 1, 2004. * d.4 Expense Reimbursement Agreement dated September 25, 2002. (8) e. Amended and Restated Underwriting Agreement between Columbia Acorn Trust and Columbia Funds Distributor, Inc. dated October 1, 2004. * f. None. g.1 Custodian contract between the Registrant and State Street Bank and Trust Company dated July 1, 1992. (2) g.2 Letter agreement applying custodian contract (exhibit 8.2) relating to Acorn International [now named Columbia Acorn International Fund]. (3) g.3 Letter agreement applying custodian contract (exhibit 8.1) relating to Acorn USA [now named Columbia Acorn USA Fund]. (5) g.4 Letter agreement applying custodian contract and transfer agency and service agreement (exhibit 8.1) relating to Acorn Twenty [now named Columbia Acorn Select Fund] and Acorn Foreign Forty [now named Columbia Acorn International Select Fund], dated August 17, 1998. (6) g.5 Amendment to custodian contract between Liberty Acorn Trust [now named Columbia Acorn Trust] and State Street Bank and Trust Company dated November 21, 2000. (7) g.6 Letter agreement applying custodian contract relating to Columbia Thermostat Fund dated September 25, 2002. (8) h.1 Shareholders' Servicing and Transfer Agency Agreement between Liberty Acorn Trust [now named Columbia Acorn Trust] and Liberty Funds Services, Inc. [now named Columbia Funds Services, Inc.], dated September 29, 2000. (7) h.2 Amendment No. 1 to Shareholders' Servicing and Transfer Agency Agreement between Liberty Acorn Trust [now named Columbia Acorn Trust] and Liberty Funds Services, Inc. [now named Columbia Funds Services, Inc.], dated September 25, 2002. (8) h.3 Amendment No. 2 to Shareholders' Servicing and Transfer Agent Agreement between Columbia Acorn Trust and Columbia Funds Services, Inc., dated February 1, 2004. h.4 Amendment No. 3 to Shareholders' Servicing and Transfer Agent Agreement between Columbia Acorn Trust and Columbia Funds Services, Inc., dated November 16, 2004. * h.5 Letter agreement between Columbia Acorn Trust and Columbia Management Group, Inc., on behalf of Columbia Funds Distributor, Inc., Columbia Funds Services, Inc., Columbia Wanger Asset Management, L.P. and Columbia Management Associates, Inc., dated October 1, 2004.* i. Consent of Bell, Boyd & Lloyd LLC. j. Consent of PricewaterhouseCoopers LLP.* k. None. l. None. m.1 Amended and Restated Rule 12b-1 Distribution Plan dated August 1, 2004. m.2 Amended and Restated Rule 12b-1 Plan Implementing Agreement dated September 25, 2002. (8) n. Amended and Restated Plan Pursuant to Rule 18f-3(d) dated August 1, 2004. p.1 Code of Ethics of Columbia Wanger Asset Management, L.P., Columbia Acorn Trust and Wanger Advisors Trust, as amended February 1, 2005. p.2 Code of Ethics for Non-Interested Board Members, as amended March 4, 2002. (9) p.3 Code of Ethics of Columbia Funds Distributor, Inc., the principal underwriter of the Funds, effective January 1, 2005. - ----------------- (1) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 53 to the registrant's registration statement, Securities Act file number 2-34223 (the "Registration Statement"), filed on April 30, 1996. (2) Previously filed. Incorporated by reference to exhibit 8.1 in post-effective amendment No. 53 to the Registration Statement filed on April 30, 1996. (3) Previously filed. Incorporated by reference to exhibit 8.2 in post-effective amendment No. 53 to the Registration Statement filed on April 30, 1996. (4) Previously filed. Incorporated by reference to exhibit 5.3 filed in post-effective amendment No. 61 to the Registration Statement filed on April 30, 1998. (5) Previously filed. Incorporated by reference to exhibit 8.3 filed in post-effective amendment No. 61 to the Registration Statement filed on April 30, 1998. (6) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 64 to the Registration Statement filed on February 26, 1999. (7) Previously filed. Incorporated by reference to the exhibit c.5 filed in post-effective amendment No. 70 to the Registration Statement filed on May 1, 2001. (8) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 75 to the Registration Statement filed on April 30, 2003. (9) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 76 to the Registration Statement filed on April 29, 2004. * To be filed by Amendment Item 24. Persons Controlled By or Under Common Control with Registrant The Registrant does not consider that there are any persons directly or indirectly controlled by, or under common control with, the Registrant within the meaning of this item. The information in the prospectus under the caption "Managing the Fund - Investment Adviser" and in the statement of additional information under the caption "Management of the Trust - Investment Adviser" is incorporated by reference. Item 25. Indemnification Article VIII of the Agreement and Declaration of Trust of the Registrant (exhibit a.1) provides in effect that Registrant shall provide certain indemnification of its trustees and officers. In accordance with Section 17(h) of the Investment Company Act, that provision shall not protect any person against any liability to the Registrant or 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. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The Trust has entered into Indemnification Agreements with each of the independent trustees which provides that the Trust shall indemnify and advance expenses to the independent trustees as provided in the Indemnification Agreements and otherwise to the fullest extent permitted by allocable law. The Trust will indemnify the independent trustees for and against any and all judgments, penalties, fines and amounts paid in settlement, and all expenses actually and reasonably incurred by the independent trustees in connection with a proceeding to which he or she is a party to by reason of his or her position as an independent trustee. The Trust will not indemnify the independent trustees for monetary settlements or judgments relating to insider trading, disgorgements of profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, or any liability to the Trust or its shareholders with respect to a final adjudication that an action or omission by an independent trustee was committed in bad faith, involved deliberate dishonesty or that the trustee engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. Registrant, its trustees and officers, its investment adviser and persons affiliated with them are insured under a policy of insurance maintained by Registrant and its investment adviser, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such trustees or officers. The policy expressly excludes coverage for any trustee or officer whose personal dishonesty, fraudulent breach of trust, lack of good faith, or intention to deceive or defraud has been finally adjudicated or may be established or who willfully fails to act prudently. Item 26. Business and Other Connections of Investment Adviser The information in the prospectus under the caption "Managing the Fund - Investment Adviser" is incorporated by reference. Neither Columbia Wanger Asset Management, L.P. nor its general partner has at any time during the past two years been engaged in any other business, profession, vocation or employment of a substantial nature either for its own account or in the capacity of director, officer, employee, partner or trustee. Item 27. Principal Underwriters (a) Columbia Funds Distributor, Inc. ("CFDI"), a subsidiary of Columbia Management Advisors, Inc., is the Registrant's principal underwriter. CFDI also acts in such capacity for each series of Columbia Funds Trust I, Columbia Funds Trust II, Columbia Funds Trust III, Columbia Funds Trust IV, Columbia Funds Trust V, Columbia Funds Trust VI, Columbia Funds Trust VII, Liberty Variable Investment Trust, SteinRoe Variable Investment Trust, Columbia Funds Trust VIII, Columbia Funds Trust IX, Columbia Funds Trust XI, Columbia Floating Rate Fund, Columbia Institutional Floating Rate Income Fund, Columbia Acorn Trust, Galaxy Fund and for Columbia Balanced Fund, Columbia Common Stock Fund, Columbia Daily Income Company, Columbia Fixed Income Securities Fund, Columbia Growth Fund, Columbia High Yield Fund, Columbia International Stock Fund, Columbia National Municipal Bond Fund, Columbia Oregon Municipal Bond Fund, Columbia Real Estate Equity Fund, Columbia Short Term Bond Fund, Columbia Small Cap Growth Fund, Columbia Mid Cap Growth Fund, Columbia Strategic Investor Fund and Columbia Technology Fund. (b) The table below lists each director or officer of the principal underwriter named in the answer to Item 20. Name and Principal Positions and Offices with Positions and Offices Business Address* Principal Underwriter with Registrant Ahmed, Yakob Vice President None Aldi, Andrew Vice President None Anderson, Judith Vice President None Ash, James Vice President None Babbitt, Debra Senior Vice President and None Compensation Officer Banks, Keith Director None Ballou, Rick Senior Vice President None Bartlett, John Managing Director None Blumenfeld, Alexander Vice President None Bozek, James Senior Vice President None Brown, Beth Senior Vice President None Claiborne, Doug Senior Vice President None Climer, Quentin Vice President None Conley, Brook Vice President None Cook, Edward Vice President None Denny, Jeffrey Vice President None Desilets, Marian Vice President Assistant Secretary Devaney, James Senior Vice President None DiMaio, Stephen Vice President None Doyle, Matthew Vice President None Emerson, Kim P. Senior Vice President None Evans, C. Frazier Managing Director None Name and Principal Positions and Offices with Positions and Offices Business Address* Principal Underwriter with Registrant Feldman, David Managing Director None Feloney, Joseph Senior Vice President None Ferullo, Jeanne Vice President None Fisher, James Vice President None Ford, David Vice President None Froude, Don Director and President None Gentile, Russell Vice President None Goldberg, Matthew Senior Vice President None Grace, Anthony Vice President None Gubala, Jeffrey Vice President None Guenard, Brian Vice President None Helwig, Kevin Vice President None Hodgkins, Joseph Senior Vice President None Iudice, Jr., Philip Treasurer and Chief Financial None Officer Jones, Cynthia Vice President None Kelley, Terry M. Vice President None Lynch, Andrew Managing Director None Lynn, Jerry Vice President None Marcelonis, Sheila Vice President None McCombs, Gregory Senior Vice President None Menchin, Catherine Senior Vice President None Miller, Anthony Vice President None Miller, Greg Vice President None Moberly, Ann R. Senior Vice President None Morse, Jonathan Vice President None Nickodemus, Paul Vice President None Name and Principal Positions and Offices with Positions and Offices Business Address* Principal Underwriter with Registrant Owen, Stephanie Vice President None Penitsch, Marilyn Vice President None Piken, Keith Senior Vice President None Ratto, Gregory Vice President None Reed, Christopher B. Senior Vice President None Ross, Gary Senior Vice President None Schug, Derek Vice President None Schulman, David Senior Vice President None Scully-Power, Adam Vice President None Sellers, Gregory Vice President None Shea, Terence Vice President None Sideropoulos, Lou Senior Vice President None Sinatra, Peter Vice President None Sprieck, Susan Vice President None Studer, Eric Senior Vice President None Sullivan, Paul Vice President None Waldron, Thomas Vice President None Walsh, Brian Vice President None Wess, Valerie Senior Vice President None Yates, Susan Vice President None * The address for each individual is One Financial Center, Boston, MA 02111. Item 28. Location of Accounts and Records Bruce H. Lauer, Vice President, Secretary and Treasurer Columbia Acorn Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Certain records, including records relating to the Registrant's shareholders and the physical possession of its securities, may be maintained at the main office of Registrant's transfer agent, Columbia Funds Services, Inc., located at One Financial Center, Boston, Massachusetts 02111 or custodian, State Street Bank and Trust Company, located at 1776 Heritage Drive, Quincy, Massachusetts 02171. Item 29. Management Services None Item 30. Undertakings Not applicable. 649068/D/5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on March 1, 2005. COLUMBIA ACORN TRUST By /s/ Charles P. McQuaid ----------------------------- Charles P. McQuaid, President Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the capacities and on the dates indicated. Name Title Date /s/ Robert E. Nason Trustee and chairman ) - ---------------------------- ) Robert E. Nason ) ) /s/ Margaret Eisen Trustee ) - ---------------------------- ) Margaret Eisen ) ) /s/ Jerome Kahn, Jr. Trustee ) - ---------------------------- ) Jerome Kahn, Jr. ) ) /s/ Steven N. Kaplan Trustee ) - ---------------------------- ) Steven N. Kaplan ) ) /s/ David C. Kleinman Trustee ) - ---------------------------- ) David C. Kleinman ) ) /s/ Ralph Wanger Trustee ) March 1, 2005 - ---------------------------- ) Ralph Wanger ) ) /s/ Allan B. Muchin Trustee ) - ---------------------------- ) Allan B. Muchin ) ) /s/ John A. Wing Trustee ) - ---------------------------- ) John A. Wing ) ) /s/ Charles P. McQuaid Trustee and President ) - ---------------------------- (principal executive ) Charles P. McQuaid officer) ) ) ) /s/ Bruce H. Lauer Treasurer (principal ) - ---------------------------- financial and ) Bruce H. Lauer accounting officer) ) Index of Exhibits Filed with this Amendment Exhibit Number Exhibit - ------- ---------------------------------------------------------------- a.3 Amendment No. 2 to Agreement and Declaration of Trust. b. Bylaws, as amended effective September 28, 2004 d.1 Amended and Restated Investment Advisory Agreement between Columbia Acorn Trust (on behalf of Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn Select, Columbia Acorn International Select and Columbia Thermostat Fund) and Columbia Wanger Asset Management, L.P., dated August 1, 2004. h.3 Amendment No. 2 to Shareholders' Servicing and Transfer Agent Agreement between Columbia Acorn Trust and Columbia Funds Services, Inc., dated February 1, 2004. i. Consent of Bell, Boyd & Lloyd LLC. m.1 Amended and Restated Rule 12b-1 Distribution Plan dated August 1, 2004. n. Amended and Restated Plan Pursuant to Rule 18f-3(d) dated August 1, 2004. p.1 Code of Ethics of Columbia Wanger Asset Management, L.P., Columbia Acorn Trust and Wanger Advisors Trust, as amended February 1, 2005. p.3 Code of Ethics of Columbia Funds Distributor, Inc., the principal underwriter of the Funds, effective January 1, 2005. EX-99.A.3 3 file003.txt AGREEMENT AND DECLARATION OF TRUST AMENDMENT NO. 2 TO THE AGREEMENT AND DECLARATION OF TRUST OF LIBERTY ACORN TRUST WHEREAS, Section 1 of Article I of the Agreement and Declaration of Trust (Declaration of Trust) dated April 21, 1992, as amended, of Liberty Acorn Trust (Trust), a copy of which is on file in the Office of the Secretary of The Commonwealth of Massachusetts authorizes the Trustees of the Trust to amend the Declaration of Trust to change the name of the Trust without authorization by vote of Shareholders of the Trust. WE, THE UNDERSIGNED, being a majority of the duly elected and qualified Trustees of Liberty Acorn Trust, do hereby certify that the undersigned have determined to conduct the business of the Trust under the name "Columbia Acorn Trust" and have authorized the following amendment to said Declaration of Trust: Section 1 of Article I is hereby amended to read in its entirety as follows: Section 1. This Trust shall be known as "Columbia Acorn Trust" and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine. The foregoing Amendment shall become effective as of October 13, 2003. This instrument may be executed in several counterparts, each of which shall be deemed an original, but all taken together shall be one instrument. IN WITNESS WHEREOF, the undersigned have hereunto set their hands in the City of Chicago, Illinois, for themselves and their assigns, as of this September 17, 2003. /s/ Margaret Eisen /s/ Charles P. McQuaid - --------------------------- ---------------------------- Margaret Eisen Charles P. McQuaid /s/ Leo A.Guthart /s/ Allan B. Muchin - --------------------------- ---------------------------- Leo A. Guthart Allan B. Muchin /s/ Jerome Kahn, Jr. /s/ Robert E. Nason - --------------------------- ---------------------------- Jerome Kahn, Jr. Robert E. Nason /s/ Steven Kaplan /s/ Ralph Wanger - --------------------------- ---------------------------- Steven Kaplan Ralph Wanger /s/ David C. Kleinman /s/ John A. Wing - --------------------------- ---------------------------- David C. Kleinman John A. Wing State of Illinois ) )ss. County of Cook ) Then personally appeared the above-named Trustees and executed this Amendment No. 2 to the Agreement and Declaration of Trust of Liberty Acorn Trust as their free act and deed, before me, this 17th day September, 2003. /s/ Delores Hall -------------------------------- Notary Public My Commission Expires: 10/16/06 EX-99.B 4 file004.txt BY-LAWS COLUMBIA ACORN TRUST BYLAWS Table of Contents Section 1. Agreement and Declaration of Trust and Principal Office...........1 1.1 Agreement and Declaration of Trust.............................1 1.2 Principal Office of the Trust..................................1 Section 2. Shareholders......................................................1 2.1. Shareholder Meetings..........................................1 2.2 Place of Meetings..............................................1 2.3 Notice of Meetings.............................................1 2.4 Ballots........................................................2 2.5. Proxies.......................................................2 Section 3. Trustees..........................................................2 3.1 Committees and Advisory Board..................................2 3.2 Chairman and Vice-chairman.....................................2 3.3 Regular Meetings...............................................2 3.4 Special Meetings...............................................2 3.5 Notice2 3.6 Quorum3 3.7 Eligibility to Serve...........................................3 Section 4. Officers and Agents...............................................3 4.1 Enumeration; Qualification.....................................3 4.2 Powers3 4.3 Election.......................................................3 4.4 Tenure3 4.5 President......................................................3 4.6 Vice Presidents................................................4 4.7 Treasurer......................................................4 4.8 Secretary......................................................4 Section 5. Resignations and Removals.........................................4 Section 6. Vacancies.........................................................4 Section 7. Shares of Beneficial Interest.....................................4 7.1 Share Certificates.............................................4 7.2 Loss of Certificates...........................................5 7.3 Discontinuance of Issuance of Certificates.....................5 Section 8. Record Date and Closing Transfer Books............................5 Section 9. Seal..............................................................5 Section 10. Execution of Papers..............................................5 Section 11. Fiscal Year......................................................6 Section 12. Amendments.......................................................6 BYLAWS OF COLUMBIA ACORN TRUST (as amended through September 28, 2004) Section 1. Agreement and Declaration of Trust and Principal Office 1.1 Agreement and Declaration of Trust. These Bylaws shall be subject to the Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of Columbia Acorn Trust, a Massachusetts business trust established by the Declaration of Trust (the "Trust"). 1.2 Principal Office of the Trust. The principal office of the Trust shall be located in Chicago, Illinois. Section 2. Shareholders. 2.1. Shareholder Meetings. A meeting of the shareholders of the Trust or of any one or more series or classes of shares may be called at any time by the Trustees, by the chairman, the president or, if the Trustees, the chairman and the president shall fail to call any meeting of shareholders for a period of 30 days after written application of one or more shareholders who hold at least 10% of all outstanding shares of the Trust, if shareholders of all series are required under the Declaration of Trust to vote in the aggregate and not by individual series at such meeting, or of any series or class, if shareholders of such series or class are entitled under the Declaration of Trust to vote by individual series or class at such meeting, then such shareholders may call such meeting. If the meeting is a meeting of the shareholders of one or more series or classes of shares, but not a meeting of all shareholders of the Trust, then only the shareholders of such one or more series or classes shall be entitled to notice of and to vote at the meeting. Each call of a meeting shall state the place, date, hour and purposes of the meeting. 2.2 Place of Meetings. All meetings of the shareholders shall be held at the principal office of the Trust, or, to the extent permitted by the Declaration of Trust, at such other place within the United States as shall be designated by the Trustees or the president of the Trust. 2.3 Notice of Meetings. A written notice of each meeting of shareholders, stating the place, date and hour and the purposes of the meeting, shall be given at least seven days before the meeting to each shareholder entitled to vote thereat by leaving such notice with him or her or at his or her residence or usual place of business or by mailing it, postage prepaid, and addressed to such shareholder at his or her address as it appears in the records of the Trust. Such notice shall be given by the secretary or an assistant secretary or by an officer designated by the Trustees. No notice of any meeting of shareholders need be given to a shareholder if a written waiver of notice, executed before or after the meeting by such shareholder or his or her attorney thereunto duly authorized, is filed with the records of the meeting. 2 2.4 Ballots. No ballot shall be required for any election unless requested by a shareholder present or represented at the meeting and entitled to vote in the election. 2.5. Proxies. Shareholders entitled to vote may vote either in person or by proxy executed not more than six months before the meeting named therein, which proxies shall be filed with the secretary or other person responsible to record the proceedings of the meeting before being voted. The placing of a shareholder's name on a proxy pursuant to telephone or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such shareholder shall constitute execution of such proxy by or on behalf of such shareholder. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. [amended 9/30/97] Section 3. Trustees 3.1 Committees and Advisory Board. The Trustees may appoint from their number an executive committee and other committees. Except as the Trustees may otherwise determine, any such committee may make rules for conduct of its business. The Trustees may appoint an advisory board to consist of not less than two nor more than five members. The members of the advisory board shall be compensated in such manner as the Trustees may determine and shall confer with and advise the Trustees regarding the investments and other affairs of the Trust. Each member of the advisory board shall hold office until the first meeting of the Trustees following the next meeting of the shareholders and until his or her successor is elected and qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified, or until the advisory board is sooner abolished by the Trustees. 3.2 Chairman and Vice-chairman. The Trustees may appoint a chairman and a vice-chairman, who shall be Trustees of the Trust but need not be shareholders. The chairman shall preside at all meetings of the shareholders and of the Trustees and in the chairman's absence, the vice-chairman shall so preside. The chairman and the vice-chairman shall hold their respective positions at the pleasure of the Trustees. Neither the chairman nor the vice-chairman shall, by reason of holding such position, be or be deemed to be officers of the Trust. [added 9/15/92] 3.3 Regular Meetings. Regular meetings of the Trustees may be held without call or notice at such places and at such times as the Trustees may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent Trustees. [renumbered 9/15/92] 3.4 Special Meetings. Special meetings of the Trustees may be held at any time and at any place designated in the call of the meeting; when called by the chairman, the president or the treasurer or by two or more Trustees, sufficient notice thereof being given to each Trustee by the secretary or an assistant secretary or by the officer or one of the Trustees calling the meeting. [renumbered 9/15/92] 3.5 Notice. It shall be sufficient notice to a Trustee to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to the Trustee at his or her usual or last known business or residence address or to give notice to him or her in person 3 or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. [renumbered 9/15/92] 3.6 Quorum. At any meeting of the Trustees one-third of the Trustees then in office shall constitute a quorum; provided, however, a quorum shall not be less than two. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. [renumbered 9/15/92] 3.7 Eligibility to Serve. Eligibility to Serve. Each Trustee shall retire as a Trustee as of the end of the calendar year in which the Trustee attains the age of 75 years. [added 2/2/93; amended 12/2/94, 2/25/97, 5/20/02 and 11/12/02] Section 4. Officers and Agents 4.1 Enumeration; Qualification. The officers of the Trust shall be a president, a treasurer, a secretary and such other officers, if any, as the Trustees from time to time may in their discretion elect or appoint. The Trust may also have such agents, if any, as the Trustees from time to time may in their discretion appoint. Any officer may be but none need be a Trustee or shareholder. Any two or more offices may be held by the same person. [amended 9/15/92] 4.2 Powers. Subject to the other provisions of these Bylaws, each officer shall have, in addition to the duties and powers herein and in the Declaration of Trust set forth, such duties and powers as are commonly incident to his or her office as if the Trust were organized as a Massachusetts business corporation and such other duties and powers as the Trustees may from time to time designate, including without limitation the power to make purchases and sales of portfolio securities of the Trust pursuant to recommendations of the Trust's investment adviser in accordance with the policies and objectives of the Trust set forth in its prospectus and with such general or specific instructions as the Trustees may from time to time have issued. 4.3 Election. The president, the treasurer and the secretary shall be elected annually by the Trustees. Other officers, if any, may be elected or appointed by the Trustees at any time. [amended 9/15/92] 4.4 Tenure. The president, the treasurer and the secretary shall hold office until their respective successors are chosen and qualified, or in each case until he or she sooner dies, resigns, is removed or becomes disqualified. Each other officer shall hold office at the pleasure of the Trustees. Each agent shall retain his or her authority at the pleasure of the Trustees. [amended 9/15/92] 4.5 President. The president shall be the chief executive officer of the Trust. In the absence of the chairman and the vice-chairman, or in the event of the inability or refusal to act of both of them, the president shall preside at meetings of the Trustees or shareholders. [amended 9/15/92] 4 4.6 Vice Presidents. In the absence of the president, or in the event of the president's inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting shall have all the powers of the president. Any vice president shall have such other duties and powers as shall be designated from time to time by the Trustees or the president. [renumbered 9/15/92] 4.7 Treasurer. The treasurer shall be the chief financial and accounting officer of the Trust and subject to any arrangement made by the Trustees with a bank or trust company or other organization as custodian or transfer or shareholder services agent, shall be in charge of its valuable papers and its books of account and accounting records, and shall have such duties and powers as shall be designated from time to time by the Trustees or the president. Any assistant treasurer shall have such duties and powers as shall be designated from time to time by the Trustees. [renumbered 9/15/92] 4.8 Secretary. The secretary shall record all proceedings of the shareholders and the Trustees in books to be kept therefor, which books shall be kept at the principal office of the Trust. In the absence of the secretary from any meeting of shareholders or Trustees, an assistant secretary, or if there be none or he or she is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof in the aforesaid books. [renumbered 9/15/92] Section 5. Resignations and Removals Any Trustee, chairman, vice-chairman, officer or advisory board member may resign at any time by delivering his or her resignation in writing to the president, the treasurer or the secretary or to a meeting of the Trustees. The Trustees may remove any officer elected by them with or without cause by the vote of a majority of the Trustees then in office. Except to the extent expressly provided in a written agreement with the Trust, no Trustee, chairman, vice-chairman, officer, or advisory board member resigning, and no officer, chairman, vice-chairman, or advisory board member removed, shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages on account of such removal. [amended 9/15/92] Section 6. Vacancies A vacancy in any office may be filled at any time. Each successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the secretary, until his or her successor is chosen and qualified, or in each case until he or she sooner dies, resigns, is removed or becomes disqualified. [amended 9/15/92] Section 7. Shares of Beneficial Interest 7.1 Share Certificates. No certificates certifying the ownership of shares shall be issued except as the Trustees may otherwise authorize. In the event that the Trustees authorize the issuance of share certificates, subject to the provisions of Section 7.3, each shareholder shall be entitled to a certificate stating the number of whole shares owned by him or her, in such form as shall be prescribed from time to time by the Trustees. Such certificate shall be signed by the chairman, the president or a vice president and by the treasurer or secretary. Such signatures may be facsimiles if the certificate is signed by a transfer agent or by a registrar, other than a Trustee, 5 officer or employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if he or she were such officer at the time of its issue. In lieu of issuing certificates for shares, the Trustees or the transfer agent may either issue receipts therefor or keep accounts upon the books of the Trust for the record holders of such shares, who shall in either case be deemed, for all purposes hereunder, to be the holders of certificates for such shares as if they had accepted such certificates and shall be held to have expressly assented and agreed to the terms hereof. 7.2 Loss of Certificates. In the case of the alleged loss or destruction or the mutilation of a share certificate, a duplicate certificate may be issued in place thereof, upon such terms as the Trustees may prescribe. 7.3 Discontinuance of Issuance of Certificates. The Trustees may at any time discontinue the issuance of share certificates and may, by written notice to each shareholder, require the surrender of share certificates to the Trust for cancellation. Such surrender and cancellation shall not affect the ownership of shares in the Trust. Section 8. Record Date and Closing Transfer Books The Trustees may fix in advance a time, which shall not be more than 90 days before the date of any meeting of shareholders or the date for the payment of any dividend or making of any other distribution to shareholders, as the record date for determining the shareholders having the right to notice and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution, and in such case only shareholders of record on such record date shall have such right, notwithstanding any transfer of shares on the books of the Trust after the record date; or without fixing such record date the Trustees may for any of such purposes close the transfer books for all or any part of such period. [amended 10/24/97] Section 9. Seal The seal of the Trust shall, subject to alteration by the Trustees, consist of a flat-faced circular die with the word "Massachusetts," together with the name of the Trust and the year of its organization, cut or engraved thereon; but, unless otherwise required by the Trustees, the seal shall not be necessary to be placed on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. Section 10. Execution of Papers Except as the Trustees may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the Trust shall be signed, and all transfers of securities standing in the name of the Trust shall be executed, by the president or by one of the vice presidents or by the treasurer or by whomsoever else shall be designated for that purpose by the vote of the Trustees and need not bear the seal of the Trust. [amended 9/15/92] 6 Section 11. Fiscal Year Except as from time to time otherwise provided by the Trustees, the fiscal year of the Trust shall end on December 31. Section 12. Amendments These Bylaws may be amended or repealed, in whole or in part, by a majority of the Trustees then in office at any meeting of the Trustees, or by one or more writings signed by such a majority. EX-99.D.1 5 file005.txt INVESTMENT ADVISORY AGREEMENT AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT Columbia Acorn Trust, a Massachusetts business trust registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end diversified management investment company ("Columbia Acorn"), and Columbia Wanger Asset Management, L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser ("Columbia WAM"), agree that: 1. Engagement of Columbia WAM. Columbia Acorn appoints Columbia WAM to furnish investment advisory and other services to Columbia Acorn for its series designated Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn Select , Columbia Acorn International Select and Columbia Thermostat Fund (each, a "Fund," and collectively, the "Funds")), and Columbia WAM accepts that appointment, for the period and on the terms set forth in this agreement. If Columbia Acorn establishes one or more series in addition to the Funds named above with respect to which it desires to retain Columbia WAM as investment adviser hereunder, and if Columbia WAM is willing to provide such services under this agreement, Columbia Acorn and Columbia WAM may add such new series to this agreement, by written supplement to this agreement. Such supplement shall include a schedule of compensation to be paid to Columbia WAM by Columbia Acorn with respect to such series and such other modifications of the terms of this agreement with respect to such series as Columbia Acorn and Columbia WAM may agree. Upon execution of such a supplement by Columbia Acorn and Columbia WAM, that series will become a Fund hereunder and shall be subject to the provisions of this agreement to the same extent as the Funds named above, except as modified by the supplement. 2. Services of Columbia WAM. (a) Investment Management. Subject to the overall supervision and control of Columbia Acorn's board of trustees (the "Board"), Columbia WAM shall have supervisory responsibility for the general management and investment of the Funds' assets. Columbia WAM shall comply with the 1940 Act and with all applicable rules and regulations of the Securities and Exchange Commission, the provisions of the Internal Revenue Code applicable to the Funds as regulated investment companies, the investment policies and restrictions, portfolio transaction policies and the other statements concerning the Funds in Columbia Acorn's agreement and declaration of trust, bylaws, and registration statements under the 1940 Act and the Securities Act of 1933 (the "1933 Act"), and policy decisions and procedures adopted by the Board from time to time. Columbia WAM is authorized to make the decisions to buy and sell securities and other assets for the Funds, to place the Funds' portfolio transactions with broker-dealers, and to negotiate the terms of such transactions including brokerage commissions on brokerage transactions, on behalf of the Funds. Columbia WAM is authorized to exercise discretion within the Funds' policy concerning allocation of its portfolio brokerage, as permitted by law, including but not limited to section 28(e) of the Securities Exchange Act of 1934, and in so doing shall not be required to make any reduction in its investment advisory fees. Columbia Acorn hereby authorizes any entity or person associated with Columbia WAM that is a member of a national securities exchange to effect any transaction on the exchange for the account of a Fund to the extent permitted by and in accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder. Columbia Acorn hereby consents to the retention by such entity or person of compensation for such transactions in accordance with Rule 11a-2(T)(a)(iv). Columbia WAM may, where it deems it to be advisable, aggregate orders with other securities of the same type to be sold or purchased by one or more Funds with like orders on behalf of other clients of Columbia WAM (as well as clients of other investment advisers affiliated with Columbia WAM, in the event that Columbia WAM and such affiliated investment advisers share common trading facilities). In such event, Columbia WAM (or Columbia WAM and its affiliated advisers, as the case may be) will allocate the shares so sold or purchased, as well as the expenses incurred in the transaction, in a manner it (or it and they) consider to be equitable and fair and consistent with its (or its or their) fiduciary obligations to clients. (b) Reports and Information. Columbia WAM shall furnish to the Board periodic reports on the investment strategy and performance of the Funds and such additional reports and information as the Board or the officers of Columbia Acorn may reasonably request. Columbia Acorn shall furnish or otherwise make available to Columbia WAM such copies of financial statements, proxy statements, reports, and other information relating to the business and affairs of each Fund as Columbia WAM may, at any time or from time to time, reasonably require in order to discharge its obligations under this agreement. (c) Customers of Financial Institutions. It is understood that Columbia WAM may, but shall not be obligated to, make payments from its own resources to financial institutions (which may include banks, broker-dealers, recordkeepers, administrators and others) that provide, either directly or through agents, administrative and other services with respect to shareholders who are customers of such institutions, including establishing shareholder accounts, assisting Columbia Acorn's transfer agent with respect to recording purchase and redemption transactions, advising shareholders about the status of their accounts, current yield and dividends declared and such related services as the shareholders or the Funds may request. (d) Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, Columbia WAM agrees to maintain records relating to its services under this agreement, and further agrees that all records that it maintains for Columbia Acorn are the property of Columbia Acorn and to surrender promptly to Columbia Acorn any of such records upon Columbia Acorn's request; provided that Columbia WAM may at its own expense make and retain copies of any such records. Columbia WAM further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act. (e) Status of Columbia WAM. Columbia WAM shall for all purposes herein be deemed to be an independent contractor and not an agent of Columbia Acorn and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent Columbia Acorn in any way. Columbia WAM agrees to notify the Trust promptly of any change in the identity of Columbia WAM's general partner. 3. Administrative Services. Columbia WAM shall supervise the business and affairs of Columbia Acorn and each Fund and shall provide such services and facilities as may be required for effective administration of Columbia Acorn and the Funds as are not provided by employees or other agents engaged by Columbia Acorn; provided that Columbia WAM shall not have any obligation to provide under this agreement any such services which are the subject of a separate agreement or arrangement between Columbia Acorn and Columbia WAM, any affiliate of Columbia WAM, or any third party administrator. 4. Use of Affiliated Companies and Subcontractors. In connection with the services to be provided by Columbia WAM under this agreement, Columbia WAM may, to the extent it deems appropriate, and subject to compliance with the requirements of applicable laws and regulations and upon receipt of approval of the Trustees, make use of (i) its affiliated companies and their directors, trustees, officers, and employees and (ii) subcontractors selected by Columbia WAM, provided that Columbia WAM shall supervise and remain fully responsible for the services of all such third parties in accordance with and to the extent provided by this agreement. All costs and expenses associated with services provided by any such third parties shall be borne by Columbia WAM or such parties. 5. Expenses to be Paid by Columbia Acorn. Except as otherwise provided in this agreement or any other contract to which Columbia Acorn is a party, Columbia Acorn shall pay all expenses incidental to its organization, operations and business, including, without limitation: (a) all charges of depositories, custodians, sub-custodians and other agencies for the safekeeping and servicing of its cash, securities and other property and of its transfer agents and registrars and its dividend disbursing and redemption agents, if any; (b) all charges of its administrator, if any; (c) all charges of legal counsel and of independent auditors; (d) all compensation of trustees other than those affiliated with Columbia WAM or Columbia Acorn's administrator, if any, and all expenses incurred in connection with their services to Columbia Acorn; (e) all expenses of preparing, printing and distributing notices, proxy solicitation materials and reports to shareholders of the Funds; (f) all expenses of meetings of shareholders of the Funds; (g) all expenses of registering and maintaining the registration of Columbia Acorn under the 1940 Act and of shares of the Funds under the 1933 Act, including all expenses of preparation, filing and printing of annual or more frequent revisions of the Funds' registration statements under the 1940 Act and 1933 Act, and of supplying each then existing shareholder or beneficial owner of shares of the Funds of a copy of each revised prospectus or supplement thereto, and of supplying a copy of the statement of additional information upon request to any then existing shareholder; (h) all costs of borrowing money; (i) all expenses of publication of notices and reports to shareholders and to governmental bodies or regulatory agencies; (j) all taxes and fees payable to federal, state or other governmental agencies, domestic or foreign, and all stamp or other taxes; (k) all expenses of printing and mailing certificates for shares of a Fund; (l) all expenses of bond and insurance coverage required by law or deemed advisable by the Board; (m) all expenses of qualifying and maintaining qualification of, or providing appropriate notification of intention to sell relating to, shares of the Funds under the securities laws of the various states and other jurisdictions, and of registration and qualification of Columbia Acorn under any other laws applicable to Columbia Acorn or its business activities; (n) all fees, dues and other expenses related to membership of Columbia Acorn in any trade association or other investment company organization; and (o) any extraordinary expenses. In addition to the payment of expenses, Columbia Acorn shall also pay all brokers' commissions and other charges relating to the purchase and sale of portfolio securities for each Fund. 6. Allocation of Expenses Paid by Columbia Acorn. Any expenses paid by Columbia Acorn that are attributable solely to the organization, operation or business of a Fund or Funds shall be paid solely out of the assets of that Fund or Funds. Any expense paid by Columbia Acorn that is not solely attributable to a Fund or Funds, nor solely to any other series of Columbia Acorn, shall be apportioned in such manner as Columbia Acorn or Columbia Acorn's administrator determines is fair and appropriate, or as otherwise specified by the Board. 7. Expenses to be Paid by Columbia WAM. Columbia WAM shall furnish to Columbia Acorn, at Columbia WAM's own expense, office space and all necessary office facilities, equipment and personnel required to provide its services pursuant to this agreement. Columbia WAM shall also assume and pay all expenses of placement of securities orders and related bookkeeping. 8. Compensation of Columbia WAM. For the services to be rendered and the expenses to be assumed and to be paid by Columbia WAM under this agreement, Columbia Acorn on behalf of the respective Funds shall pay to Columbia WAM fees accrued daily and paid monthly at the annual rates (as a percentage of the Fund's net assets) shown below: Columbia Acorn Fund Assets Rate of Fee ------ ----------- First $700 million 0.75% $700 million to $2 billion 0.70% In excess of $2 billion 0.65% Columbia Acorn International Assets Rate of Fee ------ ----------- First $100 million 1.20% $100 million to $500 million 0.95% In excess of $500 million 0.75% Columbia Acorn USA Assets Rate of Fee ------ ----------- First $200 million 0.95% In excess of $200 million 0.90% Columbia Acorn Select Assets Rate of Fee ------ ----------- First $700 million 0.90% In excess of $700 million 0.85% Columbia Acorn International Select All Assets 0.95% Columbia Thermostat Fund All Assets 0.10% The fees attributable to each Fund shall be a separate charge to such Fund and shall be the several (and not joint or joint and several) obligation of each such Fund. 9. Services of Columbia WAM Not Exclusive. The services of Columbia WAM to Columbia Acorn under this agreement are not exclusive, and Columbia WAM shall be free to render similar services to others so long as its services under this agreement are not impaired by such other activities. 10. Services Other Than as Adviser. Within the limits permitted by law, Columbia WAM or an affiliate of Columbia WAM may receive compensation from Columbia Acorn for other services performed by it for Columbia Acorn which are not within the scope of the duties of Columbia WAM under this agreement, including the provision of brokerage services. 11. Standard of Care. To the extent permitted by applicable law, neither Columbia WAM nor any of its partners, officers, agents, employees or affiliates shall be liable to Columbia Acorn or its shareholders for any loss suffered by Columbia Acorn or its shareholders as a result of any error of judgment, or any loss arising out of any investment, or as a consequence of any other act or omission of Columbia WAM or any of its affiliates in the performance of Columbia WAM's duties under this agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on the part of Columbia WAM or such affiliate, or by reason of reckless disregard by Columbia WAM or such affiliate of the obligations and duties of Columbia WAM under this agreement. 12. Effective Date, Duration and Renewal. This agreement shall become effective on August 1, 2004. Unless terminated as provided in Section 13, this agreement shall continue in effect as to a Fund until July 31, 2005 and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those trustees who are not interested persons of Columbia Acorn or of Columbia WAM, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board or vote of the holders of a "majority of the outstanding shares" of that Fund (which term as used throughout this agreement shall be construed in accordance with the definition of "vote of a majority of the outstanding voting securities of a company" in section 2(a)(42) of the 1940 Act). 13. Termination. This agreement may be terminated as to a Fund at any time, without payment of any penalty, by the Board, or by a vote of the holders of a majority of the outstanding shares of that Fund, upon 60 days' written notice to Columbia WAM. This agreement may be terminated by Columbia WAM at any time upon 60 days' written notice to Columbia Acorn. This agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the 1940 Act). 14. Amendment. This agreement may be amended in accordance with the 1940 Act. 15. Non-Liability of Trustees and Shareholders. A copy of the declaration of trust of Columbia Acorn is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of Columbia Acorn by its officers as officers and not individually. All obligations of Columbia Acorn hereunder shall be binding only upon the assets of Columbia Acorn (or the appropriate Fund) and shall not be binding upon any trustee, officer, employee, agent or shareholder of Columbia Acorn. Neither the authorization of any action by the trustees or shareholders of Columbia Acorn nor the execution of this agreement on behalf of Columbia Acorn shall impose any liability upon any trustee, officer or shareholder of Columbia Acorn. 16. Use of Manager's Name. Columbia Acorn may use the name "Columbia" or any other name derived from the name "Columbia" only for so long as this agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization that shall remain affiliated with Columbia Management Group, Inc. and shall have succeeded to the business of Columbia WAM as investment adviser. At such time as this agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, Columbia Acorn will (by amendment of its agreement and declaration of trust if necessary) cease to use any name derived from the name "Columbia" or otherwise connected with Columbia WAM, or with any organization that shall have succeeded to Columbia WAM's business as investment adviser. 17. Notices. Any notice, demand, change of address or other communication to be given in connection with this agreement shall be given in writing and shall be given by personal delivery, by registered or certified mail or by transmittal by facsimile or other electronic medium addressed to the recipient as follows (or at such other address or addresses as a party may provide to the other from time to time, by notice): If to Columbia WAM: Columbia Wanger Asset Management, L.P. Attention: Bruce H. Lauer 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone: 312 634-9200 Facsimile: 312 634-0016 with a copy to: If to Columbia Acorn: Columbia Acorn Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone: 312 634-9200 Facsimile: 312 634-1919 with a copy to: Bell, Boyd & Lloyd LLC Attention: Cameron S. Avery Three First National Plaza, Suite 3100 Chicago, Illinois 60602 Telephone: 312/372-1121 Facsimile: 312/827-8000 All notices shall be conclusively deemed to have been given on the day of actual delivery thereof and, if given by registered or certified mail, on the fifth business day following the deposit thereof in the mail and, if given by facsimile or other electronic medium, on the day of transmittal thereof (upon electronic confirmation of receipt thereof). 18. Governing Law. This agreement shall be construed and interpreted in accordance with the laws of the State of Illinois and the laws of the United States of America applicable to contracts executed and to be performed therein. Dated as of August 1, 2004 COLUMBIA ACORN TRUST By /s/ Charles P. McQuaid ----------------------------------- Charles P. McQuaid COLUMBIA WANGER ASSET MANAGEMENT, L.P. By WAM Acquisition GP, Inc. Its General Partner By /s/ Bruce H. Lauer ----------------------------------- Bruce H. Lauer EX-99.H.3 6 file006.txt SERVICING AND TRANSFER AGENT AGREEMENT AMENDMENT NO. 2 TO SHAREHOLDERS' SERVICING AND TRANSFER AGENT AGREEMENT This Amendment No. 2 to the Shareholders' Servicing and Transfer Agent Agreement (the "Amendment") is hereby made by and between Columbia Acorn Trust (the "Trust") (formerly Liberty Acorn Trust), a Massachusetts business trust and Columbia Funds Services, Inc. ("CFS") (formerly Liberty Funds Services, Inc.), a Massachusetts corporation. This Amendment is dated as of February 1, 2004. Capitalized terms not defined herein shall have the meaning ascribed to them in the Shareholders' Servicing and Transfer Agent Agreement dated as of September 29, 2000 (the "Agreement"). WHEREAS, under the Agreement the Trust has appointed CFS as Transfer Agent, Registrar and Dividend Disbursing Agent for each series of the Trust listed in Schedule A attached thereto, each a registered investment company; WHEREAS, under the Agreement the Trust will pay CFS for the services provided thereunder in accordance with and in the manner set forth in Schedule B attached thereto; and WHEREAS, the parties to the Agreement desire to amend Schedule B attached thereto to reflect a revised fee schedule for all classes of each Fund of the Trust. NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows: 1. Schedule B. Pursuant to Section 28 of the Agreement, the parties hereto mutually agree that Schedule B attached to the Agreement be deleted and replaced in its entirety by the Schedule B attached to this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and sealed as of the date first above written. COLUMBIA ACORN TRUST By: /s/ Bruce H. Lauer ---------------------------------------- Name: Bruce H. Lauer Title: Vice President, Secretary and Treasurer COLUMBIA FUNDS SERVICES, INC. By: /s/ J. Kevin Connaughton ---------------------------------------- Name: J. Kevin Connaughton Title: President SCHEDULE B Terms used in the Schedule and not defined herein shall have the meaning specified in the SHAREHOLDERS' SERVICING AND TRANSFER AGENT AGREEMENT, as amended from time to time (the "Agreement"). Payments under the Agreement to CFS shall be made in the first two weeks of the month following the month in which a service is rendered or an expense incurred. This Schedule B shall be effective as of the date of the Amendment. Each Fund that is a series of the Trust shall pay CFS for the services to be provided by CFS under the Agreement an amount equal to the sum of the following: 1. An account fee for Open Accounts of $28.00 per annum. 2. In addition, CFS shall be entitled to retain as additional compensation for its services all CFS revenues related to fees for wire, IRA trustee agent fees and account transcripts due CFS from shareholders of any Fund and interest (net of bank charges) earned with respect to balances in the accounts referred to in paragraph 2 of the Agreement. CFS is not entitled to collect any account fees with respect to any Closed Account. OUT-OF-POCKET EXPENSES. Each Fund shall reimburse CFS for any and all out-of-pocket expenses and charges in performing services under this Agreement (other than charges for normal data processing services and related software, equipment and facilities) including, but not limited to, mailing service, postage, printing of shareholder statements, the cost of any and all forms of the Funds and other materials used by CFS in communicating with shareholders of the Funds, the cost of any equipment or service used for communicating with the Funds' custodian bank or other agent of the Funds, and all costs of telephone communication with or on behalf of shareholders allocated in a manner mutually acceptable to the Funds and CFS. All determinations hereunder shall be in accordance with generally accepted accounting principles and subject to audit by the Funds' independent accountants. Definitions "Closed Account" is any account on the books of CFS representing record ownership of shares of a Fund which as of the first day of any calendar month has a share balance of zero and does not meet account purge criteria. "Distributor Fees" means the amount due CFS pursuant to any agreement with the Funds' principal underwriter for processing, accounting and reporting services in connection with the sale of shares of the Fund. "Fund" means each of the open-end investment companies advised or administered by Columbia Wanger Asset Management, L.P. (formerly Liberty WAM) that are series of the Trusts which are parties to the Agreement. "Open Account" is any account on the books of CFS representing record ownership of shares of a Fund which as of the first day of any calendar month has a share balance greater than zero. For clarification, the term Open Account does not include sub-accounts of an omnibus account. The Open Account fee shall be payable on a monthly basis, in an amount equal to 1/12 the per annum change. Agreed: THE TRUST ON BEHALF OF EACH FUND DESIGNATED IN SCHEDULE A FROM TIME TO TIME By: /s/ Bruce H. Lauer ---------------------------------------- Bruce H. Lauer, Vice President, Secretary and Treasurer COLUMBIA FUNDS SERVICES, INC. By: /s/ J. Kevin Connaughton ------------------------------- President EX-99.I 7 file007.txt CONSENT OF BELL, BOYD & LLOYD LLC BELL, BOYD & LLOYD LLC ----------------------------------------------------------------- 70 West Madison Street Suite 3100 o Chicago, Illinois 60602-4207 312.372.1121 o Fax 312.827.8000 February 28, 2005 As counsel for Columbia Acorn Trust (the "Registrant"), we consent to the incorporation by reference of our opinion dated September 24, 2002 for the Registrant's series designated Columbia Acorn Fund (formerly designated Liberty Acorn Fund), Columbia Acorn International (formerly designated Liberty Acorn International), Columbia Acorn USA (formerly designated Liberty Acorn USA), Columbia Acorn Select (formerly designated Liberty Acorn Twenty), Columbia Acorn International Select (formerly designated Liberty Acorn Foreign Forty) and Columbia Thermostat Fund filed with the Registrant's registration statement on Form N-1A on September 24, 2002 (Securities Act file no. 2-34223). In giving this consent we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. /s/ Bell, Boyd & Lloyd LLC Bell, Boyd & Lloyd LLC - -------------------------------------------------------------------------------- chicago o washington EX-99.M.1 8 file008.txt 12B-1 DISTRIBUTION PLAN Columbia Acorn Trust Amended and Restated Rule 12b-1 Distribution Plan Columbia Acorn Trust (the Trust) hereby adopts the following distribution plan (the Plan) pursuant to Rule 12b-1 (the Rule) under the Investment Company Act of 1940 (the Act) on behalf of each Fund in the Trust designated in Appendix I, for the purpose of providing personal service and/or the maintenance of shareholder accounts and to facilitate the distribution of shares of the Funds. This Plan applies only to the Class A, Class B or Class C shares of each Fund. I. Plan Applying to Class A, B and C Shares Each Fund having Class A, B, or C shares shall pay a service fee at the annual rate of 0.25% of the net assets of its Class A, B, or C shares, and a distribution fee at the annual rate of 0.60% of the average daily net assets of its Class B shares and 0.75 % of the average daily net assets of its Class C shares. Amounts payable under this paragraph are subject to any limitations on such amounts prescribed by applicable laws or rules. II. Payments of Fees Under the Plan Each Fund shall make all payments of service and distribution fees under this Plan to Columbia Funds Distributor, Inc. (CFDI) monthly, on the 20th day of each month or, if such day is not a business day, on the next business day thereafter. No Fund shall pay, nor shall CFDI be entitled to receive, any amount under this Plan if such payment would result in CFDI receiving amounts in excess of those permitted by applicable law or by rules of the National Association of Securities Dealers, Inc. III. Use of Fees CFDI may pay part or all of the service and distribution fees it receives from a Fund as commissions to financial service firms that sell Fund shares or as reimbursements to financial service firms or other entities that provide shareholder services to record or beneficial owners of shares (including third-party administrators of qualified plans). This provision does not obligate CFDI to make any such payments nor limit the use that CFDI may make of the fees it receives. IV. Reporting CFDI shall provide to the Trust's Trustees, and the Trustees shall review, at least quarterly, reports setting forth all Plan expenditures, and the purposes for those expenditures. V. Other Payments Authorized Payments by the Trust to CFDI and its affiliates other than as set forth in Section I which may be indirect financing of distribution costs of Class A, Class B, or Class C shares are authorized by this Plan. VI. Effective Date This Plan shall be effective on August 1, 2004. VII. Continuation; Amendment; Termination This Plan shall continue in effect with respect to Class A, Class B and Class C shares only so long as specifically approved for that class at least annually as provided in the Rule. The Plan may not be amended to increase materially the service fee or distribution fee with respect to a class of shares without such shareholder approval as is required by the Rule and any applicable orders of the Securities and Exchange Commission, and all material amendments of the Plan must be approved in the manner described in the Rule. The Plan may be terminated with respect to any class of shares at any time as provided in the Rule without payment of any penalty. The continuance of the Plan shall be effective only if the selection and nomination of the Trust's Trustees who are not interested persons (as defined under the Act) of the Trust is effected by such non-interested Trustees as required by the Rule. Approved by the Trustees as of August 1, 2004. By: /s/ Robert Nason ----------------------------------- APPENDIX I Columbia Acorn Fund Columbia Acorn International Columbia Acorn USA Columbia Acorn Select Columbia Acorn International Select Columbia Thermostat Fund Dated August 1, 2004 EX-99.N 9 file009.txt RULE 18F-3(D) PLAN COLUMBIA ACORN TRUST Amended and Restated Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 Each Series (each a "Columbia Acorn Fund") of Columbia Acorn Trust (the "Trust") as set forth in Schedule I may from time to time issue one or more of the following classes of shares as authorized by the Board of Trustees and as provided for herein: Class A shares, Class B shares, Class C shares and Class Z shares. Each class is subject to such investment minimums and other conditions of eligibility as are set forth in the Trust's prospectus and statement of additional information for shares of that class as from time to time in effect. The differences in expenses among these classes of shares and the conversion and exchange features of each class of shares are set forth below. These differences are subject to change, to the extent permitted by law and by the Declaration of Trust and By-laws of the Trust, by action of the Board of Trustees. This Plan, as amended and restated, shall be effective as of August 1, 2004. CLASS A SHARES Class A shares of each Columbia Acorn Fund are offered at net asset value ("NAV") plus the initial sales charges described in the Trust's prospectus and statement of additional information for Class A shares as from time to time in effect. Initial sales charges may not exceed 6.50%, and may be reduced or waived as permitted by Rule 22d-1 under the Investment Company Act of 1940 (the "1940 Act") and as described in the Trust's prospectus and statement of additional information for Class A shares from time to time in effect. Purchases of $1 million to $5 million of Class A shares that are redeemed within 18 months from purchase are subject to a contingent deferred sales charge ("CDSC") of 1.00% of either the purchase price or the NAV of the shares redeemed, whichever is less. Purchases in excess of $5 million of Class A shares that are redeemed within 18 months from purchase are subject to a CDSC of 1.00% only on assets redeemed below the $5 million level. The CDSC may be reduced or waived in certain circumstances as permitted by Rule 6c-10 under the 1940 Act and as described in the Trust's prospectus and statement of additional information for Class A shares as from time to time in effect. Class A shares pay a service fee pursuant to a plan adopted pursuant to Rule 12b-1 under the 1940 Act ("12b-1 Plan") as described in the Trust's prospectus and statement of additional information for Class A shares in effect from time to time. Such fee may be in an amount up to but may not exceed 0.25% per annum of the average daily net assets attributable to such class. Class A shares pay all transfer agency fees and expenses, and any other expenses, specifically allocable to Class A shares Class A shares of a Columbia Acorn Fund may be exchanged, at the holder's option, for Class A shares of any other fund (each, including each Columbia Acorn Fund, a "Columbia Fund" and together, "Columbia Funds") distributed by Columbia Funds Distributor, Inc. ("CFDI") or its successor, which offers Class A shares, without the payment of a sales charge, except to the extent such an exchange is limited by the Trust's prospectus for Class A shares as from time to time in effect and except further that if Class A shares of any non-money market Columbia Fund are exchanged within five months after purchase for shares of another Columbia Fund with a higher sales charge, then the difference in sales charges must be paid on the exchange. No CDSC shall be charged on the exchange of Class A shares of a Columbia Acorn Fund for Class A shares of another Columbia Fund. If the Class A shares received in the exchange are subsequently redeemed, the amount of the CDSC, if any, will be determined by the schedule of the Columbia Fund in which the original investment was made, and the holding period for determining the CDSC will include the holding period of the shares exchanged. CLASS B SHARES Class B shares of each Columbia Acorn Fund are offered at NAV, without an initial sales charge. Class B shares that are redeemed within the period of time after purchase (not more than 6 years) specified in the Trust's prospectus and statement of additional information for Class B shares as from time to time in effect are subject to a CDSC of up to 5% of either the purchase price or the NAV of the shares redeemed, whichever is less; such percentage may be lower for certain Funds and declines the longer the shares are held, all as described in the Trust's prospectus and statement of additional information for Class B shares as from time to time in effect. Class B shares purchased with reinvested distributions are not subject to a CDSC. The CDSC may be reduced or waived in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as described in the Trust's prospectus and statement of additional information for Class B shares as from time to time in effect. Class B shares pay distribution and service fees pursuant to a 12b-1 Plan as described in the Trust's prospectus and statement of additional information for Class B shares in effect from time to time. Such fees may be in amounts up to but may not exceed, respectively, 0.60% and 0.25% per annum of the average daily net assets attributable to such class. Class B shares pay all transfer agency fees and expenses, and any other expenses, specifically allocable to Class B shares. Class B shares of a Columbia Acorn Fund automatically convert to Class A shares of the same Columbia Acorn Fund eight or fewer years after purchase, except that Class B shares purchased through the reinvestment of dividends and other distributions on Class B shares convert to Class A shares proportionally to the amount of Class B shares otherwise being converted. Class B shares of a Columbia Acorn Fund may be exchanged, at the holder's option, for Class B shares of any other Columbia Fund offering Class B shares, except to the extent such an exchange is limited by the Trust's prospectus as from time to time in effect, without the payment of a CDSC. The holding period for determining the CDSC and the conversion to Class A shares for the Class B shares received in the exchange will include the holding period of the shares exchanged. If the Class B shares received in the exchange are subsequently redeemed, the 2 amount of the CDSC, if any, will be determined by the schedule of the Columbia Fund in which the original investment was made. CLASS C SHARES Class C shares of each Columbia Acorn Fund are offered at NAV without an initial sales charge. Class C shares that are redeemed within three years from purchase may be subject to a CDSC of 1% of either the purchase price or the NAV of the shares redeemed, whichever is less. Class C shares purchased with reinvested dividends or capital gain distributions are not subject to a CDSC. The CDSC may be reduced or waived in certain circumstances as permitted by Rule 6c-10 under the 1940 Act and as described in the Trust's prospectus and statement of additional information for Class C shares as from time to time in effect. Class C shares pay distribution and service fees pursuant to a 12b-1 Plan as described in the Trust's prospectus and statement of additional information for Class C shares in effect from time to time. Such fees may be in amounts up to but may not exceed, respectively, 0.75% and 0.25% per annum of the average daily net assets attributable to such class. Class C shares pay all transfer agency fees and expenses, and any other expenses, specifically allocable to Class C shares. Class C shares of a Columbia Acorn Fund may be exchanged, at the holder's option, for Class C shares of any other Columbia Fund offering Class C shares, except to the extent such an exchange is limited by the Trust's prospectus for Class C shares as from time to time in effect, without the payment of a CDSC. If the Class C shares received in the exchange are subsequently redeemed, the amount of the CDSC, if any, will be determined by the schedule of the Columbia Fund in which the original investment was made, and the holding period for determining the CDSC will include the holding period of the shares exchanged. Only one exchange of any Columbia Fund Class C shares may be made in any three-month period. For this purpose, an exchange into a Columbia Fund and a prior or subsequent exchange out of a Columbia Fund constitute an "exchange." CLASS Z SHARES Class Z shares of each Columbia Acorn Fund are offered at NAV, without an initial sales charge, 12b-1 fee or CDSC. Class Z shares of a Columbia Acorn Fund may be exchanged, at the holder's option, for Class Z shares of any other Columbia Fund offering Class Z shares or for Class A shares of any other Columbia Fund not offering Class Z shares and offering Class A shares, except to the extent such exchange is limited by the Trust's prospectus for Class Z shares as from time to time in effect, without the payment of a sales charge. Class Z shares pay all transfer agency fees and expenses, and any other expenses, specifically allocable to Class Z shares. Approved by the Trustees as of August 1, 2004 By: /s/ Robert Nason ---------------------------------- 3 SCHEDULE I Columbia Acorn Fund Columbia Acorn International Columbia Acorn USA Columbia Acorn Select Columbia Acorn International Select Columbia Thermostat Fund I-1 EX-99.P.1 10 file010.txt CODE OF ETHICS Columbia Wanger Asset Management, L.P. Columbia Acorn Trust Wanger Advisors Trust Code of Ethics Effective February 1, 2005 - -------------------------------------------------------------------------------- Table of Contents Overview and Definitions Page Overview 3 Things You Need to Know to Use This Code 4 Definitions 5-7 Part I Statement of General Principles (Applies to All Employees) A. Compliance with the Spirit of the Code 8 B. Additional Codes of Ethics 8 C. Nonpublic Information 9 D. Reporting Violations of CWAM Code of Ethics 9 E. Compliance with Federal Securities Laws 9 Part II Prohibited Transactions and Activities (Applies to All Employees) A. Prohibition on Fraudulent and Deceptive Acts 10 B. Restrictions Applicable to All Employees with respect to Redemptions or Exchanges of Open-end Mutual Fund Investments 10 C. Restrictions Applicable to All Employees with Respect to Transactions in Bank of America's Retirement Plans 11 D. Trading Restrictions Applicable to All Access Persons 11-13 1. Prohibition on Trading Securities Being Purchased, Sold or Considered for Purchase or Sale by a Client Account 11 2. Pre-clearance of Transactions 12 3. Fourteen Calendar Day Blackout Period 12 4. Initial Public Offerings, Hedge Funds and Private Placements 12 5. Short-Term Trading (60 Calendar Days) 13 6. Prohibition on Excessive Trading 13 7. Closed-end Funds Advised by Bank of America 13 E. Additional Trading Restrictions Applicable to Investment Persons 13-15 F. Exempt Transactions 15 G. Restriction on Service as Officer or Director 16 H. Participation in Investment Clubs 16 I. Additional Restrictions for Specific Sub-Groups 16 J. Gifts 16 K. Penalties for Non-Compliance 16 Part III Administration and Reporting Requirements (Applies to All Employees) A. New CWAM Employees 17 B. Annual Code Coverage Acknowledgement and Compliance Certification 17 C. Reporting Requirements for All Access Persons 17-18 1. Initial Certification to the Code and Disclosure of All Investment Accounts and Personal Holdings of Covered Securities and Open-end Mutual Funds 18 2. Quarterly Investment Account and Transaction Report 18 3. Annual Holdings Report 18 4. Duplicate Account Statements and Confirmations 18 D. Exceptions from the Above Reporting Requirements 18 E. Code Administration 18 F. Monitoring of Transactions 19 G. Certification of Compliance and Receipt of Code 19 H. Non-public Information 19 I. Responsibility 19 J. Questions 19 K. Compliance With the Code 20 L. Retention of Records 20 M. Furnishing of the Code upon Request 20 - -------------------------------------------------------------------------------- 1 Appendices: Appendix A Beneficial Ownership 21-22 Appendix B Pre-clearance Procedures for Personal Transactions in Covered Securities and Open-end Funds 23 Appendix C Pre-clearance Procedures 24-25 Appendix D Hardship Exceptions to the Short-term ProfitTrading Ban 26 Appendix E Sanction Schedule 27 Appendix F Portfolio Holdings Disclosure Policy 28-29 Forms: Form A Initial Holdings Report 30-32 Form B Quarterly Personal Securities Transaction Report 33 Form C Annual Code of Ethics Certification 34 Annual Policy Concerning Material Non-public Information 34 Annual Holdings Report 35 Form D Multi-Approval Form 36 - -------------------------------------------------------------------------------- 2 Columbia Wanger Asset Management, L.P. CODE OF ETHICS Effective February 1, 2005 Overview - -------- This is the Code of Ethics for: o All employees and officers of Columbia Wanger Asset Management, L.P. ("CWAM") and employees of Bank of America or CMG Companies that are permitted access to confidential CWAM information or data at CWAM. o The Code is intended to satisfy the requirements of Rule 204A-1 under the Investment Advisers Act of 1940. The Code covers the following activities: o It prohibits certain activities by Employees that involve the potential for conflicts of interest (Part I). o It prohibits certain kinds of personal securities trading by Access Persons (Part II). o It requires all Employees to report their open-end mutual fund holdings and transactions, and requires Access Persons to report ALL of their securities holdings and transactions, so they can be reviewed for conflicts with the investment activities of CWAM Client Accounts (Part III) and compliance with this Code. - -------------------------------------------------------------------------------- 3 Things You Need to Know to Use This Code This Code applies to all Employees and is divided as follows: o Overview and Definitions o Part I Statement of General Principles o Part II Prohibited Transactions and Activities o Part III Administration and Reporting Requirements o Appendices: Appendix A Beneficial Ownership Appendix B Pre-Clearance Procedures for Personal Transactions in Covered Securities and Open-end Mutual Funds Appendix C Pre-Clearance Procedures Appendix D Hardship Exceptions to the Short-Term Profit Trading Ban Appendix E Sanctions Schedule Appendix F Portfolio Holdings Disclosure Policy o Forms: Form A Initial Holdings Report Form B Quarterly Personal Securities Transaction Report Form C Annual Code of Ethics Certification Annual Policy Concerning Material Non-Public Information Annual Holdings Report Form D Multi-Approval Form To understand what other parts of this Code apply to you, you need to know whether you fall into one or more of these categories: o Access Person (all Employees) o Investment Person If after reading the definitions you don't know which category you belong to, contact CWAM Compliance at (312) 634-9231. - -------------------------------------------------------------------------------- 4 Definitions - ----------- Terms in boldface type have special meanings as used in this Code. To understand the Code, you need to read the definitions of these terms below. These terms have special meanings in the Code of Ethics: o "Access Person" means (i) any Employee: (A) who has access to nonpublic information regarding any purchase or sale of securities in a Client Account, or nonpublic information regarding the portfolio holdings of any Client Account, or (B) who is involved in making securities recommendations to a Client Account, or who has access to such recommendations that are nonpublic, (ii) any officer of CWAM, and (iii) any other Employee designated as an Access Person by Compliance. Compliance shall maintain a list of Employees deemed to be Access Persons and will notify each Employee of their designation under this Code. An Access Person does not include the independent directors of the funds managed by CWAM; however it does include the Fund CCO and his staff. o "Automatic investment plan" means a plan or other program in which regular periodic purchases or withdrawals are made automatically in or from investment accounts in accordance with a pre-determined schedule and allocation. These may include payroll deduction plans, issuer dividend reinvestment programs ("DRIPs") or 401(k) automatic investment plans. o A security is "being considered for purchase or sale" when a recommendation to purchase or sell the security has been made or is expected to be made soon (within 7 calendar days) and communicated or, with respect to the person making the recommendation, when such person decides to make the recommendation. o "Beneficial ownership" means direct or indirect, through any contract, arrangement, understanding, relationship or otherwise, pecuniary interest in" a security. The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." Beneficial ownership includes accounts of a spouse, minor children and relatives resident in the home of the Access Person, as well as accounts of another person if the Access Person obtains therefrom benefits substantially equivalent to those of ownership. For additional information, see Appendix A. o "CCO" means CWAM's Chief Compliance Officer or his/her designee. o "CIO" means CWAM's Chief Investment Officer. o "COO" means CWAM's Chief Operating Officer. o "Client" or "Client Account" refers to any investment account - including, without limitation, any registered or unregistered investment company or fund - for which CWAM has been retained to act as investment adviser or sub-adviser. o "Closed-end Fund" refers to a registered investment company whose shares are publicly traded in a secondary market rather than directly, with the fund. o "CMG" refers to Columbia Management Group, Inc. Its direct and indirect affiliates that have adopted the CMG Code of Ethics are referred to as the "CMG Companies". o "Compliance" refers to CWAM's Compliance Department: The CWAM CCO and his designees. o "CWAM" refers to Columbia Wanger Asset Management, L.P. o "CWAM Code of Ethics Committee" consists of the CWAM COO, the CWAM CCO and the CWAM CIO. The Fund CCO shall participate as a non-voting member of this Committee. - -------------------------------------------------------------------------------- 5 o "Control" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act of 1940. o "Covered Security" means anything that is considered a "security" under the Investment Company Act of 1940, but does not include: 1. Direct obligations of the U.S. Government. 2. Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. 3. Shares of Open-end Mutual Funds. 4. Futures and options on futures. However, a proposed trade in a "single stock future" (a security future which involves a contract for sale for future delivery of a single security) is subject to the Code's pre-clearance requirement Covered Securities therefore include stocks, bonds, debentures, convertible and/or exchangeable securities, notes, options on securities, warrants, rights, and shares of exchange traded funds (ETFs), among other instruments. If you have any question or doubt about whether an investment is a considered a security or a Covered Security under this Code, ask Compliance. o "Employee" means any employee of CWAM who receives official notice of coverage under this Code of Ethics from CWAM Compliance. o "Excluded Fund" is an Open-end Mutual Fund that is designed to permit short term trading. Examples include mutual funds that expressly authorize or do not restrict short-term trading, including money market funds and certain short-term fixed income funds such as the Nations Short-Term Income Fund, Nations Short-Term Municipal Fund and Columbia Short Term Bond Fund. Contact Compliance if you have any questions about whether a fund may qualify as an Excluded Fund. o "Family Holdings" and "Family/Household Member" - defined in Appendix A. o "Federal securities laws" means the Securities Act of 1933 (15 U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15 U.S.C. 78a -mm), the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), the Investment Company Act of 1940 (15 U.S.C 80a), the Investment Advisers Act of 1940 (15 U.S.C. 80b), Title V of the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 Stat. 1338 (1999), any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act (31 U.S.C. 5311 -5314; 5316 - 5332) as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of Treasury. o "Fund CCO" refers to the Chief Compliance Officer of the Columbia Acorn Trust and Wanger Advisors Trust. o "Information Wall" refers to the policies and procedures established by CWAM in the Policies and Procedures Concerning Information Wall found in the CWAM Statement of Operations and Supervisory Procedures Manual. o "Initial Public Offering (IPO)" generally refers to a company's first offer of shares to the public. Specifically, an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934. o "Investment Person" refers to an Access Person who has been designated, by Compliance, as such and may include the following CWAM Employees: o Portfolio Managers; and o Research Analysts - -------------------------------------------------------------------------------- 6 o "Open-end Mutual Fund" refers to a registered investment company whose shares (usually regarding separate "series" or portfolios of the fund) are continuously offered to and redeemed (or exchanged, for other shares) by investors directly (or through financial intermediaries) based on the "net asset value" of the fund. o "Private Placement" generally refers to an offering of securities that is not offered to the public. Specifically, an offering that is exempt from registration under the Securities Act of 1933 pursuant to Sections 4(2) or 4(6) of, or Regulation D under, the Securities Act of 1933. o "Purchase or sale of a security" includes, among other things, the writing of an option to purchase or sell a security. o "Supervised Person" means any partner, officer, director (or other person occupying a similar status or performing similar functions), or Employee of an investment adviser, or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and Control of the investment adviser. - -------------------------------------------------------------------------------- 7 Part I Statement of General Principles - ------------------------------- This Section Applies to All Employees The relationship with our Clients is fiduciary in nature. This means that you are required to put the interests of our Clients before your personal interests. This Code is based on the principle that all officers, directors and Employees of CWAM are required to conduct their personal securities transactions in a manner that does not interfere with the portfolio transactions of, or take unfair advantage of their relationship with CWAM. This fiduciary duty is owed by all persons covered by this Code to each and all of our advisory Clients. No Employee shall knowingly sell to or purchase from a Client any security or other property, except securities issued by that Client. It is imperative that all officers, directors and Employees avoid situations that might compromise or call into question their exercise of independent judgment in the interest of Client Accounts. Areas of concern relating to independent judgment include, among others, taking personal advantage of unusual or limited investment opportunities appropriate for Clients, and receipt of gifts from persons doing or seeking to do business with CWAM. All Employees must adhere to the specific requirements set forth in this Code, including the requirements related to personal securities trading. A. Compliance with the Spirit of the Code CWAM recognizes that sound, responsible personal securities trading by its personnel is an appropriate activity when it is not excessive in nature and done in a prudent manner. However, CWAM will not tolerate personal trading activity which is inconsistent with our duties to our Clients or which injures the reputation and professional standing of our organization. Therefore, technical compliance with the specific requirements of this Code will not insulate you from scrutiny should a review of your trades indicate breach of your duty of loyalty to the firm's Clients or otherwise pose a hazard to the firm's reputation and standing in the industry. The CWAM Code of Ethics Committee has the authority to grant when appropriate written waivers from the provisions of this Code for Employees. It is expected that this authority will be exercised only in rare instances. The CWAM Code of Ethics Committee may consult with the CMG Legal Department prior to granting any such waivers. SEC mandated provisions of the Code cannot and will not be waived at any time. B. Additional Codes of Ethics All Employees are also subject to CWAM's Compliance Program concerning Non-public Information and Proprietary Information, and CWAM's Policies and Procedures Concerning Information Wall. All Employees are subject to the Bank of America Corporation Code of Ethics and General Policy on Insider Trading. All Employees should read and be familiar with that Code which includes many further important conflict of interest policies applicable to all Bank of America associates, including policies on insider trading and receipt of gifts by Employees. It is available on the intranet links portion of Bank of America's intranet homepage. Separate Codes of Ethics will be applicable to the independent trustees of Columbia Acorn Trust and Wanger Advisors Trust. CMG maintains a separate Code of Ethics applicable to Employees of certain CMG Companies. Persons responsible for administering this Code should consult relevant provisions of the CMG and - -------------------------------------------------------------------------------- 8 Bank of America Codes, when considering the implementation and scope of this Code. However, to the extent that such other Codes' provisions are inconsistent with the CWAM Code, the provisions of the CWAM Code will govern the conduct of Access Persons. C. Nonpublic Information Supervised Persons are prohibited from any misuse (including inappropriate disclosure) of material nonpublic information, regarding portfolio holdings, transactions and/or recommendations of any CWAM Client Account. Incorporated in this Code are the provisions of the Funds' Portfolio Holdings Disclosure Policy in Appendix F. D. Reporting Violations of CWAM Code of Ethics Supervised Persons must report any conduct by another Supervised Person that one reasonably believes constitutes or may constitute a violation of the CWAM Code of Ethics. Supervised Persons must promptly report all relevant facts and other circumstances indicating a violation of the CWAM Code of Ethics to Ken Kalina, CWAM's Chief Compliance Officer, at (312) 634-9231 or to the CMG Ethics and Compliance Helpline at 1.888.411.1744 (toll free). If you wish to remain anonymous, use the name "Mr. Columbia" or "Mrs. Columbia" when calling collect. You will not be retaliated against for reporting information in good faith in accordance with this policy. E. Compliance With Federal Securities Laws Supervised Persons are required to comply with the Federal Securities Laws. - -------------------------------------------------------------------------------- 9 Part II Prohibited Transactions and Activities - -------------------------------------- This Section Applies to All Employees A. Prohibition of Fraudulent and Deceptive Acts The Investment Advisers Act of 1940 makes it unlawful for any investment adviser, directly or indirectly, to employ any device, scheme or artifice to defraud any Client or prospective Client, or to engage in any transaction or practice that operates as a fraud or deceit on such persons. The Investment Company Act of 1940 makes it unlawful for any director, trustee, officer or Employee of an investment adviser of an investment company (as well as certain other persons), in connection with the purchase or sale, directly or indirectly, by such person of a "security held or to be acquired" by the investment company (the "Fund"): 1. To employ any device, scheme or artifice to defraud the Fund; 2. To make to the Fund any untrue statement of a material fact or omit to state to the Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; 3. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Fund; or 4. To engage in any manipulative practice with respect to the Fund. Note: "security held or to be acquired" means (i) any Covered Security which, within the most recent 15 days: (A) is or has been held by the Fund; or (B) is being or has been considered by the Fund or its investment adviser for purchase by the Fund; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for a Covered Security within the scope of clause (i) above. All Employees are required to comply with these and all other applicable Federal Securities Laws. Requirements of these laws are embodied in the policies and procedures of the CMG Companies. B. Restrictions Applicable to All Employees with respect to Redemptions or Exchanges of Open-end Mutual Fund Investments 1. No Employee may engage in any purchase and sale or exchange in the same class of shares of an Open-end Mutual Fund that occurs within 60 days of one another. (This provision does not apply to any Excluded Fund.) 2. All redemptions or exchanges of shares of any Open-end mutual fund (except an Excluded Fund), in which an Employee has beneficial ownership must be approved using the pre-clearance procedures in Appendix B. Note: Purchases of Open-end Mutual Funds no longer require prior approval. Except in rare cases of hardship, no such redemption or exchange will be approved unless such investment has been held for at least 60 calendar days. Therefore, if an Employee purchases shares of an Open-end Mutual Fund, he or she will not be permitted to redeem or exchange out of any shares of that fund for at least 60 calendar days. Exceptions: (1) Transactions in shares of Excluded Funds, and (2) as provided immediately below for Bank of America's retirement plans, and (3) at Section F of Part II of this Code regarding other "Exempt Transactions" (as applicable). - -------------------------------------------------------------------------------- 10 3. Late Trading Prohibition: No CWAM Employee shall knowingly engage in any transaction in any Open-end Mutual Fund shares on a day where the order is placed after the time as of which the net asset value of the fund is last determined on that day. C. Restrictions Applicable to ALL Employees with Respect to Transactions in Bank of America's Retirement Plans ALL CWAM Employees must comply with the following restrictions for Bank of America's retirement plans, including the Bank of America 401(k) (including Fleet Savings Plus Plan), 401(k) Restoration, Pension and Pension Restoration Plans ("BAC Retirement Plans"): - A participant must wait 14 calendar days after requesting a balance reallocation in a Plan before requesting another balance reallocation in that Plan. A "balance reallocation" is any change to a participant's existing account balance among the Plan's investment choices, including if a participant increases or decreases their contribution percentage. For example, if a participant requests a balance reallocation in a particular Plan on January 1, the earliest that participant could request another balance reallocation in that same Plan would be January 15. - Transfers out of the investment choices into the Stable Capital Fund (Fleet Stable Asset Fund for Fleet Savings Plus Plan), however, will be allowed on a daily basis while a 14-day restriction is in effect. In the above example, the participant could transfer all or a portion of an account balance into the Stable Capital Fund (Fleet Stable Asset Fund for Fleet Savings Plus Plan) during the period between January 2 and January 14. However, the participant could not transfer balances out of the Stable Capital Fund until January 15 (once the 14-day restriction has elapsed). - An exception to the 14-day restriction will apply to participants in the 401(k) Plan eligible to make a company stock diversification transfer from the Bank of America Common Stock Match Fund. Fully vested participants can diversify their company stock matching accounts into any of the other 401(k) investment choices, regardless of their age. Participants who are eligible to diversify may transfer any of those balances to the 401(k) Plan's other investment choices without triggering a 14-day restriction, or while a 14-day restriction is in effect because of a prior balance reallocation. Once the match is diversified, the 14-day balance reallocation restriction will apply. - Any requested transaction may be changed or revoked on the same day prior to the close of the New York Stock Exchange, which is normally 4 p.m. ET. NOTE: Investment holdings and transactions in BAC Retirement Plans are exempt from the pre-clearance requirements in Part II and the reporting requirements of Part III of this Code. D. Trading Restrictions Applicable to All Access Persons 1. Prohibition on Trading Covered Securities Being Purchased, Sold or Considered for Purchase or Sale by any CWAM Client Account No Access Person shall purchase or sell, directly or indirectly, any Covered Security in which such person had, or by reason of such transaction acquires, any direct or indirect beneficial ownership when, at the time of such purchase or sale, the same class of security: o Is the subject of an open buy or sell order for a Client Account; or o Is being considered for purchase or sale by a Client Account - -------------------------------------------------------------------------------- 11 NOTE: o This restriction DOES NOT APPLY to securities of an issuer that has a market capitalization of $25 billion or more at the time of the transactions; however, an Access Person must pre-clear these trades as with any other personal trade. o No Access Person shall purchase or sell any security, other than a listed index option, listed index futures contract or ETF, in which such person has or would thereby acquire a beneficial interest which the Access Person knows or has reason to believe is being purchased or sold or considered for purchase or sale by a Client, until all Clients' transactions have been completed or consideration of such transactions has been abandoned. 2. Pre-Clearance of Transactions Access Persons must pre-clear all transactions in Covered Securities in which they have beneficial ownership using the pre-clearance procedures described in Appendix C. Access Persons may rely on the exemptions stated in Section F of Part II of this Code. ------------------------------------------------------------------------- NOTE: Pre-clearance requests must be submitted during NYSE hours. Pre-clearance approvals are valid until 4:00 pm ET of the next business day after approval. (Example: If a pre-clearance approval is granted on Tuesday, the approval is valid only until 4:00 pm ET Wednesday.) ------------------------------------------------------------------------- 3. Fourteen Calendar Day Blackout Period No Access Person shall purchase or sell any Covered Security (or its equivalent) within a period of 7 calendar-days before or after a purchase or sale of the same class of security by a Client Account. NOTE: The 14 calendar-day restriction DOES NOT APPLY: o To securities of an issuer that has a market capitalization of $25 billion or more at the time of the transactions; however, an Access Person must pre-clear these trades as with any other personal trade. Also, this exception does not relieve Access Persons of the duty to refrain from inappropriate trading of securities held or being considered for purchase or sale in Client Accounts with which they are regularly associated. 4. Initial Public Offerings (IPOs), Hedge Funds and Private Placements No Access Person shall acquire beneficial ownership of securities in an Initial Public Offering, hedge fund or Private Placement except with the prior written approval of the CWAM CCO. In approving such acquisition, the CCO must determine that the acquisition does not conflict with the Code or its underlying policies, or the interests of CWAM or its Clients. In deciding whether such approval should be granted, the CCO shall consider whether the investment opportunity should be reserved for Clients, and whether the opportunity has been offered to the Access Person because of the Access Person's relationship with Clients. The CCO may approve such acquisition where there are circumstances in which the opportunity to acquire the security has been made available to the Access Person for reasons other than the Access Person's relationship with CWAM or its Clients. Such circumstances might include, among other things, o An opportunity to acquire securities of an insurance company converting from a mutual ownership structure to a stockholder ownership structure, if the Access Person's ownership of an insurance policy issued by the IPO company or an affiliate of the IPO company conveys the investment opportunity; o An opportunity resulting from the Access Person's pre-existing ownership of an interest in the IPO company or status of an investor in the IPO company; - -------------------------------------------------------------------------------- 12 o An opportunity made available to the Access Person's spouse, in circumstances permitting the CCO reasonably to determine that the opportunity is being made available for reasons other than the Access Person's relationship with CWAM or its Clients (for example, because of the spouse's employment). 5. Short-Term Trading (60 Calendar-Days) Any profit realized by an Access Person from any purchase and sale, or any sale and purchase, of the same class of Covered Security (or its equivalent) within any period of 60 calendar-days or less is prohibited. NOTE: Regarding this restriction: a. The 60 calendar-day restriction period commences the day after the purchase or sale of any Covered Security (or its equivalent). b. The 60-day restriction applies on a "last in, first out basis." That's why the restriction refers to "the same class of Covered Security." In light of this feature, an Access Person (or Family/Household Member) may not buy and sell, or sell and buy, the same class of Covered Security within 60 days even though the specific shares or other securities involved may have been held longer than 60 days. c. Purchase and sale transactions in the same security within 60 days that result in a loss to the Access Person (or Family/Household Member) are not restricted. d. The 60-day restriction does not apply to the exercise of options to purchase shares of Bank of America stock and the immediate sale of the same or identical shares, including so-called "cashless exercise" transactions. e. Strategies involving options with expirations of less than 60 days may result in violations of the short-term trading ban. f. Exceptions to the short-term trading ban may be requested in writing, addressed to the CWAM Code of Ethics Committee, in advance of a trade and will generally be granted only in hardship cases where it is determined that no abuse is involved and the equities of the situation strongly support an exception to the ban. See examples of hardship circumstances in Appendix D. 6. Excessive trading for personal accounts is strongly discouraged Access Persons are strongly discouraged from engaging in excessive trading for their personal accounts. Although this Code does not define excessive trading, trading volumes may be monitored by CWAM Compliance. 7. Closed-end Funds advised by Bank of America No Access Person shall acquire beneficial ownership of securities of any Closed-end Fund advised by CMG or other Bank of America company except with the prior written approval of Compliance. E. Additional Trading Restrictions Applicable to Investment Persons The Funds and Client Accounts under management shall be given priority when investment opportunities arise. Portfolio Managers and Analysts may not execute transactions for their personal accounts without first determining whether the transaction is appropriate for a Fund or Client Account. Analysts at CWAM are assigned industry coverage areas. Portfolio Managers at CWAM are also assigned coverage areas, in addition to their overall responsibility for Funds and Client Accounts. All Portfolio Managers and Analysts must comply with the pre-clearance and reporting provisions of this Code, and are, in addition, subject to the following restrictions. A security is "followed by CWAM" for purposes of this Section if it has been entered into CWAM's Equity Research Data Base. - -------------------------------------------------------------------------------- 13 Portfolio Managers 1. Purchases a. Portfolio Managers may not purchase any security held by the Funds or Client Accounts advised by the Portfolio Manager. b. Portfolio Managers may not purchase securities followed by CWAM and within the coverage area of that Portfolio Manager. c. Portfolio Managers may not purchase any security that is within the investment parameters established by the Funds or Client Accounts advised by the Portfolio Manager UNLESS: o It is outside the Portfolio Manager's coverage area; o The Analyst responsible for that coverage area declines the investment opportunity on behalf of the Funds and Client Accounts advised by the Portfolio Manager; and o The Analyst's conclusion is provided in writing to Compliance in advance of the transaction. d. Because the Funds and Client Accounts managed by CWAM invest in small and mid-cap securities, Portfolio Managers may purchase any security of an issuer with a market capitalization of $25 billion or more at the time of the transaction. These transactions must still be pre-cleared as with any other personal trade. 2. Sales and Other Dispositions a. Absent a showing of hardship or other extraordinary circumstances, a Portfolio Manager may not sell a security that he or she owns that is later purchased by the Fund or Client Accounts advised by that Portfolio Manager, unless and until the Fund or Client Accounts completely dispose of that security. b. Notwithstanding the restrictions of paragraph 2a above, a Portfolio Manager may make an irrevocable gift of securities to a charitable organization, provided any such gift is first approved by Compliance. Analysts 1. Purchases a. Analysts may not purchase any security within their coverage areas that is owned by the Funds or Client Accounts. b. Analysts may not purchase any security within their coverage areas that is followed by CWAM. c. Analysts may not purchase any security within their coverage areas UNLESS: o The investment is inappropriate for Funds or Client Accounts because it is not within their investment parameters or is otherwise unsuitable; o The purchase is approved in advance and in writing by the CIO based on that person's independent decision to decline the investment opportunity on the basis that the security is inappropriate for Funds or Client Accounts, or is otherwise unsuitable; and o The Chief Investment Officer's conclusion is provided in writing to Compliance in advance of the transaction. d. Because the Funds and Client Accounts managed by CWAM invest in small and mid-cap securities, Analysts may purchase any security of an issuer with a market capitalization of $25 billion or more at the time of the transaction. These transactions must still be pre-cleared as with any other personal trade. - -------------------------------------------------------------------------------- 14 2. Sales and Other Dispositions a. Absent a showing of hardship or other extraordinary circumstances, an Analyst may not sell a security that he or she owns within their coverage area that is later purchased by the Fund or Client Accounts unless and until the Fund or Client Accounts completely dispose of that security. b. Notwithstanding the restrictions of paragraph 2a above, an Analyst may make an irrevocable gift of securities to a charitable organization, provided any such gift is first approved by Compliance. F. Exempt Transactions The following types of transactions are not subject to the trading restrictions of Sections B, D and E of Part II of this Code of Ethics. However, except as noted below, all such transactions must be reported pursuant to the Reporting provisions of Part III of this Code. 1. Transactions in securities issued or guaranteed by the US Government or its agencies or instrumentalities; securities issued by other sovereign governments; bankers' acceptances; US bank certificates of deposit; commercial paper; and purchases, redemptions and/or exchanges of Excluded Fund shares. (Transactions in all such securities are also exempt from the reporting requirements of Part III of the Code). 2. Transactions effected pursuant to an Automated Investment Plan not involving a BAC Retirement Plan. Note this does not include transactions that override or otherwise depart from the pre-determined schedule or allocation features of the investment plan. 3. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. 4. Transactions that are non-volitional on the part of either the Access Person or CWAM (e.g., stock splits, automatic conversions, mergers, dividend reinvestments). 5. Transactions effected in any account in which the Access Person may have a beneficial interest, but no direct or indirect influence or Control of investment or trading activity (such as a blind trust or third-party advised discretionary account). (Accounts managed by another Access Person would not meet this test.) Such accounts are also exempt from reporting requirements in Part III of this Code.) Transactions in Covered Securities in any such account are also exempt from the reporting requirements of Part III of the Code. 6. Securities issued by Bank of America and affiliates (Please note that these securities are subject to the requirements of Part II D. 5 (short-term trading) of this Code, and the standards of conduct and liability discussed in the Bank of America Corporation `s General Policy on Insider Trading). 7. Such other transactions as the CWAM Code of Ethics Committee shall approve in their sole discretion, provided that Compliance shall find that such transactions are consistent with the Statement of General Principles and applicable laws. The Code of Ethics Committee shall maintain a record of the approval and will communicate to the Access Person's manager(s). 8. Transactions in debt obligations of a state or local government entity (e.g. municipal bonds). 9. Transactions in Index Options. - -------------------------------------------------------------------------------- 15 G. Restriction on Service as Officer or Director by Access Persons Access Persons are prohibited from serving as an officer or director of any publicly traded company, other than Bank of America Corporation, absent prior authorization from CWAM Compliance based on a determination that the board service would not be inconsistent with the interests of any Client Account. H. Participation in Investment Clubs Access Persons (including with respect to assets that are beneficially owned by the Access Person) may participate in private investment clubs or other similar groups only upon advance written approval from CWAM Compliance, subject to such terms and conditions as CWAM Compliance may determine to impose. I. Additional Restrictions for Specific Sub-Groups Specific sub-groups in the organization may be subject to additional restrictions, as determined by Compliance, because of their specific investment activities or their structure in the company. Compliance shall keep separate applicable procedures and communicate accordingly to these groups. J. Gifts No Access Person may accept any gift or other thing of more than a $100 value from any person or entity that does business with or on behalf of CWAM, or seeks to do business with or on behalf of CWAM. Gifts in excess of this value must either be returned to the donor or paid for by the recipient. The Code does not prohibit the everyday courtesies of business life. Therefore, exempted from this prohibition against accepting gifts are an occasional meal, ticket to a theater, entertainment, or sporting event that is an incidental part of a meeting that has a clear business purpose and provided that they are not extravagant or excessive. Travel and lodging expenses should not be paid for by third parties. In addition, products given to CWAM analysts by a company for research purposes are also exempted from this prohibition as long as they are given for a legitimate business purpose. Access Persons are also prohibited from giving, offering or promising anything of value to an Employee of another financial institution in connection with any business of that financial institution if there is a corrupt intent. The same careful consideration and thought should be given for the appropriateness of gifts to customers and suppliers of CWAM as would apply to any gifts received by the Access Person. K. Penalties for Non-Compliance Upon discovering a violation of this Code, the CWAM Code of Ethics Committee, after consultation with the members of the Committee and Compliance Risk Management, may take any disciplinary action, as it deems appropriate, including, but not limited to, any or all of the following: o Formal written warning (with copies to supervisor and personnel file); o Cash fines; o Disgorgement of trading profits; o Ban on personal trading; o Suspension of employment; o Termination of employment See the Sanctions Schedule in Appendix E for details. - -------------------------------------------------------------------------------- 16 Part III Administration and Reporting Requirements - ----------------------------------------- This Section Applies to All Employees A. New CWAM Employees All new Employees will receive a copy of the CWAM Code of Ethics as well as an Initial Certification Form. By completion of this Form, new Employees MUST certify to Compliance that they have read and understand the Code and disclose their personal (and Family/Household Member) securities holdings (Form A). B. Annual Code Coverage Acknowledgement and Compliance Certification All Employees will annually furnish acknowledgement of coverage (including Family/Household Members ) under, and certification of compliance with, the CWAM Code of Ethics (Form C). C. Reporting Requirements for All Access Persons (including all Investment Persons) 1. Initial Certification to the Code and Disclosure of All Investment Accounts and Personal Holdings of Covered Securities and Open-end Mutual Fund Shares By no later than 10 calendar-days after you are notified that you are an Access Person, you must acknowledge that you have read and understand this Code, that you understand that it applies to you and to your Family/Household Members and that you understand that you are an Access Person (and, if applicable, an Investment Person) under the Code. You must also report to Compliance the following: o Investment accounts in which you or any Family/Household Member have direct or indirect ownership interest (including those of your family members or your household) which may hold either Covered Securities or shares of any Open-end Mutual Funds, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities/life, etc. o Holdings of any Covered Securities or Open-end Mutual Fund shares in any of the above mentioned accounts, including funds that are not in the Columbia Acorn, Wanger Advisors Trust, Columbia Funds or Nations Funds Families o Investment account information and holdings of Covered Securities information that is supplied to Compliance shall not be more than 45 days old. o The reporting of this information is done on Form A. 2. Quarterly Investment Account and Transaction Report By the 30th day following the end of the calendar quarter, ALL Access Persons are required to provide Compliance with a report of their new investment accounts and transactions in Covered Securities and Open-end Mutual Funds that are not reported via duplicate account statements that were sent to CWAM Compliance during the quarter, including Open-end Mutual Funds that are not in the Columbia Acorn, Wanger Advisors Trust, Columbia Funds or Nations Funds Families. These requirements include all investment accounts and Covered Securities and Open-end Mutual Fund shares of which you (or a Family/Household Member) are a beneficial owner, held either directly or through another investment vehicle or account, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities/life, etc. o For holdings in a mutual fund which issues statements on a less frequent basis, the most recent statement shall be supplied to Compliance o The reporting of this information is done on Form B. 3. Annual Holdings Report By the 30th day after the end of the calendar year, ALL Access Persons are required to provide Compliance with a detailed annual report of ALL of their holdings of any Covered - -------------------------------------------------------------------------------- 17 Securities and Open-end Mutual Funds, including Open-end Mutual Funds that are not in the Columbia Acorn, Wanger Advisors Trust, Columbia Funds or Nations Funds Families. These requirements include all investment accounts and Covered Securities and Open-end Mutual Fund shares of which you (or a Family/Household Member) are a beneficial owner, held either directly or through another investment vehicle or account, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities, etc. For holdings in a mutual fund that issues statements on a less frequent basis, the most recent statement shall be supplied to Compliance. 4. Duplicate Account Statements and Confirmations Each Access Person shall cause every broker-dealer or investment services provider with whom he or she (or a Family/Household Member) maintains an account to provide duplicate periodic statements and trade confirmations to Compliance for all accounts holding or transacting trades in Covered Securities, excluding Open-end Mutual Funds. For Open-end Mutual Funds, Access Persons are not required to have the mutual fund company send CWAM Compliance duplicate statements but must report transactions as noted in Part III C.2 of this Code. An Access Person will be deemed to have satisfied this requirement for the Access Person's transactions executed through CWAM's trading desk, for which the trading department provides to the CCO information about such Access Person's transactions. All duplicate statements and confirmations should be sent to the following address: Columbia Wanger Asset Management, L.P. Attention: Compliance 227 West Monroe Suite 3000 Chicago, IL 60606 D. Exceptions from the Above Reporting Requirements Section C of the above reporting requirements does not apply to transactions in: o BAC Retirement Plans as defined at Section II.C of this Code (See also the related Note at Section II.C.) o Any non-proprietary 401(k) plan in which you have a beneficial interest (such as that with a previous employer or of a family member) UNLESS the holdings are investments in a fund from either the Columbia Acorn Funds, Wanger Advisors Trust, Columbia Funds or Nations Funds Families of Funds. If the non-proprietary 401(k) plan holdings are in a fund from either the Columbia Acorn Funds, Wanger Advisors Trust, Columbia Funds or Nations Funds Families, the Employee must provide a request a periodic statement of all holdings and trading activity in the account. The existence of this exception must be certified by each Access Person annually on Form C. o Investment accounts in which you have a beneficial interest, but no investment discretion, influence or control. (See Appendix A.) The existence of this exception must be certified by each Access Person annually on Form C. o 529 Plans. The existence of this exception must be certified by each Access Person annually on Form C. E. Code Administration CWAM has charged Compliance with the responsibility of attending to the day-to-day administration of this Code. Compliance will provide CWAM Management and the Fund CCO with quarterly reports that will include all violations noted during the quarterly review process. The quarterly report will include Employee name, job title, manager name, description of the violation, and a record of any sanction to be imposed. Material violations will be communicated to the board of directors or trustees of any investment company managed by CWAM at least annually as - -------------------------------------------------------------------------------- 18 required by Rule 17j-1 under the Investment Company Act of 1940 and more frequently as requested by the board or the Fund CCO. F. Monitoring of Transactions CWAM's CCO, Compliance Officer and Assistant Compliance Officer shall monitor the trading patterns of Access Persons. The COO shall monitor the CCO's trading. All CWAM Employees or affiliated persons also are subject to CWAM's Policies and Procedures Concerning Information Wall, contained in CWAM's Supervisory Procedures Manual. G. Certification of Compliance and Receipt of Code o Provision of Code Copy. CWAM shall provide each Access Person with a copy of the Code and any amendments. o Acknowledgement of Receipt. Each Access Person shall provide CWAM with a written acknowledgement of such Access Person's receipt of the Code and any amendments. (See Form C). o Annual Affirmation by Access Persons. CWAM shall annually distribute a copy of the Code and request certification of receipt by all Access Persons. (See Form C) o Annual Certification by Access Persons. Each Access Person also shall certify annually that he or she has disclosed or reported all personal securities transactions required to be disclosed or reported under the Code. (See Form C) o Each Access Person who has not engaged in any personal securities transaction during the preceding year for which a report was required to be filed pursuant to the Code shall include a certification to that effect in his or her annual certification. (See Form C) H. Non-Public Information Compliance The acknowledgments and certifications described above include relevant provisions with respect to CWAM Employees' compliance with CWAM's Compliance Program Concerning Non-Public Information. I. Responsibility The CCO, or such personnel as designated by the CCO, shall be responsible for implementing the provisions of Section G above. J. Questions Any questions about the Code or about the applicability of the Code to a personal securities transaction should be directed to the CCO. If the CCO is not available, questions should be directed to the COO. The CMG Legal Department, or counsel for CWAM may be consulted by the CCO or COO. - -------------------------------------------------------------------------------- 19 K. Compliance With the Code Compliance with this Code is a condition of employment by CWAM. Taking into consideration all relevant circumstances, the Code of Ethics Committee (see Appendix E), and CWAM's President will determine what action is appropriate for any breach of the provisions of the Code. Possible actions include warnings, reprimands, fines, letters of sanction, suspension, termination of employment, or removal from office. See the Sanctions Schedule of Appendix E. L. Retention of Records The CCO or his designee shall maintain the records listed below for a period of not less than 5 years from the end of the fiscal year during which the last entry was made on such record at an easily accessible place the first two years in CWAM's office: o A copy of the Code adopted and implemented pursuant to the Rule as in effect, or at any time within the past five years was in effect. o A record of any violation of the Code and of any action taken as a result of the violation. o A record of all written acknowledgments as required by the Rule for each person who is currently, or within the past five years was an Access Person. o A record of the names of the persons who are currently, or within the past five years were, Access Persons. o A record of any decisions, and the reasons supporting the decision, to approve the acquisition of securities by Access Persons for the pre-approval of IPO's and Limited Offerings, for at least five years after the end of the fiscal year in which the approval is granted. M. Furnishing of the Code upon Request CWAM shall furnish a copy of the Code to any Client or potential Client upon request. - -------------------------------------------------------------------------------- 20 Appendix A Beneficial Ownership For purposes of the CWAM Code of Ethics, the term "beneficial ownership" shall be interpreted in accordance with the definition of "beneficial owner" set forth in Rule 16a-l(a)(2) under the Securities Exchange Act of 1934, as amended, which states that the term "beneficial owner" means "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in "a security." The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." The pecuniary interest standard looks beyond the record owner of securities. As a result, the definition of beneficial ownership is very broad and encompasses many situations that might not ordinarily be thought to confer a "pecuniary interest" in or "beneficial ownership" of securities. Securities Deemed to be "Beneficially Owned" Securities owned "beneficially" would include not only securities held by you for your own benefit, but also securities held (regardless of whether or how they are registered) by others for your benefit in an account over which you have influence or control, such as securities held for you by custodians, brokers, relatives, executors, administrators, or trustees. The term also includes securities held for your account by pledgees, securities owned by a partnership in which you are a general partner, and securities owned by any corporation that you control. Set forth below are some examples of how beneficial ownership may arise in different contexts. o Family Holdings. Securities held by members of your immediate family sharing the same household with you ("Family/Household Member") are presumed to be beneficially owned by you. Your "immediate family" includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, significant other, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (but does not include aunts and uncles, or nieces and nephews). The definition also includes adoptive relationships. You may also be deemed to be the beneficial owner of securities held by an immediate family member not living in your household if the family member is economically dependent upon you. o Partnership and Corporate Holdings. A general partner of a general or limited partnership will generally be deemed to beneficially own securities held by the partnership, as long as the partner has direct or indirect influence or control over the management and affairs of the partnership. A limited partner will generally not be deemed to beneficially own securities held by a limited partnership, provided he or she does not own a controlling voting interest in the partnership. If a corporation is your "alter ego" or "personal holding company", the corporation's holdings of securities are attributable to you. o Trusts. Securities held by a trust of which you are a beneficiary and over which you have any direct or indirect influence or control would be deemed to be beneficially owned by you. An example would be where you as settlor have the power to revoke the trust without the consent of another person, or have or share investment control over the trust. o Estates. Ordinarily, the term "beneficial ownership" would not include securities held by executors or administrators in estates in which you are a legatee or beneficiary unless there is a specific bequest to you of such securities, or you are the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such bequest. - -------------------------------------------------------------------------------- 21 Securities Deemed Not to be "Beneficially Owned" For purposes of the CWAM Code of Ethics, the term "beneficial ownership" excludes securities or securities accounts held by you for the benefit of someone else if you do not have a pecuniary interest in such securities or accounts. For example, securities held by a trust would not be considered beneficially owned by you if neither you nor an immediate family member is a beneficiary of the trust. This also includes charitable trusts, foundations and charitable endowment programs established by you or an immediate family member where the beneficiaries are exclusively charitable and the Access Person has no right to revoke the gift. Another example illustrating the absence of pecuniary interest, and therefore also of beneficial ownership, would be securities held by an immediate family member not living in the same household with you, and who is not economically dependent upon you. "Influence or Control" Transactions/Accounts over which neither you nor any other Access Person have "any direct or indirect influence or control" are not subject to the trading restrictions in Part II or reporting requirements in Part III of the Code. To have "influence or control", you must have an ability to prompt, induce or otherwise effect transactions in the account. Like beneficial ownership, the concept of influence or control encompasses a wide variety of factual situations. An example of where influence or control exists would be where you, as a beneficiary of a revocable trust, have significant ongoing business and social relationships with the trustee of the trust. Examples of where influence or control does not exist would be a true blind trust, or securities held by a limited partnership in which your only participation is as a non-controlling limited partner or a third party discretionary account. The determining factor in each case will be whether you (or any other Access Person) have any direct or indirect influence or control over the securities account. - -------------------------------------------------------------------------------- 22 Appendix B CWAM Pre-Clearance Procedures for Personal Transactions in Covered Securities and Open-end Mutual Funds Effective February 1, 2005 The following procedure should be used by CWAM Employees to pre-clear all personal transactions in Covered Securities (except exempt transactions covered in Part II F of this Code) and redemption or exchange transactions in Open-end Mutual Funds. Please refer to the CWAM Code of Ethics, effective January 1, 2005 for complete definitions of a Covered Security and an Open-end Mutual Fund and any exempt securities. Covered Securities (Other Than Open-end Mutual Funds) Step 1: Request authorization from CWAM Compliance to purchase or sell a Covered Security by sending an email to Linda Roth, Pat Cunningham, Ken Kalina or Bruce Lauer (in that order). Step 2: In the email request, indicate what security you are intending to purchase or sell, the ticker symbol of the security, the number of shares you are intending to trade, and for sales, confirmation that you have held the security for at least 60 days or if not are selling the security at a loss. As indicated in the CWAM Code of Ethics, any gain or loss is based upon a "Last-in" method, which means that the last shares you purchased are the shares considered to be sold for these purposes. Step 3: Await confirmation for pre-clearance from CWAM Compliance to place your personal trade order. Once pre-clearance is received from CWAM Compliance, your preclearance is good until 4 p.m. EST the same day. Step 4: Please retain a copy of the pre-clearance confirmation from CWAM Compliance for your records. Open-end Mutual Funds Step 1 If you wish to redeem or exchange out of an Open-end Mutual Fund that you own, you must receive authorization from CWAM Compliance. To do this, email your request to CWAM Compliance and have one of the following authorize the transaction: Pat Cunningham, Ken Kalina or Bruce Lauer, in that order. One of these individuals will approve or deny your request via email. Include in your request the name of the fund you are redeeming or exchanging out of, the approximate dollar amount or share amount of the transaction, and certification that you have held the fund for at least 60 days - See Step 2 below for more information. Step 2: Please note that the CWAM Code of Ethics requires that you cannot sell a fund within a 60 day period of purchasing it based on the "Last-in" method, which means that the last shares your purchased are the shares considered to be sold for these purposes. You will need to affirm this each time you request authorization from CWAM Compliance. Step 3: After receiving authorization from CWAM Compliance, you can complete the trade. If you have any questions regarding pre-clearance procedures for personal transactions, please contact either Ken Kalina at (312) 634-9231 or Pat Cunningham at (312) 634-9824. - -------------------------------------------------------------------------------- 23 Appendix C CWAM Pre-Clearance Process Procedures In determining whether to approve a personal securities transaction ("proposed trade") for an Access or Investment Person, the CCO or his designee shall undertake the following procedures. Access Persons Equity Research Data Base The proposed trade shall first be compared to the securities listed in the Equity Research Data Base ("ERDB"). The ERDB should show whether a security is currently held by a CWAM Client or is being followed by an Access Person. The Access Person should cause the ERDB to list a security: (a) when a recommendation to buy or sell such security has been made for any Client or is pending or (b) when the Access Person is monitoring such security. o If the proposed trade involves a security not listed on the ERDB, the proposed trade generally shall be approved. o If the proposed trade involves a security which is listed on the ERDB, the CCO or his designee shall proceed to the Trading System Open Order process. Trading System Open Orders The proposed trade shall next be checked against the open orders maintained by the McGregor Trading System. No proposed trade may be approved for execution on a day during which any Client has a pending order in the same security until that order is fully executed or withdrawn. o If the proposed trade involves a security which is the subject of an open order as reflected in the Trading System, the proposed trade may not be approved until seven calendar days after completion of the order, provided that the CCO or his designee has a reasonable basis for concluding that the trade is consistent with the Code, including those procedures mentioned in the Trading System History Records Section following. o If the proposed trade does not involve a security which is the subject of an open order, the CCO or his designee shall proceed to the Trading System History Records Section following. Trading System History Records The proposed trade shall next be compared to recent trades displayed by the McGregor Pre-Trade Clearance System. o If the proposed trade involves a security that has been purchased or sold for a Client within the previous seven calendar days, the proposed trade generally shall not be approved. The CCO or his designee only may approve such proposed trade if he has - -------------------------------------------------------------------------------- 24 a reasonable basis to conclude that the trade nevertheless would be consistent with the Code. The CCO or his designee shall, as necessary, consult with portfolio managers or the appropriate analysts to obtain information such as whether the security is under active consideration for purchase or sale in Client Accounts, in determining whether a proposed trade shall be approved, consistent with this Appendix C. Pre-clearance Period If the proposed trade is not entered by 4 p.m. EST on the next day after 1" the approval was given, the pre-clearance will expire and the request must be made again. o Monitoring The CCO or his designee shall periodically compare, not less than quarterly, personal securities transactions against recent trades as displayed on the McGregor Pre-Trade Clearance System. Such comparison shall include consideration of the requirements and prohibitions of this Code, including front-running and conflicts of interest. Market Capitalization Exemption If an Access Person requests to purchase or sell any Covered Security of an issuer that has a market capitalization of $25 billion or more at the time of the transaction, the Access Person must still pre-clear the trade; however the above pre-clearance procedures regarding Equity Research Data Base, Trading System Open Orders and Trading System History records are not necessary. Investment Persons o The above procedures relating to Equity Research Data Base, Trading System Open Orders, Trading System History Records and Pre-clearance Period also apply to Investment Persons. o See Additional Trading Restrictions Applicable to Investment Persons, Part II E of this Code. - -------------------------------------------------------------------------------- 25 Appendix D Hardship Exceptions to the Short-Term Profit Trading Ban Exceptions to the short-term trading ban on Covered Securities may be requested in advance to Compliance, and will generally only be granted in the case of economic hardship, where it is determined that no abuse is involved and the equities of the situation strongly support an exception to the ban. Circumstances that could provide the basis for an exception from short-term trading restriction might include, for example, among others: o An involuntary transaction that is the result of unforeseen corporate activity; o The disclosure of a previously nonpublic, material corporate, economic or political event or activity that could cause a reasonable person in like circumstances to sell a security even if originally purchased as a long-term investment; or o The Access Person's economic circumstances materially change in such a manner that enforcement of the short-term trading ban would result in the Access Person being subjected to an avoidable, inequitable economic hardship. - -------------------------------------------------------------------------------- 26 Appendix E Code of Ethics Committee Sanctions Schedule for Failure to Comply with the Code The Code of Ethics Committee will meet quarterly or as needed to review employee Code of Ethics violations identified by Compliance. The Committee shall in its sole discretion, conduct informational hearings, assess mitigating factors, and impose appropriate sanctions guided by those factors set forth in the schedule below. The Committee consists of the CCO, the COO and the CIO of CWAM. The Fund's CCO may also participate as a non-voting member. While the Committee will be the final arbiter as to appropriate sanctions, CWAM's President may determine what actions are appropriate with respect to an Access Person's employment, including termination of employment. The sanctions as specified in the schedule do not preclude the imposition of more severe penalties depending on the circumstances surrounding the offense.
- -------------------------------------------------------------------------------------------------------------------------------- Personal Trading Violation Sanctions Guidelines - ----------------------------------------------- --------------------------------------------------------------------------------- No Broker/Mutual Fund statements or confirms 1st offense: Written Warning on file or evidence that duplicate statements 2nd offense**: Written Reprimand and/or Monetary Penalty have been requested. 3rd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Trading without receiving 1st offense**: Written Warning pre-clearance(Covered Securities and Mutual 2nd offense: Written Reprimand and/or Monetary Penalty Funds)* 3rd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Trading after being denied approval* 1st offense**: Written Reprimand and/or Monetary Penalty 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Failure to file a required report (Initial, 1st offense: Written Warning Quarterly and Annual Reports) within the 2nd offense**: Written Reprimand and/or Monetary Penalty required time period 3rd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Purchasing an Initial Public Offering (IPO), 1st or more offenses**: Monetary Penalty, Freeze Trading accounts for 30-90 Hedge Fund or Private Placement without days and/or Suspension / Termination receiving pre-clearance* - ----------------------------------------------- --------------------------------------------------------------------------------- Trading which violates the same-day/open 1st offense**: Written Reprimand and/or Monetary Penalty order or recommendation restriction* 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Trading within the 14 calendar day blackout 1st offense**: Written Reprimand and/or Monetary Penalty period* 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Profiting from short-term trading* 1st offense**: Written Reprimand and/or Monetary Penalty 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Trading Mutual Funds in violation of the 60 1st offense**: Written Reprimand and/or Monetary Penalty day restriction* 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - -------------------------------------------------------------------------------------------------------------------------------- * Includes disgorgement of profit as applicable ** Requires review by the Ethics Committee
The following schedule details the monetary penalties that may be applied for each offense. o Access Persons $100-$500 o Investment Persons $500-$1,000 - -------------------------------------------------------------------------------- 27 Appendix F Columbia Management Group Portfolio Holdings Disclosure Policy Columbia Management Group (CMG) considers information regarding portfolio holdings of the open-end mutual funds it advises to be confidential and proprietary. Selective disclosure of such information can have severe, adverse ramifications for a fund's investors if the information is used to make investment decisions regarding the funds' shares, or is otherwise used in a way that would harm the fund. In order to prevent the inappropriate selective disclosure of portfolio information, CMG has adopted and implemented this portfolio holdings disclosure policy (the "Policy"). The Policy is also intended to be described by the Funds in response to Item 11(f) of Form N-1A. Each CMG associate is required to familiarize him or herself with the Policy. A. Policy Application The Policy applies to all Funds and CMG operating entities relating to: 1. The disclosure of portfolio holdings for the Columbia, Columbia Acorn, Wanger, Nations Funds and the CMG institutional funds (collectively, the Funds); and 2. The disclosure of the holdings of any advisory product that is substantially similar to / highly correlated with a Fund (e.g., an advisory strategy for a private fund or separately managed account with a portfolio of securities that substantially tracks a Fund) (each, a "Mirror Strategy"). B. Public Disclosure Policy 1. No disclosure of portfolio holdings information of a Fund or Mirror Strategy shall be made until the day next following the day on which holdings of the relevant Fund are disclosed publicly, except as expressly provided below. 2. No Fund service provider shall enter into any agreement to disclose Fund portfolio holdings information in exchange for compensation or any other form of consideration. 3. CMG shall publicly disclose Fund holdings in the following manner. a. Equity/Fixed Income Funds o For equity Funds, a complete list of Fund portfolio holdings shall be posted on the Fund's website on a monthly basis, 30 days after month-end. Three consecutive monthly disclosures shall remain posted for each Fund. o For fixed income Funds, a complete list of Fund portfolio holdings shall be posted on the Fund's website on a quarterly basis, 30 days after quarter-end, and shall remain posted until the date on which the Fund files its Form N-CSR or Form N-Q with the Commission for the period that includes the date as of which the website information is current. o Equity Fund portfolio holdings information posted on the website shall include the name of each portfolio security, number of shares held by Fund, value of the security and the security's percentage of the Fund's net asset value. o Fixed-income Fund portfolio holdings information posted on the website shall include the name of each portfolio security, maturity/rate, par, value and the security's percentage of the Fund's net asset value. - -------------------------------------------------------------------------------- 28 b. Money Market Funds o Complete list of Fund portfolio holdings shall be publicly available on the fifth day after month-end. o Holdings shall not be posted to the web sites. Holdings shall be made available upon a request to the Funds' designated service provider. o Notice of the availability of holdings shall be made in the applicable Funds' statement of additional information and on the CMG web sites. o In order to receive the holdings, any requesting party shall be required to make such request each time that the requester would like to receive the holdings (i.e., there can be no standing arrangement under which a recipient receives holdings whether or not a formal request was made). C. Criteria for Prior Disclosure 1. No disclosure of Fund portfolio holdings information prior to its public disclosure may be made unless: (i) the Fund has legitimate business purposes for doing so and (ii) the recipient has entered into a confidentiality agreement, which includes a duty not to trade on the nonpublic information. 2. In determining the existence of a legitimate business purpose, the following factors, and any additional relevant factors, shall be considered: a. that any prior disclosure must be consistent with the antifraud provisions of the federal securities laws and CMG's fiduciary duties; b. any conflicts of interest between the interests of Fund shareholders, on the one hand, and those of the Fund's investment adviser, principal underwriter; or any affiliated person of the Fund, its investment adviser, or its principal underwriter, on the other; and c. that prior disclosure to a third party, although subject to a confidentiality agreement, would not make lawful conduct that is otherwise unlawful. (The SEC has provided examples of instances in which selective disclosure of a fund's portfolio securities may be appropriate, subject to confidentiality agreements and trading restrictions, including disclosure for due diligence purposes to an investment adviser that is in merger or acquisition talks with the fund's current adviser, disclosure to a newly hired investment adviser or sub-adviser prior to commencing its duties, or disclosure to a rating agency for use in developing a rating.) 3. Any approved ongoing arrangement to make available information about a Fund's portfolio securities to any person prior to public disclosure must be disclosed in the applicable Fund's statement of additional information, including the identity of the persons who receive the information pursuant to such arrangement. D. Approved Prior Disclosure 1. In order to facilitate Fund operations, current portfolio information may be provided to the Funds' principal service providers that have entered into appropriate confidentiality agreements. 2. The Funds' advisers may make limited disclosures to broker/dealers who may execute transactions on behalf of the Funds; provided that precautions are taken to avoid any potential misuse of the disclosed information. Adopted September 28, 2004 by Columbia Acorn Trust and September 29, 2004 by Wanger Advisors Trust - -------------------------------------------------------------------------------- 29 FORM A INITIAL HOLDINGS REPORT For new Access Persons - ------------------------------------------------------------------------------- NOTE: You must complete and file this form with the Chief Compliance Officer of Columbia Wanger Asset Management no later than 10 days after you become an Access Person of Columbia Wanger Asset Management. Investment account and holdings of Covered Securities to be supplied to Compliance shall not be more than 45 days old. Terms in boldface type have the meanings defined in the Code of Ethics of Columbia Wanger Asset Management. - ------------------------------------------------------------------------------- Name of Access Person:_________________________________________________________ Initial Certification: I understand that for purposes of the Code I am classified as: |_| An Access Person |_| An Investment Person Initial Holdings Report (check ONE of the following two boxes): |_| Neither I, nor any member of my Family/Household, have Beneficial Ownership of any Covered Securities. |_| Attached, as APPENDIX A is a complete list of all Covered Securities in which I, and/or a member of my Family/Household, had Beneficial Ownership on the Reporting Date. Accounts with Brokers, Dealers and/or Banks (check ONE of the following two boxes): |_| Neither I, nor any member of my Family/Household, had, as of the Reporting Date, any accounts with brokers, dealers or banks in which any securities (including securities which are not Covered Securities) are held, and with respect to which I, or any member of my Family/Household, has Beneficial Ownership. |_| All accounts that I, and/or any member of my Family/Household, maintain with brokers, dealers or banks in which securities (including securities which are not Covered Securities) are held, and with respect to which I, and/or a member of my Family/Household, had Beneficial Ownership as of the Reporting Date are listed on the next page: - -------------------------------------------------------------------------------- 30 FORM A - -------------------------------------------------------------------------------- Institution:_____________________________________________________ Name on account:_________________________________________________ Address:_________________________________________________________ City, State, Zip Code:___________________________________________ Account number:__________________________________________________ Is this an Open-End Mutual Funds account only? o Yes |_| No |_| - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Institution:_____________________________________________________ Name on account:_________________________________________________ Address:_________________________________________________________ City, State, Zip Code:___________________________________________ Account number:__________________________________________________ Is this an Open-End Mutual Funds account only? o Yes |_| No |_| - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Institution:_____________________________________________________ Name on account:_________________________________________________ Address:_________________________________________________________ City, State, Zip Code:___________________________________________ Account number:__________________________________________________ Is this an Open-End Mutual Funds account only? o Yes |_| No |_| - -------------------------------------------------------------------------------- All information provided in this Form A is true and complete to the best of my knowledge. I have read the Code, and will keep a copy for future reference. I understand my responsibilities under the Code and agree to comply with all of its terms and conditions. In particular, I understand that the Code applies to me and to all investments in which I have Beneficial Ownership, as well as investments in which members of my Family/Household have Beneficial Ownership. Signature:_______________________________ Date:_____________________ - -------------------------------------------------------------------------------- 31 FORM A Initial Report of all Covered Securities Name of Access Person:______________________________________
- ---------------------------------------------- -------------------------------------------------------- Title/Description of Covered Securities Number of Shares (or Principal Amount, if not a stock)/ Ticker Symbol or Cusip (if applicable) - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- -------------------------------------------------------- - ---------------------------------------------- --------------------------------------------------------
NOTE: Please use additional sheets as needed. You may attach a copy of your last statement(s). - -------------------------------------------------------------------------------- 32 FORM B QUARTERLY PERSONAL SECURITIES TRANSACTIONS REPORT For Access and Investment Person - ------------------------------------------------------------------------------- NOTE: You must complete and file this form with the Chief Compliance Officer of Columbia Wanger Asset Management of which you are an Access Person, no later than 30 days after the end of March, June, September and December each year. Terms in boldface type have the meanings defined in the Code of Ethics of Columbia Wanger Asset Management. - ------------------------------------------------------------------------------- Name:__________________________________________________________________________ Status: |_| Access |_| Investment For the Quarter Ended:___________________ PLEASE RETURN TO THE COMPLIANCE DEPARTMENT (37TH FLOOR) YOU MUST REPORT all transactions in which you have any direct or indirect beneficial ownership. "Indirect Ownership" includes shares held in the name of (1) your spouse; (2) your minor children; (3) your adult children and relatives who live in your home; (4) any nominee or other person if you can reacquire title now or in the future. EXCLUDE from this report: US Government Securities, commercial paper, certificates of deposit, repurchase agreements, banker's acceptance, and any other money market instruments, municipal bonds, and index options. |_| I have no transactions to report for the Quarter: |_| The only transactions I need to report during the quarter were in my brokerage accounts or mutual funds account statements of which are sent to the CWAM Compliance Dept. and as such, I am not reporting these on this form. |_| I need to report the following transactions:
- ------------------ ---------------- ------------ --------------- --------------- ---------------- --------------- Trade Date Buy/Sell Qty Price Description Acct # Broker - ------------------ ---------------- ------------ --------------- --------------- ---------------- --------------- - ------------------ ---------------- ------------ --------------- --------------- ---------------- --------------- - ------------------ ---------------- ------------ --------------- --------------- ---------------- --------------- - ------------------ ---------------- ------------ --------------- --------------- ---------------- --------------- - ------------------ ---------------- ------------ --------------- --------------- ---------------- ---------------
Please attach copies of confirmations - ------------------------------------------------------------------------------- Did you open a New Brokerage Account during the quarter? No |_| Yes |_| (If yes please complete information below) Institution:_______________________________________________ Name on account:___________________________________________ Address:___________________________________________________ City, State, Zip Code:_____________________________________ Date the Account was opened:_______________________________ Account number:____________________________________________ - ------------------------------------------------------------------------------- Signature:_____________________________________ Date:________________________ - -------------------------------------------------------------------------------- 33 FORM C ANNUAL CODE OF ETHICS CERTIFICATION ANNUAL POLICY CONCERNING MATERIAL NON-PUBLIC INFORMATION ANNUAL HOLDINGS REPORT 1. Annual Certification of the Code of Ethics (Please Initial both affirmations) A. I have read the Code, and will keep a copy for future reference. I understand my responsibilities under the Code and agree to comply with all of its terms and conditions. In particular, I understand that the Code applies to me and to all investments in which I have Beneficial Ownership, as well as investments in which members of my Family/Household have Beneficial Ownership. ---------------------- Initials: ---------------------- B. I hereby certify that during the year covered by this report December 31, _____, I complied with all applicable requirements of the Code, and have reported to the relevant Compliance Officer all transactions required to be reported under the Code. ---------------------- Initials: ---------------------- 2. Annual Certification of Policy & Procedures Concerning Material Non-Public Information I have read the CWAM Policy & Procedures Concerning Material Non-Public Information and will keep a copy for future reference. I understand my responsibilities under this policy and acknowledge compliance with the policy. ---------------------- Initials: ---------------------- 3. ACCOUNTS with Brokers, Dealers and/or Banks in which ANY securities (including securities which are not Covered Securities, example: Mutual Funds held within these accounts) were held as of December 31, ______ and with respect to which you, or a member of your Family/Household, had Beneficial Ownership: |_| I HAVE NO ACCOUNTS |_| I HAVE ACCOUNTS (Please List on separate attachment) - -------------------------------------------------------------------------------- 34 FORM C 4. Annual HOLDINGS Report Please report all Covered Securities in which you, and/or any member of your Family/Household, had Beneficial Ownership as of December 31, _____. |_| I HAVE NO HOLDINGS TO REPORT |_| I HAVE ACCOUNTS (Please List on separate attachment) Note: Terms in boldface type are defined in the full text of the Code of Ethics. All information provided in this Form C is true and complete to the best of my knowledge. - ------------------------------------------------------------------------------- Name of Access Person: ___________________________ Initials: ___________________________ Date: ___________________________ - ------------------------------------------------------------------------------- 5. Other Exceptions Section D of Part III of the Code exempts certain accounts or plans from the reporting requirements of the Code. Below is a listing of all these types of accounts that have been exempted by this section of the Code. These accounts include: a) Non-proprietary 401(k) plans in which I have a beneficial interest (exclusive of the Columbia Acorn Funds, Wanger Advisors Trust, Columbia Funds or Nation Funds), b) Investment accounts in which I have a beneficial interest, but no investment discretion, influence or control, and c) 529 Plans I participate in - -------------------------------------------------------------------------------- 35
FORM D COLUMBIA WANGER ASSET MANAGEMENT MULTI-APPROVAL FORM ATTENTION: To ensure efficient processing, submit the completed form via email to: Ken Kalina or Bruce Lauer. - ------------------------------------------------------------------------------------------------------------------------------------ SECTION I: REQUIRED - Complete or check ALL of these required fields. - ------------------------------------------------------------------------------------------------------------------------------------ Name Date - ---------------------------------------------- ------- --------------------------- ---------------------------- -------------------- - ------------------------------------------------------------------------------------------------------------------------------------ SECTION II: IPO: Hedge Fund or Private Placement Transaction Request for Apporoval - ------------------------------------------------------------------------------------------------------------------------------------ Security name / description: Broker-Dealer handling the transaction: - ------------------------------------------------------------------------------------------------------------------------------------ Your relationship to the offering: Is the security eligible for accounts in which you are associated? If not, where will the security be held? - ------------------------------------------------------------------------------------------------------------------------------------ How did you hear about it? Other relevant information & attach documentation: - ------------------------------------------------------------------------------------------------------------------------------------ What is the principal amount of your requested transaction? - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ SECTION III: Bank of America Affiliate Advised Closed-end Fund Transaction Request for Approval - ------------------------------------------------------------------------------------------------------------------------------------ Security name / description: Broker-Dealer handling the transaction: - ------------------------------------------------------------------------------------------------------------------------------------ What is your relationship to the offering? Is the security eligible for accounts in which you are associated? If not, where will the security be held? - ------------------------------------------------------------------------------------------------------------------------------------ What is the principal amount of your requested transaction? Other relevant information & attach documentation: - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ SECTION IV: Investment Club Request for Approval - ------------------------------------------------------------------------------------------------------------------------------------ Are you an Investment Person? YES or NO What is the structure of the Club? List Department: - ------------------------------------------------------------------------------------------------------------------------------------ Explain how research is performed & decisions made: Explain how trades are made: - ------------------------------------------------------------------------------------------------------------------------------------ What is your role in the Club? Other relevant information & attach documentation: - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ SECTION V: Officer/director of Public Company Requests for Approval - ------------------------------------------------------------------------------------------------------------------------------------ Are you an Investment Person? YES or NO Position being requested: Firm Name: - ------------------------------------------------------------------------------------------------------------------------------------ Expected time period for position being held: Explain how the position would not be a conflict and other relevant information & attach documentation: - ------------------------------------------------------------------------------------------------------------------------------------ Compliance Decision - ------------------------------------------------------------------------------------------------------------------------------------ Permission to Grant Approval to the Code Requirement: __________ YES __________ NO Effective date: _____________________________ CMG Compliance Risk Management By: _______________________________________ - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== For Compliance Purposes Only: Date Compliance Received: ______________________ Compliance Officer Handling: _______________________ Date Compliance Responded: ______________________ Date Associate Notified: ______________________ Method of Reporting to Associate: _______________________ ==================================================================================================================================== Multi-Apprival Form 1.1.05 - ------------------------------------------------------------------------------------------------------------------------------------ 36
EX-99.P.3 11 file011.txt CODE OF ETHICS Columbia Management Group Code of Ethics Effective January 1, 2005 - -------------------------------------------------------------------------------- Columbia Management Group Affiliates: CMG Investment Advisor - ---------------------- Columbia Management Advisors, Inc. ("CMA") Colonial Advisory Services, Inc. ("CASI") Banc of America Capital Management, LLC Investment Services Group Advisors - ---------------------------------- Liberty Asset Management Company ("LAMCO") BACAP Advisory Partners, LLC Bank of America Capital Advisors, LLC ("BACA") CMG Distributors - ---------------- Columbia Financial Center Incorporated Columbia Funds Distributor, Inc. Columbia Funds Services, Inc. BACAP Distributors, LLC - -------------------------------------------------------------------------------- Table of Contents Overview and Definitions Page Overview 1 Things You Need to Know to Use This Code 2 Definitions 3-4 Part I Statement of General Principles (Applies to All Employees) A. Compliance with the Spirit of the Code 5 B. Compliance with the Bank of America Corporation Code of Ethics and General Policy on Insider Trading 5 C. Approved Broker-Dealer Requirement for Employee Investment Accounts 5 D. Nonpublic Information 6 E. Reporting Violations of CMG Code of Ethics 6 Part II Prohibited Transactions and Activities (Applies to All Employees) A. Prohibition on Fraudulent and Deceptive Acts 7 B. Restrictions Applicable to All Employees with respect to Redemptions or Exchanges of Open-end Mutual Fund Investments 7 C. Restrictions Applicable to All Employees with Respect to Transactions in Bank of America's Retirement Plans 8 D. Trading Restrictions Applicable to All Access Persons 8 1. Prohibition on Trading Securities Being Purchased, Sold or Considered for Purchase or Sale by a Client Account 8-9 2. Pre-clearance of Transactions 9 3. Equity Restricted List 9 4. Initial Public Offerings, Hedge Funds and Private Placements 9 5. Short-Term Trading (60 Calendar Days) 9 6. Prohibition on Excessive Trading 10 7. Closed-end Funds Advised by Bank of America 10 E. Additional Trading Restrictions Applicable to Investment Persons 10 o Fourteen Calendar-Day Blackout Period 10 F. Exempt Transactions 10 G. Restriction on Service as Officer or Director 11 H. Participation in Investment Clubs 11 I. Additional Restrictions for Specific Sub-Groups 11 J. Penalties for Non-Compliance 11 Part III Administration and Reporting Requirements (Applies to All Employees) A. New CMG Employees 13 B. Annual Code Coverage Acknowledgement and Compliance Certification 13 C. Reporting Requirements for All Non-Access Persons (Investments in Open-end Mutual Funds) 13 1. Initial Certification to the Code and Disclosure of All Investment Accounts and Personal Holdings of Open-end Mutual Funds 13 2. Quarterly Investment Account and Open-end Mutual Fund Transaction Report 13 3. Annual Open-end Mutual Fund Holdings Report 13 4. Duplicate Account Statements and Confirmations 13 D. Reporting Requirements for All Access Persons 14 1. Initial Certification to the Code and Disclosure of All Investment Accounts and Personal Holdings of Covered Securities and Mutual Fund Shares 14 2. Quarterly Investment Account and Transaction Report 14 3. Annual Holdings Report 14 4. Duplicate Account Statements and Confirmations 15 E. Exemptions from the Above Reporting Requirements 15 F. Code Administration 15 Appendices: Appendix A Beneficial Ownership 16-17 Appendix B Exceptions to the Short-term Trading Ban 18 Appendix C Sanction Schedule 19 - -------------------------------------------------------------------------------- Columbia Management Group and Affiliates CODE OF ETHICS Effective January 1, 2005 Overview - -------- This is the Code of Ethics for: o All of the direct or indirect affiliates of Columbia Management Group (CMG) listed at the front of this Code. These include those that act as adviser, sub-adviser, principal underwriter, or provide other services to the Columbia and/or Nations Families of Funds. In this Code: o Covered affiliates of CMG, as a group, are called the "CMG Companies" The Code covers the following activities: o it prohibits certain activities by Employees that involve the potential for conflicts of interest (Part I); o it prohibits certain kinds of personal securities trading by Access Persons (Part II); and o it requires all Employees to report their Open-end mutual fund holdings and transactions, and requires Access Persons to report ALL of their securities holdings and transactions, so they can be reviewed for conflicts with the investment activities of CMG Client Accounts (Part III) and compliance with this Code. - -------------------------------------------------------------------------------- 1 Things You Need to Know to Use This Code - ---------------------------------------- This Code is divided as follows: o Overview and Definitions o Part I Statement of General Principles: Applies to All Employees (Access and Non-Access) o Part II Prohibited Transactions and Activities: Applies to Access Persons (and to all Employees with respect to Open-End Mutual Funds) o Part III Administration and Reporting Requirements: Applies to Access Persons (and to all Employees with respect to Open-end Mutual Funds) o Appendices: Appendix A Beneficial Ownership Appendix B Hardship Exceptions to the Short-Term Trading Ban Appendix C Sanctions Schedule To understand what other parts of this Code apply to you, you need to know whether you fall into one or more of these categories: o Access Person o Investment Person o Non-Access Person If you don't know which category you belong to, contact Compliance Risk Management at (704) 388-3300. - -------------------------------------------------------------------------------- 2 Definitions - ----------- Terms in boldface type have special meanings as used in this Code. To understand the Code, you need to read the definitions of these terms below. These terms have special meanings in the Code of Ethics: o "Access Person" means (i) any Employee: (A) Who has access to nonpublic information regarding any purchase or sale of securities in a Client Account, or nonpublic information regarding the portfolio holdings of any Client Account, or (B) Who is involved in making securities recommendations to a Client Account, or who has access to such recommendations that are nonpublic, (ii) any director or officer of a CMG Company, and (iii) any other Employee designated as an Access Person by Compliance Risk Management. Compliance Risk Management shall maintain a list of Employees deemed to be Access Persons and will notify each Employee of their designation under this Code. o "Automatic investment plan" means a plan or other program in which regular periodic purchases or withdrawals are made automatically in or from investment accounts in accordance with a pre-determined schedule and allocation. These may include payroll deduction plans, issuer dividend reinvestment programs ("DRIPs") or 401(k) automatic investment plans. o A security is "being considered for purchase or sale" when a recommendation to purchase or sell a security has been made and communicated or, with respect to the person making the recommendation, when such person decides to make the recommendation. o "Beneficial ownership" means "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in" a security. The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." Beneficial ownership includes accounts of a spouse, minor children and relatives resident in the home of the Access Person, as well as accounts of another person if the Access Person obtains therefrom benefits substantially equivalent to those of ownership. For additional information, see Appendix A. o "Client" or "Client Account" refers to any investment account - including, without limitation, any registered or unregistered investment company or fund - for which any CMG Company has been retained to act as investment adviser or sub-adviser. o "Closed-end Fund" refers to a registered investment company whose shares are publicly traded in a secondary market rather than directly, with the fund. o "CMG" refers to Columbia Management Group. Its direct and indirect affiliates that have adopted this Code are referred to as the "CMG Companies". o "Control" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act of 1940. o "Covered Security" means anything that is considered a "security" under the Investment Company Act of 1940, but does not include: 1. Direct obligations of the U.S. Government. 2. Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. 3. Shares of Open-end mutual funds. 4. Futures. - -------------------------------------------------------------------------------- 3 Covered Securities therefore include stocks, bonds, debentures, convertible and/or exchangeable securities, notes, options on securities, warrants, rights, and shares of exchange traded funds (ETFs), among other instruments. If you have any question or doubt about whether an investment is a considered a security or a Covered Security under this Code, ask Compliance Risk Management. o "Employee" means any employee of Bank of America who receives official notice of coverage under this Code of Ethics from Compliance Risk Management. o "Excluded Fund" is an open-end mutual fund that is designed to permit short term trading. Examples include mutual funds that expressly authorize or don't restrict short-term trading including money market funds and certain short-term fixed income funds such as the Nations Short-Term Income Fund, Nations Short-Term Municipal Fund and Columbia Short Term Bond Fund. Contact Compliance Risk Management if you have any questions about whether a fund may qualify as an Excluded Fund. o "Family Holdings" and "Family/Household Member" - defined in Appendix A. o "Federal securities laws" means the Securities Act of 1933 (15 U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15 U.S.C. 78a -mm), the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), the Investment Company Act of 1940 (15 U.S.C 80a), the Investment Advisers Act of 1940 (15 U.S.C. 80b), Title V of the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 Stat. 1338 (1999), any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act (31 U.S.C. 5311 -5314; 5316 - 5332) as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of Treasury. o "Initial Public Offering" generally refers to a company's first offer of shares to the public. Specifically, an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934. o "Investment Person" refers to an Access Person who has been designated, by Compliance Risk Management, as such and may include the following CMG Employees: o Portfolio Managers; o Traders; o Research Analysts; and o Certain operations and fund administration personnel o "Non-Access Person" refers to an Employee who may not have direct or indirect access to trading or portfolio holdings information of Client Accounts, but is still required to abide by certain requirements in the Code of Ethics. o "Open-end Mutual Fund" refers to a registered investment company whose shares (usually regarding separate "series" or portfolios of the fund) are continuously offered to and redeemed (or exchanged, for other shares) by investors directly with the fund at "net asset value" prices established daily by the fund. o "Private Placement" generally refers to an offering of securities that is not offered to the public. Specifically, an offering that is exempt from registration under the Securities Act of 1933 pursuant to Sections 4(2) or 4(6) of, or Regulation D under, the Securities Act of 1933. o "Purchase or sale of a security" includes, among other things, the writing of an option to purchase or sell a security. - -------------------------------------------------------------------------------- 4 Part I Statement of General Principles - ------------------------------- This Section Applies to All Employees The relationship with our clients is fiduciary in nature. This means that you are required to put the interests of our clients before your personal interests. This Code is based on the principle that all officers, directors and Employees of each CMG Company are required to conduct their personal securities transactions in a manner that does not interfere with the portfolio transactions of, or take unfair advantage of their relationship with, a CMG Company. This fiduciary duty is owed by all persons covered by this Code to each and all of our advisory Clients. It is imperative that all officers, directors and employees avoid situations that might compromise or call into question their exercise of independent judgment in the interest of Client Accounts. Areas of concern relating to independent judgment include, among others, unusual or limited investment opportunities, perks, and receipt of gifts from persons doing or seeking to do business with a CMG Company. All employees must adhere to the specific requirements set forth in this Code, including the requirements related to personal securities trading. A. Compliance with the Spirit of the Code CMG recognizes that sound, responsible personal securities trading by its personnel is an appropriate activity when it is not excessive in nature and done in a prudent manner. However, CMG will not tolerate personal trading activity which is inconsistent with our duties to our clients or which injures the reputation and professional standing of our organization. Therefore, technical compliance with the specific requirements of this Code will not insulate you from scrutiny should a review of your trades indicate breach of your duty of loyalty to the firm's clients or otherwise pose a hazard to the firm's reputation and standing in the industry. Compliance Risk Management has the authority to grant written waivers of the provisions of this Code for Employees. It is expected that this authority will be exercised only in rare instances. Compliance Risk Management may consult with the Legal Department prior to granting any such waivers. SEC mandated provisions of the Code cannot and will not be waived at any time. B. Compliance with the Bank of America Corporation Code of Ethics and General Policy on Insider Trading All Employees are subject to the Bank of America Corporation Code of Ethics and General Policy on Insider Trading. All Employees should read and be familiar with that Code which includes many further important conflict of interest policies applicable to all Bank of America associates, including policies on insider trading and receipt of gifts by employees. It is available on the intranet links portion of Bank of America's intranet homepage. C. Approved Broker-Dealer Requirement for Employee Investment Accounts Employees are permitted to maintain securities accounts only with broker-dealers or other entities which shall be identified, from time to time, by CMG Management. Employees are not required to hold all mutual funds in an account at a designated broker-dealer. Accounts managed by 3rd parties or which are restricted to holding only mutual funds are not subject to this policy. - -------------------------------------------------------------------------------- 5 Note: Exceptions to this policy may be granted by Compliance Risk Management. It is expected this authority will be exercised only in rare instances. D. Nonpublic Information Employees are prohibited from any misuse (including inappropriate disclosure) of material nonpublic information, regarding portfolio holdings, transactions and/or recommendations of any CMG Client Account. E. Reporting Violations of CMG Code of Ethics Employees must report any conduct by another employee that one reasonably believes constitutes or may constitute a violation of the CMG Code of Ethics. Employees must promptly report all relevant facts and other circumstances indicating a violation of the CMG Code of Ethics to either Mary Mullin, CMG's Chief Compliance Officer, at 1.646.313.8652 or to the Ethics and Compliance Helpline at 1.888.411.1744 (toll free). If you wish to remain anonymous, use the name "Mr. Columbia" or "Mrs. Columbia" when calling collect. You will not be retaliated against for reporting information in good faith in accordance with this policy. - -------------------------------------------------------------------------------- 6 Part II Prohibited Transactions and Activities - -------------------------------------- This Section Applies to All Employees A. Prohibition of Fraudulent and Deceptive Acts The Investment Advisers Act of 1940 makes it unlawful for any investment adviser, directly or indirectly, to employ any device, scheme or artifice to defraud any client or prospective client, or to engage in any transaction or practice that operates as a fraud or deceit on such persons. The Investment Company Act of 1940 makes it unlawful for any director, trustee, officer or employee of an investment adviser of an investment company (as well as certain other persons), in connection with the purchase or sale, directly or indirectly, by such person of a "security held or to be acquired" by the investment company (the "Fund"): 1. To employ any device, scheme or artifice to defraud the Fund; 2. To make to the Fund any untrue statement of a material fact or omit to state to the Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; 3. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Fund; or 4. To engage in any manipulative practice with respect to the Fund. Note: "security held or to be acquired" means (i) any Covered Security which, within the most recent 15 days: (A) is or has been held by the Fund; or (B) is being or has been considered by the Fund or its investment adviser for purchase by the Fund; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for a Covered Security within the scope of clause (i) above. All Employees are required to comply with these and all other applicable federal securities laws. Requirements of these laws are embodied in the policies and procedures of the CMG Companies. B. Restrictions Applicable to All Employees with respect to Redemptions or Exchanges of Open-end Mutual Fund Investments 1. No Employee may engage in any purchase and sale or exchange in the same class of shares of an Open-end Mutual Fund or a similar investment that occurs within 60 days of one another. (This provision does not apply to any Excluded Fund.) 2. All redemptions or exchanges of shares of any Open-end mutual fund (except an Excluded Fund), must be approved using the appropriate pre-clearance procedures. Legacy BACAP employees must use StarCompliance system at http://boa.starcompliance.com Legacy CMG employees must follow procedures described at CMG's intranet homepage. Except in rare cases of hardship, no such redemption or exchange will be approved unless such investment has been held for at least 60 calendar days. Therefore, if an Employee purchases shares of an Open-end Mutual Fund, he or she will not be permitted to redeem or exchange out of any shares of that fund for at least 60 calendar days. - -------------------------------------------------------------------------------- 7 Exceptions: (1) Transactions in shares of Excluded Funds, and (2) as provided immediately below for Bank of America's retirement plans, and (3) at Section F of Part II of this Code regarding other "Exempt Transactions" (as applicable). 3. Late Trading Prohibition: No CMG Employee shall knowingly engage in any transaction in any mutual fund shares where the order is placed after the fund is closed for the day and the transaction is priced using the closing price for that day. C. Restrictions Applicable to ALL Employees with Respect to Transactions in Bank of America's Retirement Plans ALL CMG Employees must comply with the following restrictions for Bank of America's retirement plans, including the Bank of America 401(k) (including Fleet Savings Plus Plan), 401(k) Restoration, Pension and Pension Restoration Plans ("BAC Retirement Plans"): - A participant must wait 14 calendar days after requesting a balance reallocation in a Plan before requesting another balance reallocation in that Plan. A "balance reallocation" is any change to a participant's existing account balance among the Plan's investment choices. For example, if a participant requests a balance reallocation in a particular Plan on January 1, the earliest that participant could request another balance reallocation in that same Plan would be January 15. - Transfers out of the investment choices into the Stable Capital Fund (Fleet Stable Asset Fund for Fleet Savings Plus Plan), however, will be allowed on a daily basis while a 14-day restriction is in effect. In the above example, the participant could transfer all or a portion of an account balance into the Stable Capital Fund (Fleet Stable Asset Fund for Fleet Savings Plus Plan) during the period between January 2 and January 14. However, the participant could not transfer balances out of the Stable Capital Fund until January 15 (once the 14-day restriction has elapsed). - An exception to the 14-day restriction will apply to participants in the 401(k) Plan eligible to make a company stock diversification transfer from the Bank of America Common Stock Match Fund. Fully vested participants can diversify their company stock matching accounts into any of the other 401(k) investment choices, regardless of their age. Participants who are eligible to diversify may transfer any of those balances to the 401(k) Plan's other investment choices without triggering a 14-day restriction, or while a 14-day restriction is in effect because of a prior balance reallocation. Once the match is diversified, the 14-day balance reallocation restriction will apply. - Any requested transaction may be changed or revoked on the same day prior to the close of the New York Stock Exchange, which is normally 4 p.m. ET. NOTE: Investment holdings and transactions in BAC Retirement Plans are exempt from the pre-clearance requirements in Part II and the reporting requirements of Part III of this Code. Note, however, that Compliance Risk Management will regularly review reports of employee trading activity within the BAC Retirement Plans - and especially transactions that override or otherwise depart from the pre-determined schedule or allocation on any Automated Investment Plan - for compliance with the above stated restrictions. D. Trading Restrictions Applicable to All Access Persons 1. Prohibition on Trading Covered Securities Being Purchased, Sold or Considered for Purchase or Sale by any CMG Client Account - -------------------------------------------------------------------------------- 8 No Access Person shall purchase or sell, directly or indirectly, any Covered Security in which such person had, or by reason of such transaction acquires, any direct or indirect beneficial ownership when, at the time of such purchase or sale, the same class of security: o is the subject of an open buy or sell order for a Client Account; or o is being considered for purchase or sale by a Client Account NOTE: This restriction DOES NOT APPLY: o to securities of an issuer that has a market capitalization of $10 billion or more at the time of the transactions; however, an Access Person must pre-clear these trades as with any other personal trade. o when the personal trade matches with a CMG Client Account which principally follows a passive investment strategy of attempting to replicate the performance of an index. 2. Pre-Clearance of Transactions Access Persons must pre-clear all transactions in Covered Securities in which they have beneficial ownership using the appropriate pre-clearance procedures. Legacy BACAP employees must use StarCompliance system at http://boa.starcompliance.com Legacy CMG employees must follow procedures described at CMG's intranet homepage. Employees may rely on the exemptions stated in Section F of Part II of this Code. ------------------------------------------------------------------- NOTE: Pre-clearance requests must be submitted during NYSE hours. Pre-clearance approvals are valid until 4:00 pm ET of the same business day as approval. (Example: If a pre-clearance approval is granted on Tuesday, the approval is valid only until 4:00 pm ET Tuesday.) ------------------------------------------------------------------- 3. Equity Restricted List When an equity analyst of CMG initiates coverage or changes a rating on a Covered Security, the security is put on a restricted list until close of the next trading day. No Access Person shall be granted pre-clearance for trades in a security while included on the list. 4. Initial Public Offerings (IPOs), Hedge Funds and Private Placements No Access Person shall acquire beneficial ownership of securities in an Initial Public Offering, Hedge Fund or Private Placement except with the prior written approval of Compliance Risk Management. 5. Short-Term Trading (60 Calendar Days) Any profit realized by an Access Person from any purchase and sale, or any sale and purchase, of the same class of Covered Security (or its equivalent) within any period of 60 calendar days or less is prohibited. Note, regarding this restriction, that: a. The 60 calendar day restriction period commences the day after the purchase or sale of any Covered Security (or its equivalent). b. The 60-day restriction applies on a "last in, first out basis." That's why the restriction refers to "the same class of Covered Security." In light of this feature, an Access Person (or Family/Household Member) may not buy and sell, or sell and buy, the same class of Covered Security within 60 days even though the specific shares or other securities involved may have been held longer than 60 days. c. Purchase and sale transactions in the same security within 60 days that result in a loss to the Access Person (or Family/Household Member) are not restricted. - -------------------------------------------------------------------------------- 9 d. The 60-day restriction does not apply to the exercise of options to purchase shares of Bank of America stock and the immediate sale of the same or identical shares, including so-called "cashless exercise" transactions. e. Strategies involving options with expirations of less than 60 days may result in violations of the short-term trading ban. f. Exceptions to the short-term trading ban may be requested in writing, addressed to Compliance Risk Management, in advance of a trade and will generally be granted only in hardship cases where it is determined that no abuse is involved and the equities of the situation strongly support an exception to the ban. See examples of hardship circumstances in Appendix B. 6. Excessive trading for personal accounts is strongly discouraged Access Persons are strongly discouraged from engaging in excessive trading for their personal accounts. Although this Code does not define excessive trading, Access Persons should be aware that if their trades exceed 30 trades per month the trading activity will be reviewed by Compliance Risk Management. 7. Closed-end Funds advised by Bank of America No Access Person shall acquire beneficial ownership of securities of any Closed-end Fund advised by CMG or other Bank of America company except with the prior written approval of Compliance Risk Management. E. Additional Trading Restrictions Applicable to Investment Persons o Fourteen Calendar Day Blackout Period No Investment Person shall purchase or sell any Covered Security (or its equivalent) within a period of seven calendar days before or after a purchase or sale of the same class of security by a Client Account with which the Investment Person or their team are regularly associated. The spirit of this Code (see page 5 above) also requires that no Investment Person may intentionally delay trades on behalf of a Client Account so that their own personal trades avoid falling within the fourteen day blackout period. NOTE: The fourteen calendar day restriction DOES NOT APPLY: o to securities of an issuer that has a market capitalization of $10 billion or more at the time of the transactions; however, an Investment Person must pre-clear these trades as with any other personal trade. Also, this exception does not relieve Investment Persons of the duty to refrain from inappropriate trading of securities held or being considered for purchase or sale in Client Accounts with which they are regularly associated. o when the personal trade matches one in a CMG Client Account which principally follows a passive index tracking investment strategy. F. Exempt Transactions The following types of transactions are not subject to the trading restrictions of Sections B, D and E of Part II of this Code of Ethics. However, except as noted below, all such transactions must be reported pursuant to the Reporting provisions of Part III of this Code. 1. Transactions in securities issued or guaranteed by the US Government or its agencies or instrumentalities; bankers' acceptances; US bank certificates of deposit; commercial paper; and purchases, redemptions and/or exchanges of Excluded Fund shares. (Transactions in all such securities are also exempt from the reporting requirements of Part III of the Code). - -------------------------------------------------------------------------------- 10 2. Transactions effected pursuant to an Automated Investment Plan not involving a BAC Retirement Plan. Note this does not include transactions that override or otherwise depart from the pre-determined schedule or allocation features of the investment plan. 3. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. 4. Transactions which are non-volitional on the part of either the Access Person or the CMG Company (e.g., stock splits, automatic conversions). 5. Transactions effected in any account in which the Access Person may have a beneficial interest, but no direct or indirect influence or control of investment or trading activity (such as a blind trust or third-party advised discretionary account). (Accounts managed by another Access Person would not meet this test.) Such accounts are also exempt from reporting requirements in Part III of this Code.) Transactions in Covered Securities in any such account are also exempt from the reporting requirements of Part III of the Code. 6. Securities issued by Bank of America and affiliates (Please note that these securities are subject to the requirements of Part II D. 5 (short-term trading) of this Code, and the standards of conduct and liability discussed in the Bank of America Corporation `s General Policy on Insider Trading). 7. Such other transactions as the Code of Ethics Committee shall approve in their sole discretion, provided that Compliance Risk Management shall find that such transactions are consistent with the Statement of General Principles and applicable laws. The Code of Ethics Committee shall maintain a record of the approval and will communicate to the Access Person's manager(s). G. Restriction on Service as Officer or Director by Access Persons Access Persons are prohibited from serving as an officer or director of any publicly traded company, other than Bank of America Corporation, absent prior authorization from Compliance Risk Management based on a determination that the board service would not be inconsistent with the interests of any Client Account. H. Participation in Investment Clubs Access Persons (including with respect to assets that are beneficially owned by the Access Person) may participate in private investment clubs or other similar groups only upon advance written approval from Compliance Risk Management, subject to such terms and conditions as Compliance Risk Management may determine to impose. I. Additional Restrictions for Specific Sub-Groups Specific sub-groups in the organization may be subject to additional restrictions, as determined by Compliance Risk Management, because of their specific investment activities or their structure in the company. Compliance Risk Management shall keep separate applicable procedures and communicate accordingly to these groups. J. Penalties for Non-Compliance Upon discovering a violation of this Code, the Code of Ethics Committee, after consultation with the members of the Committee and Compliance Risk Management, may take any disciplinary action, as it deems appropriate, including, but not limited to, any or all of the following: - -------------------------------------------------------------------------------- 11 o Formal written warning (with copies to supervisor and personnel file); o Cash fines; o Disgorgement of trading profits; o Ban on personal trading; o Suspension of employment; o Termination of employment See the Sanctions Schedule in Appendix C for details (subject to revision). - -------------------------------------------------------------------------------- 12 Part III Administration and Reporting Requirements - ----------------------------------------- This Section Applies to All Employees A. New CMG Employees All new Employees will receive a copy of the CMG Code of Ethics as well as an Initial Certification Form. By completion of this Form, new Employees MUST certify to Compliance Risk Management that they have read and understand the Code and disclose their personal (and Family/Household Member) securities holdings. (The exact forms will be provided by Compliance Risk Management once a determination is made as to whether the Employee is an Access or Non-Access Person). B. Annual Code Coverage Acknowledgement and Compliance Certification All Employees will annually furnish online acknowledgement of coverage (including Family/Household Members ) under, and certification of compliance with, the CMG Code of Ethics. C. Reporting Requirements for All Non-Access Persons (Investments in Open-end Mutual Funds) 1. Initial Certification to the Code and Disclosure of All Investment Accounts and Personal Holdings of Open-end Mutual Funds By no later than 10 calendar days after you are notified that you are a Non-Access Person, you must acknowledge that you have read and understand this Code, that you understand that it applies to you and to your Family/Household Members and that you understand that you are a Non-Access Person under the Code. You must also report to Compliance Risk Management the following: o Investment accounts in which you or any Family/Household Member have direct or indirect beneficial interest of shares of any open-end mutual funds, including accounts with broker-dealers, banks, accounts held directly with the fund, variable annuities, etc. o Holdings of any open-end mutual fund shares in any of the above mentioned accounts, including funds that are not in the Columbia Funds or Nations Funds Families 2. Quarterly Investment Account and Open-end Mutual Fund Transaction Report By the 30th day after the end of the calendar quarter, ALL Non-Access Persons are required to provide Compliance Risk Management with a detailed quarterly report of ALL of their Open-end mutual fund transactions, including Open-end mutual funds that are not in the Columbia Funds or Nations Funds Families. These requirements cover all Open-end mutual fund shares held either directly with the fund or through another investment vehicle or account, including (but not limited to) accounts with broker-dealers, banks, variable annuities, etc. 3. Annual Open-end Mutual Fund Holdings Report By the 30th day after the end of the calendar year, ALL Non-Access Persons are required to provide Compliance Risk Management with a detailed annual report of ALL their Open-end mutual fund holdings, including open-end mutual funds that are not in the Columbia Funds or Nations Funds Families. These requirements cover all open-end mutual fund shares held by the Non-Access Person (or any Family/Household Member) either directly with the fund or through another investment vehicle or account, including (but not limited to) accounts with broker-dealers, banks, variable annuities, etc. - -------------------------------------------------------------------------------- 13 4. Duplicate Account Statements and Confirmations Each Non-Access Person shall cause every broker-dealer or investment services provider with whom he or she (or a Family/Household Member) maintains an account to provide duplicate periodic statements and trade confirmations to Compliance Risk Management for all accounts holding or transacting Open-End Mutual Funds by or for the benefit of the Non-Access Person (or Family/Household Member). All duplicate statements and confirmations should be sent to the following address: Bank of America Compliance Risk Management Personal Trading Department NC1-002-32-25 101 South Tryon Street, 32nd Floor Charlotte, NC 28255 D. Reporting Requirements for All Access Persons (including all Investment Persons) 1. Initial Certification to the Code and Disclosure of All Investment Accounts and Personal Holdings of Covered Securities and Open-end Mutual Fund Shares By no later than 10 calendar days after you are notified that you are an Access Person, you must acknowledge that you have read and understand this Code, that you understand that it applies to you and to your Family/Household Members and that you understand that you are an Access Person (and, if applicable, an Investment Person) under the Code. You must also report to Compliance Risk Management the following: o Investment accounts in which you or any Family/Household Member have direct or indirect ownership interest (including those of your family members or your household) which may hold either Covered Securities or shares of any Open-end Mutual Funds, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities, etc. o Holdings of any Covered Securities or Open-end mutual fund shares in any of the above mentioned accounts, including funds that are not in the Columbia Funds or Nations Funds Families 2. Quarterly Investment Account and Transaction Report By the 30th day following the end of the calendar quarter, ALL Access Persons are required to provide Compliance Risk Management with a report of their investment accounts and transactions in Covered Securities and Open-end Mutual Funds during the quarter, including Open-end Mutual Funds that are not in the Columbia Funds or Nations Funds Families. These requirements include all investment accounts and Covered Securities and Open-end Mutual Fund shares of which you (or a Family/Household Member) are a beneficial owner, held either directly or through another investment vehicle or account, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities, etc. 3. Annual Holdings Report By the 30th day after the end of the calendar year, ALL Access Persons are required to provide Compliance Risk Management with a detailed annual report of ALL of their holdings of any Covered Securities and Open-end Mutual Funds, including Open-end mutual funds that are not in the Columbia Funds or Nations Funds Families. These requirements include all investment accounts and Covered Securities and Open-end Mutual Fund shares of which you (or a Family/Household Member) are a beneficial owner, held either directly or through another investment vehicle or account, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities, etc. - -------------------------------------------------------------------------------- 14 4. Duplicate Account Statements and Confirmations Each Access Person shall cause every broker-dealer or investment services provider with whom he or she (or a Family/Household Member) maintains an account to provide duplicate periodic statements and trade confirmations to Compliance Risk Management for all accounts holding or transacting trades in Covered Securities or Open-end mutual funds by or for the benefit of the Access Person. All duplicate statements and confirmations should be sent to the following address: Bank of America Compliance Risk Management Personal Trading Department NC1-002-32-25 101 South Tryon Street, 32nd Floor Charlotte, NC 28255 E. Exceptions from the Above Reporting Requirements Sections C and D of the above reporting requirements do not apply to transactions in: o BAC Retirement Plans as defined at Section II.C of this Code (See also the related Note at Section II.C.) o Any non-proprietary 401(k) plan in which you have a beneficial interest (such as that with a previous employer or of a family member) UNLESS the holdings are investments in a fund from either the Columbia Funds or Nations Funds Families of Funds. If the non-proprietary 401(k) plan holdings are in a fund from either the Columbia Funds or Nations Funds Families, the Employee must provide a duplicate periodic statement of all holdings and trading activity in the account. o Investment accounts in which you have a beneficial interest, but no investment discretion, influence or control. (See Appendix A.) o 529 Plans F. Code Administration CMG Management has charged Compliance Risk Management with the responsibility of attending to the day-to-day administration of this Code. Compliance Risk Management will provide CMG Management with quarterly reports that will include all violations noted during the quarterly review process. The quarterly report will include associate name, job title, manager name, description of the violation, and a record of any sanction to be imposed. Material violations will be communicated to the board of directors or trustees of any investment company managed by CMG at least annually as required by Rule 17j-1 under the Investment Company Act of 1940 and more frequently as requested by the board. - -------------------------------------------------------------------------------- 15 Appendix A Beneficial Ownership For purposes of the Columbia Management Group Code of Ethics, the term "beneficial ownership" shall be interpreted in accordance with the definition of "beneficial owner" set forth in Rule 16a-l(a)(2) under the Securities Exchange Act of 1934, as amended, which states that the term "beneficial owner" means "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in "a security." The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." The pecuniary interest standard looks beyond the record owner of securities. As a result, the definition of beneficial ownership is very broad and encompasses many situations that might not ordinarily be thought to confer a "pecuniary interest" in or "beneficial ownership" of securities. Securities Deemed to be "Beneficially Owned" Securities owned "beneficially" would include not only securities held by you for your own benefit, but also securities held (regardless of whether or how they are registered) by others for your benefit in an account over which you have influence or control, such as securities held for you by custodians, brokers, relatives, executors, administrators, or trustees. The term also includes securities held for your account by pledgees, securities owned by a partnership in which you are a general partner, and securities owned by any corporation that you control. Set forth below are some examples of how beneficial ownership may arise in different contexts. o Family Holdings. Securities held by members of your immediate family sharing the same household with you ("Family/Household Member") are presumed to be beneficially owned by you. Your "immediate family" includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, significant other, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (but does not include aunts and uncles, or nieces and nephews). The definition also includes adoptive relationships. You may also be deemed to be the beneficial owner of securities held by an immediate family member not living in your household if the family member is economically dependent upon you. o Partnership and Corporate Holdings. A general partner of a general or limited partnership will generally be deemed to beneficially own securities held by the partnership, as long as the partner has direct or indirect influence or control over the management and affairs of the partnership. A limited partner will generally not be deemed to beneficially own securities held by a limited partnership, provided he or she does not own a controlling voting interest in the partnership. If a corporation is your "alter ego" or "personal holding company", the corporation's holdings of securities are attributable to you. o Trusts. Securities held by a trust of which you are a beneficiary and over which you have any direct or indirect influence or control would be deemed to be beneficially owned by you. An example would be where you as settlor have the power to revoke the trust without the consent of another person, or have or share investment control over the trust. o Estates. Ordinarily, the term "beneficial ownership" would not include securities held by executors or administrators in estates in which you are a legatee or beneficiary unless there is a specific bequest to you of such securities, or you are the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such bequest. - -------------------------------------------------------------------------------- 16 Securities Deemed Not to be "Beneficially Owned" For purposes of the CMG Code of Ethics, the term "beneficial ownership" excludes securities or securities accounts held by you for the benefit of someone else if you do not have a pecuniary interest in such securities or accounts. For example, securities held by a trust would not be considered beneficially owned by you if neither you nor an immediate family member is a beneficiary of the trust. Another example illustrating the absence of pecuniary interest, and therefore also of beneficial ownership, would be securities held by an immediate family member not living in the same household with you, and who is not economically dependent upon you. "Influence or Control" Transactions/Accounts over which neither you nor any other Access Person have "any direct or indirect influence or control" are not subject to the trading restrictions in Part II or reporting requirements in Part III of the Code. To have "influence or control", you must have an ability to prompt, induce or otherwise effect transactions in the account. Like beneficial ownership, the concept of influence or control encompasses a wide variety of factual situations. An example of where influence or control exists would be where you, as a beneficiary of a revocable trust, have significant ongoing business and social relationships with the trustee of the trust. Examples of where influence or control does not exist would be a true blind trust, or securities held by a limited partnership in which your only participation is as a non-controlling limited partner. The determining factor in each case will be whether you (or any other Access Person) have any direct or indirect influence or control over the securities account. - -------------------------------------------------------------------------------- 17 Appendix B Hardship Exceptions to the Short-Term Trading Ban Exceptions to the short-term trading ban on Covered Securities may be requested in advance to Compliance Risk Management, and will generally only be granted in the case of economic hardship, where it is determined that no abuse is involved and the equities of the situation strongly support an exception to the ban. Circumstances that could provide the basis for an exception from short-term trading restriction might include, for example, among others: o an involuntary transaction that is the result of unforeseen corporate activity; o the disclosure of a previously nonpublic, material corporate, economic or political event or activity that could cause a reasonable person in like circumstances to sell a security even if originally purchased as a long-term investment; or o the Access Person's economic circumstances materially change in such a manner that enforcement of the short-term trading ban would result in the Access Person being subjected to an avoidable, inequitable economic hardship. - -------------------------------------------------------------------------------- 18 Appendix C Code of Ethics Committee Sanctions Schedule for failure to comply with the Code The Code of Ethics Committee will meet quarterly or as needed to review employee Code of Ethics violations identified by Compliance Risk Management. The responsibility of the Committee will be to conduct informational hearings, assess mitigating factors, and uniformly impose sanctions consistent with the Code's Sanction Guidelines. The Committee consists of Senior Management from Bank of America Legal and the CMG business lines, Compliance Risk Management, and Human Resources. The Committee will be the final arbitrators to determine appropriate sanctions. The sanctions as specified in the schedule do not preclude the imposition of more severe penalties depending on the circumstances surrounding the offense.
- ----------------------------------------------- --------------------------------------------------------------------------------- Personal Trading Violation Sanctions Guidelines - ----------------------------------------------- --------------------------------------------------------------------------------- No Broker/Mutual Fund statements or confirms 1st offense: Written Warning on file or evidence that duplicate statements 2nd offense**: Written Reprimand and/or Monetary Penalty have been requested. 3rd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Trading without receiving 1st offense**: Written Warning pre-clearance(Covered Securities and Mutual 2nd offense: Written Reprimand and/or Monetary Penalty Funds)* 3rd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Trading after being denied approval* 1st offense**: Written Reprimand and/or Monetary Penalty 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Failure to file a required report (Initial, 1st offense: Written Warning Quarterly and Annual Reports) within the 2nd offense**: Written Reprimand and/or Monetary Penalty required time period 3rd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Purchasing an Initial Public Offering (IPO), 1st or more offenses**: Monetary Penalty, Freeze Trading accounts for 30-90 Hedge Fund or Private Placement without days and/or Suspension / Termination receiving pre-clearance* - ----------------------------------------------- --------------------------------------------------------------------------------- Trading which violates the same-day/open 1st offense**: Written Reprimand and/or Monetary Penalty order or recommendation restriction* 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Trading within the 14 calendar day blackout 1st offense**: Written Reprimand and/or Monetary Penalty period* 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Profiting from short-term trading* 1st offense**: Written Reprimand and/or Monetary Penalty 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- Trading Mutual Funds in violation of the 60 1st offense**: Written Reprimand and/or Monetary Penalty day restriction* 2nd or more offenses: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ----------------------------------------------- --------------------------------------------------------------------------------- * Includes disgorgement of profit as applicable ** Requires review by the Ethics Committee
The following schedule details the monetary penalties that may be applied for each offense. o Non-Access and Access Persons $100-$500 o Administrative Investment Persons $100-$500 o Investment Persons $500-$1,000 o Senior Investment Persons $1,000-$2,500 o Managing Directors $2,500-$5,000 - -------------------------------------------------------------------------------- 19 -----END PRIVACY-ENHANCED MESSAGE-----